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Income Tax Appellate Tribunal, BENCH “G”, MUMBAI
Before: SHRI B.R.BASKARAN & SHRI PAWAN SINGH
O R D E R
PER PAWAN SINGH, JM:
The present appeal filed by the Revenue against the order of CIT(A)-I, Thane dated 18.08.2014 for AY 2010 -11. The Revenue has raised following Grounds of appeal:
1. Whether on the facts and in the circumstances of the case the ld. CIT(A)-I, Thane is correct in holding that the Long Term Capital Gain and exemption claimed u/s 54 thereon is allowable exemption under the I.T. Act, 1961 ?
2. Whether on the facts and in the circumstances of the case the ld. CIT(A)-I, Thane is correct in deleting the addition on account of cessation of liability of unsecured loan ?
2. The brief facts of the case are that the assessee filed its return of income for relevant AY on 06.07.2010 showing total income of Rs. 15,70,601/-. The return of income as selected for scrutiny. While framing assessment order, the Assessing Officer (AO) disallowed exemption holding that assessee sold four flats bearing Nos. 1201A, 1201B, 1201C and 1201D in building known as “Evita” at Hiranandani Garden, Powai, Mumbai, on 23/06/2009 and purchased residential flats i.e. 2203A, 2203B & 2203C in “Richmond” Hiranandani Garden, Powai, Mumbai on 11/12/2009. After denying exemption u/s 54 of the Act, the AO assessed the income of assessee at Rs.3,71,60,094/-. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A) wherein the assessee was granted exemption u/s. 54 of the Act in the impugned order dated 18.08.2014. Aggrieved by which the Revenue has filed the present appeal before us.
We have heard Ld DR for revenue and Ld AR for assessee and perused the material available on record. Departmental Representative (DR) for Revenue argued that the assessee was not entitled for the exemption u/s 54 of the Act. The assessee during the year under consideration sold four residential flat which were four different units in “Evita” at Hiranandani Garden, Powai, Mumbai. There were four electricity meter and after sale of the flats assessee purchased three residential flat no. 2203A, 2203B & 2203C in “Richmond” at Hiranandani Garden, Powai, Mumbai and thus was not entitled for exemption u/s 54 of the Act, as the exemption was restricted on the sale flat no. 1201A at “Evita” and the investment in flat no. 2203A at “Richmond” and thus the assessee was liable to Capital Gain on the sale-proceed of remaining three flats. On the other hand, ld. AR for assessee argued that flat no. 1201 was a single residential house consisting four units on the same floor bearing no. 1201A, 1201B, 1201C and 1201D, though there was four different agreement for acquiring the said residential unit but it was one residential house. All four units comprise one flat having a kitchen, common passage and single entrance and even as per society record, it was one residential house on 12th floor of the building. The assessee purchased one residential unit i.e. flat no. 2203 and building known at “Richmond” at Hiranandani Garden, Powai, the said residential unit are divided into three residential unit of the same floor bearing no. 2203A, 2203B, 2203C and three different agreement for one residential house were executed. All three units comprise one flat having any kitchen, common passage and single entrance. Ld. AR further argued that even as per the society record it is nothing but one residential house owned by assessee on 22nd floor. There is only one electricity meter in the said residential unit. Ld. AR of assessee further relied upon the decision of special bench of Mumbai Tribunal in case of ITO vs. Ms. Sushila M. Jhaveri [2000] 107 ITD 327 (Mum)(SB) and further in K.G.Vyas vs. Seventh Income Tax Officer.
