ITO 31(2)(5), MUMBAI vs. PRAVIN CHAND SEHGAL (HUF), MUMBAI

The present appeal has been preferred by the Revenue against the order dated 16.02.2016 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.

The grounds raised

The facts in brief are that the assessee filed return of income on 29.09.2010 declaring an income of Rs.18,85,178/- which was processed under section 143(1) of the Act. Thereafter, the case was reopened u/s 148 of the Act by issuing notice dated 18.03.2013. Thereafter the statutory notices were duly issued and served upon the assessee. The only issue under challenge before this Tribunal is with respect to denial of exemption under section 54 of the Act to the tune of Rs.2,47,48,087/-. During the assessment proceedings, the AO noticed that the assessee has sold property being residential flat at Mount Unique, Peddar Road, Mumbai for a consideration of Rs.3,75,00,000/- on 10.07.09 resulting into a long term capital gain of Rs.2,47,48,087/- after reducing the cost of acquisition which was claimed as exempt under section 54 of the Act in respect of investment in new flat at Orbit Terrace. Before the AO, the assessee submitted the details of payment and allotment letter dated 22.10.09 for claiming the exemption u/s 54 of the Act. Since there was no registration of sale deed executed in favour of the assessee as regards new flat purchased, the AO issued show cause notice dated 12.03.2014 as to why the claim of exemption should not be rejected as the assessee has failed to produce registered deed within the stipulated period which was replied by the assessee vide letter dated 20.03.14 by submitting that the long term capital gain arising out of sale of flat in Mount Unique building, Peddar Road, Mumbai has been invested in the purchase of 3 Pravin Chand Sehgal (HUF) flat in building called Orbit Terrace vide allotment letter dated 22.10.09. The assessee also submitted that the benefit of exemption under section 54 cannot be denied on the ground that there is no formal agreement/sale deed entered with the builder ignoring the fact that the entire amount of capital gain stands invested in the new flat and allotment letter has been issued in favour of the assessee. The assessee also submitted that in the allotment letter 22.10.09 given by the builder is not containing any clause that no right as to provisional/final allotment accrues until the buyer’s agreement is signed and and second, that no right to claim title/ownership results from the confirmation letter itself. In absence of such a bar in the allotment letter, the assessee acquired the right in the flat by virtue of the allotment letter and therefore eligible for exemption under section 54. However the AO rejected the contention of the assessee by rejecting the claim of exemption u/s 54 of the Act while framing the assessment.

In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee after considering the submission and the contention raised by the assessee in the appellate proceedings. The Ld. CIT(A) relied on the decision of Hon’ble Karnataka High Court in the case of CIT vs. Sambandam Udaykumar (2012) 345 ITR 389/206 Taxman 150/19 taxmann.com 17 and the decision of the Mumbai Benches in the case of Khemchand Fagwani vs. ITO (2014) in dated 10.09.14.

The Ld. A.R., on the other hand, relied on the decision of the Ld. CIT(A) and also took us to various decisions relied upon by the Ld. CIT(A) while deciding the issue. The Ld. A.R. also filed an application under rule 29 of the ITAT rules submitting the additional evidences in the form of newspaper cutting and copies of suit in the Bombay High Court requesting the same to take on record as the assessee was still not given the possession of the flat and thereafter the litigation ensued. It is undisputed fact that assessee has been given a letter of allotment and the assessee has invested the profits in the purchase of new flat though the possession was not given to the assessee. The case of the assessee is also supported by a series of decisions referred by the assessee. In the case of CIT vs. Sambandam Udaykumar (supra) it has been held that where the entire payment was made merely because a registered sale deed has not been executed and registered in favour of the assessee, the assessee cannot be denied the benefit of section 54F of the Act. Similarly, if the assessee has 5 Pravin Chand Sehgal (HUF) invested money in the construction of residential house, merely because the construction was not was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming benefit u/s 54 of the Act. The essence of the said provision is whether the assessee has invested the capital gain in a residential house and once it is demonstrated that the gain received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as required under the law, that would not disentitle the assessee from the benefit of exemption u/s 54 of the Act. Further, in the case of Khemchand Fagwani vs. ITO (supra) it has been held that there is no requirement in the Act that it necessarily has to produce the agreement more so when letter of allotment along with proof of payment/investment was duly produced before the concerned authorities. Similarly, in the case of Sanjeev Lal vs. CIT 365 ITR 389 Hon’ble Supreme Court has held that a sale deed may not be essential if the transfer can be deduced from the facts of the case. Similarly, in the case of CIT vs. Smt. Brinda Kumari (2001) 114 Taxmann 266 it has been held that when an allotment letter wherein it has been held that where the assessee acquired a substantial domain over a flat in a housing society under agreement with society coupled with payment of almost entire cost of construction within a period of 2 years from date when assessee conveyed original property to society, assessee could claim exemption

In view of the above discussion and the ratio laid down by the various courts and judicial forums, the appeal of the Department is dismissed.