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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Saktijit Dey & Shri G Manjunatha
Date of hearing 25-01-2018 Date of pronouncement -02-2018 O R D E R
Per G Manjunatha, AM :
This appeal filed by the revenue is directed against the order of the CIT(A)-33, Mumbai dated 29-09-2011 and it pertains to AY 2008-09.
The revenue has raised the following grounds of appeal:-
"On the facts & in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the long term capital gain of ?. 1.12 crores." "2.On the facts & in the circumstances of the case and in law, the Ld.CIT(A) erred considering the date of purchase of flats 1804 A, B, C of Glen Dale Properties on 10.07.2008 which should have been 04.08.2006 as per the agreement allotment." 3."On the facts & in the circumstances of the case and in law, the Ld.CIT(A) erred allowing exemption u/s.54 of the I.T.Act against the purchases of three flats 18.04A, B & C of Glen Date as per the agreement."
2 ITA 8538/Mum/2011 2. The brief facts of the case are that the assessee filed his return of income for the assessment year 2008-09 on 29-09-2008 declaring total income of Rs.32,48,456. The case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act alongwith questionnaire were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has sold two residential flats for a consideration of Rs.1.51 crores and computed long term capital gain at Nil, after claiming exemption u/s 54 in respect of purchase of 3 residential flats. Therefore, he called upon the assessee to furnish details of sale of property and computation of long term capital gain along with necessary evidences for claiming exemption u/s 54 of the Income-tax Act, 1961. In response to notice, the assessee, vide his submission dated 14-12-2010 submitted that he had sold 2 residential flats for a consideration of Rs.1.51 crores vide two different agreements dated 31-12-2007. The assessee further submitted that he had purchased 3 residential flats bearing No.1802/A, 1802/B and 1802/B for a consideration of Rs.1,24,90,730 vide agreement dated 10-07-2008.
The assessee further submitted that he had entered into a separate agreements with the builder for additional amenities to be provided in the said flats and total cost of purchase of 3 flats including additional
3 ITA 8538/Mum/2011 amenities was Rs.2,22,78,583. All the three flats are situated side by side and adjacent to each other and also converted into a single residential unit, therefore, he had claimed exemption u/s 54 in respect of 3 flats and his claim is in accordance with law. The AO, after considering relevant submissions of the assessee and also on analysis of provisions of section 54 observed that the assessee is not eligible for exemption u/s 54 in respect of 3 flats as the word “a” used in section 54 denotes a single residential unit. The AO further observed that the assessee has purchased 3 different flats having separate entrances, therefore, cannot be considered as single residential accommodation for the purpose of exemption u/s 54. The AO further referring to the date of sale of asset and date of allotment letter issued by the builder and date of agreement observed that the assessee has made investment in purchase of new residential flats from 04-08-2006 which is beyond the specified date for investments in residential house to be qualified for exemption u/s 54. The assessee has sold his two residential flats on 31- 12-2007 and as per the provisions of section 54, he should have invested in purchase of new residential house between 31-12-2006 to 31-12-2009. Since the assessee has made investment prior to 31-12- 2006, the investments made in purchase of residential house property will not qualify for exemption u/s 54 of the Income-tax Act, 1961.
Accordingly denied the exemption claimed u/s 54 and re-computed long
4 ITA 8538/Mum/2011 term capital gain of Rs.1,12,90,753. Aggrieved by the assessment order, assessee preferred appeal before the CIT(A). Before CIT(A), assessee has reiterated his submissions made before the AO. The assessee also relied upon certain judicial precedents including the decision of ITAT, Mumbai Bench in the case of ITO vs Sushila M Jhaveri in to argue that if assessee purchased more than one residential units and converted the residential units into a single habitable unit, then the residential units will qualify for exemption u/s 54 of the Income-tax Act, 1961. The assessee also relied upon the decision of Hon’ble Karnataka High Court in the case of CIT vs K.G.
