SUDESHKUMAR G. NAGDEV, MUMBAI V. ITO, WARD18(2)(4), MUMBAI

ITA 3199/MUM/2011

• Counselvise Citation: 319919914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 22-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS VINITA MENON
• Assessee Lawyers: VASANT I PATEL
• Keywords: Capital asset
• Section: 54

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI E BENCH . . , , , BEFORE S/SH. AD JAIN ,JUDICIAL MEMBER & RAJEND RA,ACCOUNTANT MEMBER /. ITA NO. 3199 /MUM/201 1 , / ASSESSMENT YEAR - 200 7 - 0 8 SHRI SUDESHKUMAR G. NAGDEV SHOP NO.5 & 6, BELOW TILAK BRIDGE, S.B. MARG DADAR (W), MUMBAI - 400 028. PAN: AACPN 2693 Q VS INCOME TAX OFFICER - 18(2)(4) PIR AMAL CHAMBERS, LALBAUG MUMBAI - 400 012. ( / APPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : MS. VASANTI PATEL (AR) / REVENUE BY : MRS. VINITA MENON (DR) / DATE OF HEARING : 2 7 - 07 - 2015 / DATE OF PRONOUNCEMENT : 2 7 - 07 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 28 . 12 .20 1 0 OF THE CIT(A) - 29 , MUMBAI ,A SSESS EE HAS RAISED FOLLOWING GROUNDS OF APPEAL: THE CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER (AO) IN NOT GRANTING EXEMPTION OF RS.25,00,000/ - UNDER SECTION 54 TO THE APPELLANT EVEN THOUGH ALL THE CONDITIONS LAID DOWN IN THE SAID SECTION WERE COMPLIED WITH BY THE APPELLANT. 2.THE CIT(A) ERRE D IN HOLDING THAT EXEMPTION UNDER SECTION 54 CANNOT BE ALLOWED ON THE BASIS OF LETTER OF ALLOTMENT. 3. THE CIT(A) ERRED IN HOLDING THAT ALLOTMENT LETTER GIVING DETAILS OF RESIDENTIAL HOUSE PURCHASED AND PAYMENT OF RS.25,00,000/ - IS NOT ADEQUATE EVIDENCE TO PROVE PURCHASE OF A RESIDENTIAL HOUSE. 4. THE CIT(A) ERRED IN FAILING TO APPRECIATE THAT TO CLAIM EXEMPTION UNDER SECTION 54 IT IS NOT NECESSARY TO HAVE A DULY REGISTERED PURCHASE AGREEMENT FOR THE NEW RESIDENTIAL HOUSE. 5. THE CIT(A) ERRED IN FAI LING TO APPRECIATE THAT IT WOULD BE SUFFICIENT COMPLIANCE WITH THE REQUIREMENTS OF SECTION 54, IF THE APPELLANT IS ABLE TO LEAD SUFFICIENT EVIDENCE TO PROVE THAT HE HAS PURCHASED ANOTHER RESIDENTIAL HOUSE AND HIS INTENTION IS CLEARLY BROUGHT OUT FROM THE S AID EVIDENCE. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR MODIFY ANY OF THE ABOVE GROUNDS AT THE TIME OR BEFORE THE DATE OF HEARING. ASSESSEE - AN INDIVIDUAL ,ENGAGED IN THE BUSINESS OF TRADING IN READYMADE GARMENTS, FILED H IS RETURN OF INC OME ON, 31 . 1 0.20 0 7 , DECLARING INCOME OF RS. 4 . 84 LAKHS .THE ASSESSING OFFICER( AO ) COMPLETED THE ASSESSMENT U/S.143(3)OF THE ACT ON 29 . 1 2.20 09, DETERMINING HIS INCOME AT RS. 40, 31 ,9 8 0/ - . 2 .EFFECTIVE GROUND OF APPEAL IS ABOUT NOT GRANTING EXEMPTION OF RS.25 LAKHS TO THE ASSESSEE U/S. 54 OF THE ACT.