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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-33, Mumbai [ in short ‘CIT(A)’]and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the assessee read as under:
1. The Learned CIT(A) erred in confirming the order of the Assessing officer denying the exemption u/s. 54 of the Act on the ground that the sum received from sale of immovable property was not utilized for the purchase of new property, without appreciating that the requirement of the law is that the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant.
2. The learned CIT(A] erred in denying the deduction u/s. 54 of Income Tax Act, 1961 on the ground that during the year some amount is introduced by the assesse in his proprietary business as Capital contribution out of the sale proceed without appreciating that the Assessee has proved the source of capital contribution in proprietary by filing the details of bank statements, agreements etc. Therefore, denying deduction u/s. 54 and making addition of Rs.50,11,700/- for amount contributed as capital in proprietary business is unjustified.
3. The Ld. CIT(A) erred in not following the decision of jurisdictional High Court in the case of CIT v. Dr. P S Pasricha dated 07.10.2009, wherein the Hon’ble High Court upheld the views of ITAT that there is no requirement in law that the same funds must be utilized for the purchase of another residential house. The requirement of the law is that the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant. Therefore, the order of CIT(A) is bad in law.
3. Briefly stated, the facts of the case are that the assessee had purchased a flat at Enterprise Apartment vide agreement dated 24.07.1980 for a consideration of Rs.1,21,000/- which was sold to Mr. Amit D. Parikh and Ms. Payal Amit Parikh for a consideration of Rs.80,00,000/- vide sale agreement dated 03.07.2009. Similar transaction was also carried out by the assessee’s mother for adjacent flat at Enterprise Apartment. During the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee had bought a new flat at Ansal Heights for Rs.1,75,43,000/- in joint names of the assessee, his wife and mother. As per the home loan sanction agreement issued by Citi Bank under Citi Home Loan dated 20.04.2009, the loan sanctioned by the bank was Rs.1,73,55,000/- to the joint borrowers viz the assessee, his wife and mother. Before the AO, the assessee filed a letter dated 05.11.2012 stating that he sold a flat for Rs.80,00,000/- and bought another new flat for Rs.1,75,43,000/-. The assessee had introduced capital of Rs.54,49,615/- in his proprietorship concern M/s Arvind Trading Corporation. The AO asked the assessee to explain the source of introduction of the above capital in his business. In reply to it, the assessee vide letter dated 30.11.2012 stated that capital of Rs.38,00,000/- introduced by the assessee in his business was out of the above transaction of property. Also it was explained that the assessee had taken over the previous housing loan of Rs.23,92,436/- and top up thereon of Rs.13,25,207/-. The housing loan and top up were shown in the books of Arvind Trading Corporation. The AO rejected the explanation of the assessee as there was no personal capital account. Thereafter, he computed the capital gains of the assessee as under: Sale consideration of flat No. 44 Rs. 80,00,000/- Less: Indexed cost i.e. 121000 x 632/100 Rs. (7,64,720) Long Term Capital Gain Rs.72,35,200 Home Loan taken from Citi Bank Rs.1,40,00,000 x 50% Rs. 70,00,000 Cost of new property at Ansal Height 1,84,47,000 x 50% Rs. 92,23,500 Capital gain unutilized in the new property being own fund Rs. (22,23,500) Balance capital gain available with the assessee unutilized Rs.50,11,700/- Since the assessee had not proved the source of introduction of capital to the extent of Rs.59,49,615/- during the year, the AO treated the balance amount of capital gain of Rs.50,11,700/- as taxable on transfer of immovable property, which was not at all utilized in the acquisition of a new asset in Ansal Height.
4. Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) observed that as per the provisions of the Act, in order to avail the benefit of section 54(1), the assessee is required to invest the sale proceeds on transfer of long term capital asset in purchase of another residential house. But in the instant case, a major portion for the said sale proceeds from earlier capital asset was utilized as capital introduction in the business of the assessee. The new residential house was purchased out of the home loan taken from Citi Bank. The Ld. CIT(A) also remarked that the identity of the capital receipt should not be changed and a particular receipt credited to the head of capital gain/sale proceeds of the immovable property should remain there, till another residential house is purchased. But in the instant case, the identity of head of income has diminished once the sale proceeds is invested as capital introduction in the business of the assessee. The Ld. CIT(A) held that as far as the provisions of section 54 is concerned, sub-section 54(1) is subject to the provisions of sub- section (2). Similarly, the changes brought in section 54F by the Finance Act, 1979 w.e.f. 01.04.1979 also read as “whole or any part of the net consideration” clearly indicates that it should be the whole or part of the consideration received out of the sale proceeds. Relying on the order of the ITAT, Mumbai Bench in Milan S. Ruparel v. ACIT (2009) 27 SOT 6, the Ld. CIT(A) confirmed the order of the AO in restricting the capital gain exemption u/s 54/54F to the extent of Rs.22,23,500/- and brining to tax the balance unutilized amount of Rs.50,11,700/- as capital gains.
Before us, the Ld. counsel of the assessee relies on the decision in ACIT v. Dr. P.S. Pasricha (2008) 20 SOT 468 (Mum), judgment of the Hon’ble Bombay High Court in CIT v. Dr. P.S. Pasricha (ITA No. 1825 of 2009) dated 07.10.2009, Neelam Handa v. ITO (ITA No. 384/Del/2016) order dated 13.05.2016 by ITAT Delhi. It is submitted that section 54 speaks about investment to be made in new house and it does not restrict the source of money to be the same as that of sale of flat.
On the other hand, the Ld. DR supports on the order of the Ld. CIT(A). Reliance is placed by him on the decision in Milan S. Ruparel v. ACIT (2009) 27 SOT 6.
We have heard the rival submissions and perused the relevant materials on record. We find that an identical issue arose before the ITAT ‘D’ Bench, Mumbai in Dr. P.S. Pasricha (supra). In that case, the assessee during the relevant previous year sold a property for Rs.1.40 crores. Then the assessee within the period specified u/s 54(1) purchased two adjoining residential flats in one building for a total consideration of Rs.104.78 lakhs and gave them on rent to two different tenants. The assessee claimed deduction of Rs.104.78 lakhs u/s 54(1).
The AO denied the deduction u/s 54 on the ground that the sale proceeds from the original flat were not deployed fully in new flats. At para 9 the Tribunal held : “The revenue’s main dispute is that the sale proceeds were utilized for purchase of a commercial property and residential house was purchased out of the funds obtained from different sources, as such, the identity of heads has been changed. We do not find much force in this argument as the requirement of section 54 is that the assessee should acquire a residential house within the period of one year before or two years after the date on which transfer took place. Nowhere, it has been mentioned that the same funds must be utilized for the purchase of another residential house. The requirement of law is that, the assessee should purchase a residential house within the specified period and source of funds is quite irrelevant.” In appeal by the revenue, the Hon’ble Bombay High Court vide order dated 07.10.2009 held: “2. Having seen the finding of fact recorded by the Tribunal in paragraph No. 9 that the assessee had initially utilized the sale proceeds of sale of his residential flat for purchase of commercial properties and later on he purchased two residential flats within a period specified in sub section (2) of section 54 of the Act. In view of the matter, the view taken by the Tribunal cannot be faulted. The appeal is without any substance. Hence the same stands dismissed in limine with no order as to costs.”