Rugmini Amma 331 ITR 211 (Karn) and CIT vs Anand D Basappa 309 ITR 329 (Karn). The CIT(A), after considering submissions of the assessee and also by following certain judicial precedents observed that the assessee is eligible for exemption u/s 54 in respect of re-investment of sale consideration for purchase of 3 residential apartments as all the 3 units have been converted into a single habitable residential accommodation. The CIT(A) further observed that on consideration of date of sale of original asset and date of agreement for purchase of new residential unit, investments made by the assessee in purchase of new residential units is well within the time allowed under the Act. If the assessee made payment and entered into an agreement for purchase of property even though possession is delayed, the assessee would be 5 ITA 8538/Mum/2011 entitled for exemption. The relevant portion of the order of the CIT(A) is extracted below:-
4.5 He has also cited certain case laws i.e. Smt. Shashi Varma vs. CIT [1997J 224 ITR 106 (MP), CIT vs. R.L. Scod (2000) 227 (Delhi), Balraj vs. CIT (2002] 254 ITR 22 (Delhi), SaUsh Chandra Gupta vs. A.O. [1995J 54 1TD 508 and CIT vs. Hilla J.B. Wadia [1995] 216 ITR 376 [Bom]. The appellant has also argued that entire sale proceeds were paid for all these three units merged into one remdential house, the exemption 54 has to be allowed even .when possession is delayed by a month from the end of three years from the date of agreement of sale of old property. ? 4.6 I have considered the submissions made by the appellant. The fact that total sale proceeds received by the appellant are Rs. 1.51.00,000 whereas the payments of Rs. 2,22,78,583 /- have been made towards purchase of one habitable house by merging three units into one between the period starting from 13.03.2007 to 02.09.2008 which is well within the period for claim u/s 54 looking into the date of agreement for sale of old property on 31.12.2007, the appellant is entitled for rebate claimed. This payment is for the house , an amount of Rs. 1,06,25,000/-) together with part of the amount for the amenities to be given in unit no. 1802A, 1802B, 1802C Glen Dale properties which cost Rs.l,24,90,730/-.As the old property has been sold on 30.12.2007, the three year period ended on 31.12.2007 whereas the appellant has taken possession in the month of January. 2011, which is subsequent to occupation certificate dated 15.01.2011 received by the builder. In view of the various case laws cited by the appellant, the claim of the appellant is accepted. Ground no 1 is allowed.
The Ld.DR submitted that the Ld.CIT(A) erred in allowing the benefit of exemption claimed u/s 54 in respect of purchase of 3 flats even though the assessee is not eligible for such exemption. The Ld.DR further submitted that the law is very clear inasmuch as provisions of section 54 to be strictly interpreted so as to give a meaning to that word “a” to be construed as a single residential unit. The assessee has purchased more than one residential unit and this fact has not been disputed by the assessee. Therefore, he is not eligible for exemption u/s 6 ITA 8538/Mum/2011 54 of the Act. In this regard relied upon the decision of ITAT, Delhi Bench in the case of Pawan Arya ITA 2416/Del/2008 and also the decision of Hon’ble Punjab & Haryana High Court in the case of Pawan Arya vs CIT (2011) TIOL-01-HC-P&H. The Ld.DR also relied upon the circular No.471 dated 125-10-1986 issued by the CBDT to argue that for the purpose of determination of period of investment, the date of allotment should be considered but not the date of agreement.
On the other hand, the Ld.AR strongly supporting the order of the CIT(A) submitted that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Karnataka High Court in the case of Rugmini Amma (supra) and CIT vs Anand D Basappa 309 ITR 329 (supra) wherein the Hon’ble Karnataka High Court has given a categorical finding in respect of the word “ a” used in section 54 to mean a residential house. The Ld.AR further submitted that if more than one residential flats is purchased and converted into a single habitable unit, then the same would be considered as a single residential unit eligible for exemption u/s 54 of the Income-tax Act, 1961.
We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The facts with regard to the sale of a residential house and purchase of 3 new residential flats in a single residential complex is not disputed by both the parties. The assessee has also sold 2 residential flats and purchased 3
7 ITA 8538/Mum/2011 new residential apartments to be used for his own residential accommodation. The AO denied exemption u/s 54 on the ground that the assessee is not eligible for exemption because he had purchased more than one residential house in contravention of provisions of section 54 of the Income-tax Act, 1961. According to the AO, the assessee is eligible for only one residential house. If more than one residential house is purchased, then the benefit of exemption u/s 54 cannot be given. The AO further observed that the assessee is also disqualified for exemption u/s 54 as his investment in new residential house is beyond the stipulated time provided for making investment which is evident from the fact that the assessee has made investment from 4th August, 2006 as per the allotment letter dated 04th August, 2006 issued by the builder. According to the AO, the assessee has sold his residential property on 31-12-2007 and as per the provisions of section 54 he should have made investment in new house between 31-11-2006 to 31-12-2009 whereas his investment in new house is prior to 31-12-2006. Therefore, investment in new house is qualified for exemption u/s 54.