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESSEE HAD CLAIMED 3199/M/11 SGN(07 - 08) 2 DEDUCTION U/.S.54 IN RESPECT OF INVESTMENT OF SALE PROCEEDS IN NEW FLAT AT BALEWADI ROAD, PUNE AMOUNTING TO RS.25,00,000/ - .IN SUPPORT OF THE SAID CLAIM,THE ASSESSEE FURNISHED A COPY OF ALLOTMENT LETTER DATED 15 - 10 - 2007 ISS UED BY M/S.ASTRIX PROPERTIES P. LTD. ( APPL ) .THE AO DIRECTED THE ASSESSEER TO FURNISH PURCHASE DEED/AGREEMENT IN SUPPORT OF HIS CLAIM. THE ASSESSEER EXPLAINED THAT ALLOTMENT L ETTER GIVING DETAILS ALLOTMENT OF FLAT, PAYMENT MADE OF RS.25,00,000/ - WAS A SUFFICIENT DOCUMENT FOR CLAIMING THE EXEMPTION U/S.54. THE AO HELD THAT THE ASSESSEE'S CONTENTION WAS NOT TENABLE ,THAT AS PER PROVISIONS OF SECTION 54, THE ASSESSEE SHOULD HAVE PURC HASED THE NEW FLAT WITHIN ONE YEAR BEFORE OR TWO YEAR AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE ,THAT T HE WORD PURCHASE HAD ITS VITAL IMPORTANC ,THAT T HE ACT OF PURCHASE WOULD BE COMPLETES ONLY WHEN THERE WAS AN AGREEMENT BETWEEN THE SELLER AND BUYER ,T HAT THE ALLOTMENT LETTER COULD ANY TIME BE WITHDRAWN OR CANCELLED WITH MUTUAL CONSENT WITHOUT ANY INTERVENTION OF THE GOVT. AUTHORITY ,THAT THE AMOUNT PAID ON THE BASIS OF THE ALLOTMENT LETTER COULD AT MOST BE TREATED AS AN ADVANCE GIVEN. FINALLY,HE HELD T HAT EXEMPTION U/S.54 ON THE BASIS OF ALLOTMENT LETTER WAS NOT ALLOWABLE. 3. AGGRIEVED BY THE ORDER OF THE OF THE AO THE ASSESSEE PREFERRED AND APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS STATED THAT HE HAD INVESTED IN A FLAT DEV ELOPED BY APPL,THAT AN AMOUNT OF RS.25,00,000/ - WAS INVESTED WITHIN THE TIME PRESCRIBED BY SECTION 54 OF THE ACT,THAT A LETTER OF ALLOTMENT,DATED 15.10.2007,WAS ISSUED BY THE SAME COMPANY.HE HAS RELIED UPON THE DECISIONS OF SATISH CHANDRA GUPTA(54 ITD508) , DR.RK.BHJATNAGAR(45ITD45) , CHIMANLAL THAKORDAS (39ITD159) , SHAHAJADA BEGAM 173 ITR 397 (A) , SMT. SAVITA RANI 5 ITD 621 (DEL) . AFTER CONSIDERING THE ASSESSMENT AND THE SUBMISSIONS OF THE ASSESSEE ,THE FAA HELD THAT THE ASSESSEE HAD ONLY RECEIVED A LETTER O F ALLOTMENT AND HAD PAID RS.25 LAKHS TOWARDS CONSIDERATION TO APPL,THAT THERE WAS N O AGREEMENT FOR PURCHASE OR PURCHASE DEED,THAT THE ALLOTMENT LETTER GIVING DETAILS OF FLAT AND PAYMENT WAS NOT ADEQUATE EVIDENCE TO PROVE THE PURCHASE OF FLAT,THAT THERE WA S NO BINDING CONTRACT BETWEEN THE PARTIES,THAT THE SECOND CONDITION OF PURCHASING THE PROPERTY WITHIN THE STIPULATED PERIOD OF TWO YEARS WAS NOT PROVED,THAT IN THE ABSENCE OF A AGREEMENT FOR PURCHASE OR ANY OTHER EVIDENCE SHOWING THE ACQUISITION OF THE IMM OVABLE PROPERTY THE CONDITION OF SECTION 54 WOULD NOT BE SATISFIED,THAT THE AMOUNT PAID ON ALLOTMENT COULD BE REGARDED AS AN ADVANCE GIVEN.FINALLY,HE UPHELD THE ORDER