We have considered the rival contentions of the parties and perused the material available on record. Section 54 of the Income-tax Act deals with the provisions for profit on sale of property used for residence which may be read as under: “54. [Subject to the provision of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family] the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of [one year before or two years after the date on which the transfer took place purchased], or has within a period of three years after that date [constructed, a residential house], then], instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,— (i) if the amount of the capital gain [is greater than the cost of [the residential house] so purchased or constructed (hereafter in this section referred to as the new asset)], the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or (ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain. [(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub- section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Now we may examine the facts of the present appeal. The assessee purchased four flats on 09.08.2005 and was sold on 23.06.2009. Simultaneously, the assessee purchased three flats on 11.12.2009. As a result, sale of residential house consisting four flats and purchase of new residential house (consisting of three flats), the amount of Rs. 14,93,942/- was offered as LTCG and after claiming the exemption u/s 54 of the Act, however, the AO denied the exemption that four units sold through different agreements and all units were treated as separate unit contrary to the claim asserted by assessee. Further, the assessee has obtained the loan from purchased units (4) in the year 2005 and at the time of sale of these units the outstanding amount on account of repayment of loan, the loan was paid through four different cheques, thus the AO treated the amount of consideration as taxable LTCG. Before the First Appellate Authority (FAA), the assessee made the similar argument as advanced before us and after considering the case of assessee, the Ld. CIT(A) passed the following order: “14. I have carefully considered the appellant's submissions, the observations of the AO in the assessment order and the facts of the case. The appellant during the year under consideration had sold four units i.e. Flat No. 1201A, 1201B, 1201C & 1201D. These units had been sold through four different Sale-deeds and had been purchased from the builder through four different agreements. The appellant has submitted that though these units had been purchased and sold through four different agreements / Deeds but these being on the same floor and being contiguous, were used as one residential flat by the appellant having common kitchen, one common entrance and one electricity bill. The appellant has also purchased three different units No. 2201B, 2203C & 2203D in 'Richmond', Powai, Mumbai. In respect of these three units, it was submitted that these were also being used by the appellant as one residential flat being on the same floor and being contiguous having one common kitchen, a common passage and one electricity meter. The AO, however, treated both the sold units as well as the purchased units as different independent units. The detailed reasons of the AO for doing so, have already been reproduced above. The AO therefore, restricted exemption u/s. 54 of the LT. Act to sale and purchase of only one unit. In this regard, it is seen that the appellant had placed on record of the AO and has again filed a copy of typical floor plan of the units purchased and sold, which shows that the units purchased as well as sold were on the same floor and were contiguous. From the copy of electricity bill placed at page no.146 of the paper book, it is seen that the electricity bill was in the name of the developer namely Lake View Developers, in the address of one combined unit 1201 Evita Building, Hiranandani Garden, Powai and not in the address of four different units i.e. 1201A,1201B, 1201C and 1201D. Similarly, from a copy of the electricity bill placed at page no. 149 of the paper book, it is seen that the electricity bill is in the name of the appellant in the address 2203, Richmond Tower, Cliff Avenue, Hiranandani Gardens, Powai and not separately in the address of three different units of 2203A, 2203B & 2203C. Thus both the units purchased and sold were on the same floor and were contiguous having one common electricity meter, one kitchen and one entrance as confirmed by the builder. Therefore, though there were different agreements/deeds of purchase and sale in respect of these units but they were being used by the appellant as one residential flat having one common electricity meter. Moreover, the Inspector of the Circle had also visited the spot and he did not bring on record any evidence to show that these units were not being used as one residential flat.The only evidence brought on record by the Inspector by his visit is a copy of month-wise maintenance bills in respect of unit No. 1201A, 1201B, 1201C & 1201D, which was being charged by the building society separately. As there were different agreements/deeds for purchasing these units, the monthly maintenance bills were also in the separate name of the units. However, these maintenance bills alone do not in any way establish that the four units were not used by the appellant as one residential flat.
With regard to AO's observation that the repayment of loan to Citibank had been made through four different cheques, as mentioned in four different sale-deeds of the units, it is seen that the loan account is bearing a common Account No. i.e. 216931. The appellant has placed on record a copy of loan sanction letter at page no. 150 of the paper book, according to which one common loan of Rs.1,94,50,000/- was sanctioned to the appellant in respect of the property bearing Flat No. 1201, 12th floor, 'Evita', Hiranandani Garden, Powai, Mumbai. The AO has made an observation in the assessment order that the flats were sold to different persons and therefore, could not have been used as one residential flat. In this regard, from the copies of Sale-deeds placed on record, it is seen that Unit No. 1201A & 1201B have been sold to Mr. Rajaish Bajpaee and units No. 1201C & 1201D have been sold to Mrs. Vandana Bajpaee. Thus, the units have not been sold not to two different persons but to husband and wife. The price of the property sold being very high, there is nothing wrong with the registration of the property being done in the name of husband and wife partly rather than the whole of the property being sold to only one person”.
The Co-ordinate Bench of Mumbai Tribunal in case of ITO vs. Sushila M. Jhaveri (supra) held as under:
“9. Having held that intention of the legislature was to allow exemption under ss. 54 and 54F in respect of investment in one single residential house, it is not necessary for us to deal with the other submissions of the learned senior counsel for the assessee since they lose their significance in view of the above finding.
