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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI PAWAN SINGH
PER PAWAN SINGH, JM: 1. The present appeal is directed by the assessee against the order dated 29.07.2010 of the CIT(A)-30, Mumbai for Assessment Year(AY) 2006-07 on the followinggrounds of appeal:
1. The CIT(A)-30 erred in rejecting the appellant’s claim of exemption u/s 54F of the I.T.Actinspite of the fact that appellant had fulfilled all conditions laid down in the said section 54F of the Income Tax Act.
2. The CIT(A)-30 erred in arriving at the conclusion that the appellant had not fulfilled the conditions laid down in the said section 54F as regard the possession and the time period requirement for the purchase of the property. 3. The CIT(A)-30 erred in arriving at the conclusion that the appellant was not entitled to the exemption u/s 54F on the ground that the agreement for purchase of residential house was executed on 31.03.2007.The CIT(AA) failed to appreciate that the appellant was already in possession of the property and investment in the Residential Property was made within the prescribed period and merely because the agreement was registered later on would not disentitle the appellant to claim the benefit of the said section 54F. 4. The CIT(A)-30 ought to have directed the AO not to include an amount of Rs. 80,00,000/-in total income which in fact that not accrued to the appellant during the year under consideration.The CIT(A) failed to appreciate that the said amount was wrongly offered by the appellant and it is well settled law that income as to be assessed as per the provision of the Act and not as per returned income.
During the pendency of present appeal, the assessee died on 02.12.2010 and his LRs MsParna PradeepPatkar was brought on record, vide application dated 17.12.2010.In the application Ms. Parna Pradeep Patkar claimed herself to the sole legal heir of the assessee, however vide order dated 23.04.2012 and 14.06.2012, the DR was directed to verify the details of legal heir of assessee,but there is no report on record about the about the sole beneficiary/legal heir of assessee on record on the part of revenue.
The brief facts of the case are that the return of income for AY 2006-07 was filed on 31.10.2006 and the same was processed u/s 143(1) of I.T. Act, statutory notice was served upon the assessee. The assessee was having a property namely Shravan, plot no. 543, 13th Floor, Khar (W), Mumbai and this property was valued by assessee on 04.11.2003 at Rs. 1,14,80,000/-. The property was owned by the assessee and assessee converted it into stock-in-trade and offered the business income of that property on the following manner.
INCOME FROM BUSINESS Net Profit & Capital Gain as per attached to P&L A/c 1,33,59,777 Less: Amount of consideration deemed to have been realized as per valuation report. 1,14,00,000 1,19,59,777 Add: Estimated realization towards the retained 80,00,000 1,99,59,777 Shop admeasuring 400 sq.ft.
Another facts considered by the AO was about the taxability of the capital gain arising after converting the property in investment into stock-in-tradeand a capital gain of Rs. 1,14,00,000/- came for taxation against which assessee claimed deduction u/s 54F of the Act after showing the payment for application of different share of various co-owners. The assessee has shown to have made a payment of Rs. 1,10,00,000/- to his various family members who are living in the house since 1967-68. The exemption was claimed u/s 54F of I.T. Act.
However, the AO while considering the case of assessee has observed that assessee has purchased the property from six heir of SitaramPatkar (father of assessee). All the heir of SitaramPatkar having definite share in the house property and their share are very much clear and money had been given to all the persons independently, the agreement was signed by all heirs of SitaramPatkarand cannot be said that there is not a purchase of a house but a purchase of six house property. On this count, the requirement of purchase of house property has not been fulfilled by the assessee and the exemption claimed by assessee u/s 54F of the Act of Rs. 1,10,00,000/- was disallowed and initiated penalty u/s 271(1) (c) of the Act.
Against the order of AO, the assessee preferred an appeal before the CIT(A) and urge four grounds of appeal:
1. The CIT (A)-30 erred in rejecting the appellant's claim of exemption u/s. 54F of the 1. T. Act inspite of the fact that appellant had fulfilled all conditions laid down in the said Section 54F of the 1. T. Act.
2. The CIT(A)-30 erred in arriving at the conclusion that the appellant had not fulfilled the conditions Iaid down in the said Section 54 F as regard the possession and the time period requirement for the purchase of the property.