OF THE AO. 4. BEFORE US,THE AUTHORISED REPRESENTATIVE STATED THAT THE ALLOTMENT LETTER WA S ISSUE BY APPL ON 15.10.2007,THAT THE AGREEMENT OF PURCHASING THE FLAT WAS SIGNED ON 29.03.2010,THAT ALLOTMENT LETTER WAS ENOUGH TO CLAIM DEDUCTION U/S.54 OF THE ACT. THE AR RELIED UPON THE CASES OF SAMBANDAN UDAYKUMAR(19TAXMANN.17)OF THE HONBLE KARNATAKA HIGH COURT AND HILLA J B WADIA (69 TAXMAN114)OF HONBLE MUMBAI HIGH COURT.DEPARTMENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE FAA. 5 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD SOLD A FLAT A ND THE SALE PROCEEDS WERE INVESTED IN ANOTHER FLAT,THAT THE FLAT WAS JOINTLY PURCHASED IN 1988,THAT IT WAS SOLD ON 03.04.2006,THAT THE ASSESSEE WAS ALLOTTED A FLAT BY APPL VIDE LETTER DATED 15. 10.2007,THAT THE PURCHASE DEED WAS SIGNED IN MARCH 2010,THAT T HE AO AND FAA HELD THAT THE ALLOTMENT LETTER ISSUED BY APPL WAS NOT SUFFICIENT TO CLAIM DEDUCTION U/S.54 OF THE ACT.IT IS SAID THAT W HEN CAPITAL GAINS ARISE TO AN ASSESSEE FROM THE TRANSFER OF A LONG - 3199/M/11 SGN(07 - 08) 3 TERM CAPITAL ASSET AND THE ASSESSEE WITHIN THE PERIOD OF ONE YEAR BEFORE OR TWO YEARS AFTER THE DATE ON WHICH THE TRANSFER TOOK PLACE PURCHASE S OR WITHIN A PERIOD OF THREE YEARS AFTER THE DATE, CONSTRUCTE S A RESIDENTIAL HOUSE THEN INSTEAD OF THE CAPITAL GAINS BEING CHARGED TO TAX AS INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSFER TOOK PLACE,THEY WOULD BE DEALT WITH IN ACCORDANCE WITH SECTION 54 OF THE ACT,WHICH GRANTS EXEMPTION FROM PAYMENT OF TAX ON CAPITAL GAINS. IN THE CASE BEFORE US,THE ONLY ISSUE IS AS TO WHETHER THE PAYMENT MADE TO APPL AND ALLOTMENT LETT ER ISSUED IN FAVOUR OF THE ASSESSEE WERE SUFFICIENT TO CLAIM DEDUCTION U/S.54 OF THE ACT.WE FIND THAT THE HONBLE BOMBAY HIGH COURT HAS IN THE CASE OF HILLA J B WADIA(SUPRA)DECIDED THE ISSUE CONCLUSIVELY IN FOLLOWING MANNER: IN THE PRESENT CASE, THE ASSES SEE HAD TRANSFERRED THE PROPERTY IN WHICH SHE HAD A HALF SHARE AND WHICH WAS BEING USED FOR THE PURPOSE OF HER RESIDENCE TO THE SOCIETY. THE QUESTION IS WHETHER SHE CAN BE SAID TO HAVE CONSTRUCTED A HOUSE PROPERTY FOR THE PURPOSE OF HER RESIDENCE WITHIN A PERIOD OF 2 YEARS FROM THAT DATE. THIS PROVISION WILL HAVE TO BE CONSTRUED IN THE CONTEXT OF THE MANNER IN WHICH SUCH RESIDENTIAL PROPERTIES ARE NOW BEING CONSTRUCTED IN A CITY LIKE BOMBAY WHERE, LOOKING TO THE COST OF THE LAND, CO - OPERATIVE HOUSING SOCIET IES ARE BEING FORMED FOR CONSTRUCTING A BUILDING IN WHICH FLATS ARE ALLOTTED TO MEMBERS. THIS MUST ALSO BE VIEWED AS A METHOD OF CONSTRUCTING RESIDENTIAL TENEMENTS. WHAT WE HAVE TO SEE IS WHETHER THE ASSESSEE HAS ACQUIRED A RIGHT TO A SPECIFIC FLAT IN SUCH A BUILDING WHICH IS BEING CONSTRUCTED