It is the contention of the assessee that he is eligible for exemption u/s 54 in view of the decision of Hon’ble Karnataka High Court in the case of CIT vs K.G. Rugmini Amma (supra) wherein the law has been clearly discussed with reference to provisions of section 54 in the light of the word “a” so as to mean that a residential house should be 8 ITA 8538/Mum/2011 understood in a sense that building should be of residential in nature and “a” should not be understood to indicate a singular number. The assessee further contended that the Hon’ble High Court further clarified that if assessee purchased more than one residential flats, which are adjacent to each other and merged into a single residential unit, then, the assessee is eligible for exemption u/s 54 in respect of all units. We find merit in the argument of the assessee for the reason that if assessee purchased more than one residential unit, in a single residential complex, which are adjacent to each other and all the units are merged into one habitable unit then, the assessee is eligible for exemption u/s 54 in respect of all the 3 units. This legal proposition is supported by the decision of Hon’ble Karnataka High Court in the case of CIT vs K.G.
Rugmini Amma (supra). In this case, on perusal of the facts available on record, we find that the assessee has purchased 3 residential apartments bearing No.1802/A, 1802/B and 1802/C which are adjacent to each other. The assessee also filed certain evidences to prove that all three apartments have been converted into a single residential unit.
Therefore, we are of the considered view that the AO was erred in denying the benefit of exemption u/s 54 in respect of reimbursement of sale consideration for purchase of 3 residential units. 7. Coming to the second objection of the AO, the AO observed that investments made by the assessee for purchase of 3 new residential
9 ITA 8538/Mum/2011 apartments is outside the scope of section 54 as the assessee has made investment in purchase of house property beyond the stipulated period provided u/s 54 which is evident from the fact that the assessee ought to have invested between31-12-2006 to 31-12-2009 whereas the assessee has made investment right from 04-08-2006. The AO further observed that the builder has issued allotment letter on 04-08-2006 allotting 3 flats specifying the terms and conditions of allotment, therefore, the date of investment should be considered from the date of allotment letter issued by the builder but not from the date of agreement to sell. We do not agree with the findings of the AO for the reason that for the purpose of determination of holding period or investment, one has to go by the date of agreement but not from the date of allotment letter issued by the builder. In this case, the assessee has not entered into agreement for purchase of property on 10-07-2008 and also made payment between March, 20067 to September, 2008. If one has to consider the date of agreement and payment made for purchase of flats, the investment made by the assessee in purchase of new residential house is well within the time limit prescribed u/s 54 and hence, the AO was erred in denying the benefit of exemption u/s 54 of the Act.
Coming to the case laws relied upon by the Ld.DR, the Ld.DR relied upon the decision of Hon’ble Punjab & Haryana High Court in the case of Pawan Arya vs CIT (supra) and submitted that the assessee purchased
10 ITA 8538/Mum/2011 more than one residential house, then he will not qualify for exemption u/s 54 of the Income-tax Act, 1961. We have gone through the case law relied upon by the Ld.DR in the light of the facts of the present case and find that the case law relied upon by the Ld.DR is not applicable to the facts of the present case. The Hon’ble Punjab & Haryana High Court that the case law relied upon by the Ld.DR is not applicable to the facts of the present case. The Hon’ble P&H High Court in the case has discussed the issue of exemption u/s 54 in the light of the judgement rendered by the Hon’ble Karnataka High Court in the case of CIT vs Anand Basappa (supra) and observed that if more than one house is purchased, which are adjacent to each other and merged into one residential unit, then the assessee is eligible for exemption u/s 54. The Hon’ble High Court further observed that the assessee has purchased two different houses which are located in different places. Therefore, not covered by the decision of Hon’ble Karnataka High Court in the case of CIT vs Anand Basappa, therefore, denied the benefit of exemption. In this case, the assessee has proved beyond doubt that all 3 flats are located on the same floor and adjacent to each other and also merged into a single residential unit.
In this view of the matter and considering the case laws discussed above, we are of the considered view that the AO was erred in denying the benefit of exemption u/s 54 in respect of purchase of 3 new
11 ITA 8538/Mum/2011 residential flats. The CIT(A), after considering relevant facts has rightly deleted addition made by the AO. We do not find any error or infirmity in the order of the CIT(A). Hence, we are inclined to uphold the findings of the CIT(A) and dismiss the appeal filed by the revenue. 10. In the result, appeal filed by the revenue is dismissed. Order pronounced in the open court on 21st February, 2018.