INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI

ITA No.7111/Mum/2012 Assessment Year :2008-09
Dinanath Badrinath Chhabra (Appellant) vs Income Tax Officer (Respondent)
Date of Judgment : 07-12-2015

ORDER

PER B.R.BASKARAN,AM:
The appeal filed by the assessee is directed against the order dated 05-09-2012 passed by Ld CIT(A)-30, Mumbai and it relates to the assessment year 2008-09. The assessee is aggrieved by the decision of Ld CIT(A) in respect of the following issues:-
 (a) Reduction of indexed cost of acquisition of by Rs.37,117/-
 (b) Rejection of claim for deduction u/s 54F of the Act.
 (c) Interest charged u/s 234B and penalty initiated u/s 271(1)(c) of the Act.

The ground relating to interest charged u/s 234B is procedural in nature and the validity of initiation of penalty proceedings is too premature to contest. Hence, we reject the grounds relating to the said issues.

2. The facts relating to the issues are stated in brief. During the year under consideration, the assessee sold two residential flats and one shop located at Pune. The assessee also purchased two adjacent flats in a residential apartment on 22.2.2008 and 15.3.2008. The assessee claimed deduction u/s 54 and also u/s 54F of the new residential flats against the long term capital gains arising on sale of old residential flats and one shop. According to the Ld A.R, the assessee had sold the residential flat on 31.7.2007 and thereafter sold the shop on 01-02-2008. However, the AO disallowed the claim for deduction u/s 54F against the long term capital gain arising on sale of shop on the following reasons:-

(a) On the date of sale, the assessee owned two residential houses (the old houses which were sold by the assessee).
(b) The assessee has purchased two flats
thereby violating the conditions prescribed u/s 54F of the Act. The AO, however, allowed the deduction u/s 54 of the Act to the extent of capital gain declared on sale of two residential houses. In respect of the shop, the AO noticed that the assessee has paid the stamp duty and registration charges only on 23.2.2007, even though the shop had been purchased on 08.3.2002. Accordingly, the AO allowed the indexation benefit to the stamp duty and registration charges from FY 2006-07 onwards.

3. In the appellate proceedings, the assessee contended before the Ld CIT(A) that the adjacent flats purchased by him have been joined together and hence both the flats should be treated as one residential unit. The Ld CIT(A) called for a remand report from the AO. The assessing officer called for necessary information from the Society office, which confirmed that both the flats were occupied and used by the family members of the assessee as a single unit. Accordingly, the AO reported that the Ld CIT(A) may take a decision. However, the AO gave that report with a rider that the assessee has purchased the flats by way of separate agreements.

4. The Ld CIT(A) discussed the facts relating to the deduction claimed u/s 54F of the Act and held that the assessee has not satisfied both the conditions prescribed in proviso to sec.54F(1) of the Act. The conditions prescribed in the proviso are

(i) the assessee should not own more than one residential house, other than the new asset, on the date of transfer of original asset.
(ii) the assessee should not purchase any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset.

The Ld CIT(A) also confirmed the indexation benefit computed by the assessing officer in respect of stamp duty and registration charges paid on purchase of shop.

5. We notice that there appears to be a mistake in appreciation of facts on the part of the tax authorities. According to the Ld A.R, the assessee had sold the residential flat on 31.7.2007 and thereafter sold the shop on 01-02-2008, while the tax authorities have presumed the residential units have been sold after the sale of shop. Since the factual aspects relating to this contradictory stand require verification, we set aside this matter to the file of the assessing officer for carrying out proper examination of the facts

6. With regard to the view taken by the tax authorities that the assessee has violated the second condition prescribed u/s 54F of the Act by purchasing two residential units, the Ld A.R, by placing reliance on the decision rendered by the Hon’ble Bombay High Court in the case of CIT Vs. Devdas Naik (2014)(366 ITR 12), submitted that the adjacent flats have been joined together and used by the assessee as a single unit and hence there is no violation of the conditions as prescribed by the tax authorities. We have noticed that the assessing officer has already submitted a remand report by obtaining details from the society office, where in it was certified that both the flats are used by the assessee as a single residential unit. Since this fact has been accepted by the tax authorities, merely because, the two flats have been purchased by way of two separate agreements, in our view, will not make any difference. Accordingly, we are of the view that both the flats purchased by the assessee and joined and also used together as a single unit should be considered as a single residential house for the purpose of sec. 54F of the Act.

7. With regard to the indexation benefit computed on the stamp duty and registration charges paid in FY 2006-07, we do not find it necessary to interfere with the decision of the Ld CIT(A) on this issue, as the Ld A.R did not forcefully contend the same.

8. The Ld A.R raised one more contention with regard to the quantum of deduction allowable u/s 54F of the Act. The Ld A.R submitted that the assessing officer has already expressed the view in the assessment order that the deduction allowed u/s 54 of the Act shall be reduced from the cost of the new asset and accordingly the deduction u/s 54F shall be computed, if the assessee is held to be eligible for deduction under that section. The Ld A.R submitted that there is no express provision in the Act that the deduction u/s 54 shall be allowed before allowing deduction u/s 54F of the Act. Further, the provisions of sec. 54F talks about the cost of new asset and nowhere it prescribe that the deduction allowed u/s 54 shall be deducted from the cost of asset.

9. After hearing Ld D.R on this issue, we are of the view that there is merit in the contentions of the Ld A.R. There is nothing in the provisions of the Act that the cost of new asset shall be arrived at by deducting the deduction allowed u/s 54 of the Act for the purpose of computing deduction u/s 54F of the Act. There is also no provision in the Act which list out the priority of the deductions. Accordingly, we direct the AO to compute the deduction u/s 54F of the Act by taking the cost of new asset without deducting the deduction allowed u/s 54 of the Act, subject to the decision taken with regard to the verification of the dates of sale of residential house and shop.

10. With the above said observations, we set aside the matter relating to the deduction u/s 54F of the Act to the file of the assessing officer.

11. In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.

Order pronounced in the open court 7th ,Dec,2015.

SANDEEP GOSAIN     B.R.BASKARAN
Judicial Member           Accountant Member