3. The CIT(A)-30 erred in arriving at the conclusion that the appellant was not entitled to the exemption u/s. 54F on the ground that the agreement for purchase of residential house was executed on 31.3.2007. The CIT (A) failed to appreciate that the appellant was already in possession of the property and investment in the Residential Property was made within the prescribed period and merely because the agreement was registered later on would not disentitle the appellant to claim the benefit of the said section 54F.
4. The CIT (A)-30 ought to have directed the AO not to include an amount of Rs. 80,00,000 /- in total income which infact had not accrued 10 the Appellant during the year under the consideration. The CIT (A) failed to appreciate that the said amount was wrongly offered by the Appellant and it is well settled law that income has to be assessed as per the provisions of the Act and not as per returned income.
The ld. CIT(A) after hearing the appeal sustained the order of AO and dismissed the appeal in the impugned order dated 23.01.2009 observing as under:
The AO further noted that the claim of deduction u/s.54F should be restricted to the amount received from the capital gains and not from the funds of the appellant was having his own property and he purchased property from Shri PandurangPatkar in 1970 and again from heirs of Shri SitaramPatkar. He was already having one house property and therefore he was not eligible for deduction u/s. 54F. The appellant has purchased house property from six heirs and payments have been made separately to all these six persons which implied purchase of six residential properties.
The CIT(A) further in para 3.5 of the impugned order observed as under: I have carefully gone through the assessment order, the submissions of the appellant and the facts of the case. The capital gain has arisen to the appellant due to legal fiction u/s.45(2). The appellant had already converted 'Shravan' plot from investment into stock in trade on 4.11.03 by a mere declaration. As held by me in preceding paras, the date of agreement i.e. 30.03.2007 is the relevant date for calculating the period of one year prior to the date or two years after the date of sale for investment in new property for claiming deduction u/s.54. Since the conditions laid down in section 54 are not satisfied by the appellant, he is not entitled for deduction u/s.54 of the Act. This ground of appeal is dismissed.
8. The assessee while raising ground no.5 has urged before CIT(A) that AO ought to have reduced the return income of assessee by Rs. 80,00,000/- where the assessee offered estimated realization of stock goods remained in stock-in-trade a shop measuring 400 sq.ft. was retained as stock-in-trade as the assessee had not sold it, and it was the duty of AO to correct the assessment of assessee as the amount offered for taxation was incorrect without any receipt of income which ought to have been reduced in the income of assessee.
9. However, ld. CIT(A) did not agreed with the contention of the assessee and observed that if by mistake and incorrect claim of incorrect income was shown, the assessee could have filed its revised return within time limit allowed to him. As the revised return was not filed, so the claim for reduce his income cannot be entertained and thus appeal was dismissed in the impugned order by sustaining the disallowance made by AO.
We have heard the ld. Representative of both the parties and perused the material available on record including the computation of income of assessee. We have also find on page 3 of paper book the details of developments made in the property since June 2003 which disclosed that there was nine tenants in the property out of them eight person has agreed to convert their tenancy right into ownership and one tenant was offered a reckoned flat on 1st floor and compensation of Rs. 1,00,000/- and thus the tenancy right in the property one converted into ownership except a shop admeasuring 400 sq. ft. on ground floor.
The sole question for our consideration is the assessee has purchased right of co-ownership in the property or purchase six house properties.
There is no dispute that the assessee purchased the share of six different persons (co-owners), although the assessee was in possession of property being one of the co-owner/joint owners of the property. There is no evidence on record which may suggest that the property was ever divided by meats and bounds, the finding of AO which was confirmed by the CIT(A) that assessee purchased six property is absolutely misconceived by merely signing an agreement by six co- owner in favour of another co-owner, the number of property cannot be increased by any stretch of imagination. One co-owner is the owner of the joint property along with other owners, unless the property is divided by meats or bounds. There is no site plan or survey of the property on record.
Since the order of AO, it was confirmed by CIT(A) is based on misconception of number of properties purchased by the assessee, hence, the order of AO which was confirmed by CIT(A) about disallowance of exemption u/s 54F of the Act is cancelled and the case is remanded to the file of AO to given fresh finding after considering the transaction of co-ownership of single unit (the property in question). The AO will also consider the facts of transaction with the tenants whose tenancy rights were converted into ownerships.
In the result, appeal filed by the assessee is allowed for statistical purposes.