BY THE SOCIETY AND WHETHER SHE HAS MADE A SUBSTANTIAL INVESTMENT WITHIN THE PRESCRIBED PERIOD WHICH WILL ENTITLE HER TO OBTAIN POSSESSION OF THE FLAT SO CONSTRUCTED AND IN WHICH SHE INTENDS TO RESIDE. THE MATERIAL TES T IN THIS CONNECTION IS DOMAIN OVER THE FLAT AND INVESTMENT IN IT. THE ASSESSEE SATISFIES BOTH THESE CONDITIONS. SHE HAD ACQUIRED SUCH A DOMAIN AND HAS INVESTED ALMOST THE ENTIRE REQUISITE AMOUNT IN IT WITHIN A PERIOD OF 2 YEAR? PRESCRIBED UNDER SECTION 54 . 9. IN THIS CONNECTION OUR ATTENTION WAS DRAWN TO A BOARD CIRCULAR NO. 471 DATED 15 - 10 - 1986 (SEE YEARLY TAX DIGEST & REFERENCES 1987, P. 3.52)WHICH DEALT WITH THE INVESTMENT IN FLATS UNDER THE SELF - FINANCING SCHEME OF THE DELHI DEVELOPMENT AUTHORITY. THE BOARD HAS STATED IN THE CIRCULAR THAT WHEN AN ALLOTMENT LETTER IS ISSUED TO AN ALLOTTEE UNDER THIS SCHEME ON PAYMENT OF THE FIRST INSTALMENT OF THE COST OF CONSTRUCTION, THE ALLOTMENT IS FINAL UNLESS IT IS CANCELLED. THE ALLOTTEE, THEREUPON, GETS TITLE TO THE PROPERTY ON THE ISSUANCE OF THE ALLOTMENT LETTER AND THE PAYMENT OF INSTALMENTS IS ONLY A FOLLOW - UP ACTION AND TAKING DELIVERY OF POSSESSION IS ONLY A FORMALITY. THE BOARD HAS DIRECTED THAT SUCH AN ALLOTMENT OF FLAT UNDER THIS SCHEME SHOULD BE TREATED AS COST OF CONSTRUCTION FOR THE PURPOSE OF CAPITAL GAINS. THE PRESENT CASE IS ON A MUCH STRONGER FOOTING BECAUSE THERE IS NOT MERELY AN ALLOTMENT OF THE FLAT BUT EVEN ALMOST THE ENTIRE COST OF CONSTRUCTION IS PAID BY THE ASSESSEE WITHIN A PERIOD OF 2 YEAR S. 10. OUR ATTENTION IN THIS CONNECTION WAS ALSO DRAWN TO A DECISION OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V. MRS. SHAHZADA BEGUM [1988] 173 ITR 397 . IN THE CASE BEFORE THE ANDHRA PRADESH HIGH CO URT, THE ASSESSEE HAD PAID A SUBSTANTIAL PURCHASE INSTALMENT AND SECURED POSSESSION OF THE PROPERTY WITHIN ONE YEAR OF THE SALE OF HER RESIDENTIAL PROPERTY, BUT THE SALE DEED IN RESPECT OF THE PROPERTY SO PURCHASED BY HER WAS EXECUTED AND REGISTERED AFTER THE EXPIRY OF ONE YEAR. THE ANDHRA PRADESH HIGH COURT SAID THAT THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF SECTION 54(1) BECAUSE THE HOUSE PROPERTY PURCHASED BY THE ASSESSEE HAD COME INTO FULL DOMAIN AND CONTROL OF THE ASSESSEE WITHIN A PERIOD OF ONE YEAR . RESPECFULLY,FOLLOWING THE ABOVE JUDGMENT AND THE PRINCIPLES ENUMERATED IN IT,WE REVERSE THE ORDER OF THE FAA.EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSES SEE STANDS ALLOWED . . ORDER PRONOUNCED IN THE OPEN COURT ON 2 7 TH ,JULY,2015. 2 7 , 2015 3199/M/11 SGN(07 - 08) 4 SD/ - SD/ - ( . . /A.D. JAIN) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE:2 7 .07.2015 . . . JV. SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.