MRS NIRMALABEN POPATLALL SHAH,MUMBAI vs. INCOME TAX OFFICER, 19(2)(4), MUMBAI

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and for the year under consideration filed her return of income on 16/09/2021 declaring a total income of Rs. 8,08,550. During the year, the assessee derived income from short-term capital gains, long-term capital gains and income from other sources. The return filed by the assessee was selected for scrutiny through CASS and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, the assessee was asked to furnish the details regarding the deduction claimed under section 54 of the Act. After considering the submissions of the assessee, the Assessing Officer (“AO”) vide order dated 15/12/2020 passed under section 143(3) read with section 144B of the Act held that the assessee earned long-term capital gains of Rs. 3,29,26,831 on sale of property, however, has not invested the whole of amount of long-term capital gains towards purchase of new house before the due date of filing the Mrs. Nirmalaben Popatlal Shah; A.Y.2021-22 return of income. The AO held that the assessee has invested in the purchase of a new residential house amount of Rs. 3,15,93,280 up to 31/12/2021 (i.e. by the due date of filing the return of income being extended by the CBDT). However, did not furnish any reply/evidence to show that the unutilised portion of capital gains was deposited into the capital gain deposit account scheme by the due date of filing the return of income. Accordingly, the AO restricted the deduction allowable under section 54 of the Act only to an amount of Rs. 3,15,93,280 and made an addition of Rs. 13,33,551 to the total income of the assessee under the head “long-term capital gains”.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the addition made by the AO. Further, the learned CIT(A), held that the amount of Rs. 21 lakh paid by the assessee on account of stamp duty and registration charges at the time of registering the agreement does not form part of the cost of the new property. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee earned long- term capital gains of Rs. 3,29,26,831 on the sale of a residential flat on 16/02/2021. The assessee purchased a new residential house on 31/03/2021, i.e. within a period of 2 years from the date of sale of the original property, for a total consideration of Rs. 6,12,38,000. Since the investment in new residential property was more than the amount of capital gain earned, the assessee claimed a deduction under section 54 of the Act of the full amount 3 Mrs. Nirmalaben Popatlal Shah; A.Y.2021-22 of capital gain of Rs. 3,29,26,831 while filing her return of income. It is discernible from the record that there is no dispute regarding the fact that the assessee is entitled to claim deduction under section 54 of the Act. However, both the AO as well as the learned CIT(A) disagreed with the claim of the assessee that the entire amount of capital gain of Rs. 3,29,26,831 was invested in the sale of the residential house. The learned CIT(A) further disagreed with the assessee that the amount of Rs. 21 lakh shall form part of the cost of the new asset.

In support of its contention that the entire amount of long-term capital gains of Rs. 3,29,26,831 was invested in the purchase of the new residential property, the assessee has placed on record the copy of ledger account. Further, the assessee has also placed on record the copy of payment receipts issued by India Bulls Properties Private Ltd acknowledging the payment made by the assessee from 21/01/2021 till 18/11/2021. Further, the assessee has also placed on record the confirmation from India Bulls Properties Private Ltd acknowledging receipt of a total amount of Rs.3,18,93,280 till 18/11/2021. Further, from the Challan MTR Form No. 6 issued by the Office of Joint Sub- Registrar, Mumbai City-IV, Mumbai, we find that the assessee paid an amount of Rs. 21 lakh on 17/03/2021 for registration of the new residential property. As per the Act, the expenditure incurred wholly and exclusively in connection with the transfer of the property is considered part of the cost of acquisition for computing the capital gains. Therefore, we find no merits in the findings of the learned CIT(A) that the amount paid on stamp duty and registration Mrs. Nirmalaben Popatlal Shah; A.Y.2021-22 charges at the time of registering the agreement is not to be considered for the purpose of section 54 of the Act. Thus, from the facts and circumstances of the present case as noted above, it is evident that by the due date of filing the return of income, i.e. 31/12/2021 in the present case, the assessee invested the entire amount of long-term capital gains of Rs. 3,29,26,831 on the purchase of the new residential property, and therefore rightly claimed the deduction of the same under section 54 of the Act while filing her return of income. Accordingly, we direct the AO to allow the claim of the assessee under section 54 of the Act. As a result, the impugned order is set aside and grounds raised by the assessee are allowed.

In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 12/09/2024