However, we are in agreement with certain decisions of the Tribunal relied on by the learned counsel for the assessee wherein exemption was allowed in respect of investments in two adjacent or contiguous units converted into one residential house by having common passage/stair case, common kitchen, etc. intended to be used as single house for the residence of the family.”
Further, the Karnataka High Court in case of D. Ananda Basappa held as under: “Sec. 13 of the General Clauses Act declares that whenever the singular is used for a word, it is permissible to include the plural. The contention of the Revenue that the phrase "a residential house" would mean one residential house does not appear to the correct understanding. The expression "a" residential house should be understood in a sense that building should be of residential in nature and "a" should not be understood to indicate a singular number. When an HUF's residential house is sold, the capital gain should be invested for the purchase of only one residential house is an incorrect proposition. After all, the HUF property is held by the members as joint tenants. The members keeping in view the future needs in event of separation, purchase more than one residential building, it cannot be said that the benefit of exemption is to be denied under s. 54(1). On facts, it is shown by the assessee that the apartments are situated side by side. The builder has also stated that he has effected modification of the flats to make it as one unit by opening the door in between two apartments. The fact that at the time when the Inspector inspected the premises, the flats were occupied by two different tenants is not the ground to hold that the apartment is not a one residential unit. The fact that the assessee could have purchased both the flats in one single sale deed or could have narrated the purchase of two premises as one unit in the sale deed is not the ground to hold that the assessee had no intention to purchase the two flats as one unit. Thus, deduction in respect of both these flats is allowable in accordance with s. 54 r/w s. 54F.” Further, the Hon’ble jurisdictional High Court in case of CIT vs. Ramankumar Suri held that exemption can be claimed for different flats joined together treating one flat only and held as under: “We find no fault with the order of the Tribunal which has upheld the finding of fact of the Commissioner of Income Tax (Appeals) to the effect though the respondent- assessee had purchased flat Nos. 416A and 516A it was only purchase of one residential house. Further, the Tribunal held that two flats were joined together before the respondent assessee became the owner of the two flats. The Certificate from the society also established the fact that two flat Nos. 416A and 516A were joined together and were considered as one residential house. These concurrent findings of fact by the Commissioner of Income Tax (Appeals) and the Tribunal have not been shown to be perverse or arbitrary. Further, Section 54 of the Act exempts capital gain to the extent the consideration is paid for the purpose of a residential house: Consequently, where respondent-assessee has acquired one residential house consisting of two flats, it cannot be said the respondent assessee had purchased two residential houses.”
In view of the above factual and legal discussion narrated above, we may conclude that the assessee infact using one residential unit consisting of four flats and therefore, on sale of such residential unit, the LTCG from the sale of residential unit of flat no. 1201A in “Evita” building was eligible for exemption u/s 54 of the Act in purchasing the residential unit (3 flats) 2203A, 2203B, 2203C & 2203D in “Richmond”. Thus, we do not find any illegality or infirmity in the order passed by the CIT(A), hence, this Ground of appeal
raised by the Revenue is dismissed.
8. Next Ground for our consideration is deletion of addition on account of cessation of liability of unsecured loan. Ld AR of assessee argued that assessee availed unsecured loan of Rs. 7,88,000/- from his close relative Mrs Manuben Rathod who was real sister of his father and she has expired on 22.11.2009 leaving behind no legal heir, thus the liability of the assessee ceased. Ld DR for revenue supported the order of AO. We have seen that during the assessment proceeding, the AO observed that confirmation of unsecured loan, was unsigned, the assessee was asked to explain to give the explanation about the unsecured loan from Mrs. Manuben Rathod. The assessee contended that Mrs. Manuben Rathod was her father’s sister. She expired on 22.11.2009 leaving behind no legal heir and her income-tax records are not traceable, she has given a loan of Rs. 7,88,000/- on 14.12.2007. The same issue was raised during the assessment proceeding for AY-2008-09 and the same was accepted on the contention of assessee. The assessee further contended that she was unmarried and was stayed with assessee during last 2-3 years of her life and her intention was to give her savings to the assessee. As she has expired thus assessee is not required to be paid back and thus his liability has cessed. The contention of