MAYURA MOHTA,MUMBAI V. D.C.I.T., CIRCLE - 29, KOLKATA

ITA 1953/KOL/2024

AI Insights

The case revolves around the denial of exemption under Section 54 of the Income Tax Act by the Assessing Officer (AO) and upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. The assessee, Mayura Mohta, sold an old property and claimed exemption for the capital gains by investing in a new residential property. However, the AO denied the claim on the grounds that the new property was purchased more than one year prior to the sale of the old property. The CIT(A) upheld this decision. The Tribunal, referencing several judicial precedents, overturned the CIT(A)'s decision, allowing the exemption by considering the date of possession of the new property as the effective date of purchase.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473943 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT Vs. Smt. Beena K. Jain, Sunil Amritlal Shah Vs. ITO&Rita Sunil Shah, Shri Varun Seth Vs. ACIT, Sanjeev Lal vs CIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONALISHA PAL MUKHERJEE
• Assessee Lawyers: SUNIL SURANA
• Keywords: Capital asset; Capital Gains; Benefit of exemption
• Section: 54; 54F

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, KOLKATA BEFORE SHRI RAJESH KUMAR, AM AND SHRI PRADIP KUMAR CHOUBEY, JM ITA No.1953/KOL/2024 (Assessment Year: 2017-18) Mayura Mohta Sumer Trinity Towers 202, Tower-I, New Prabhadevi Road, Prabha Devi, Mumbai-400 025 Vs. DCIT, Circle-29 Aaykar Bhavan Dakshin, 2, Gariahat Road (south), Kolkata-700031, West Bengal (Appellant) (Respondent) PAN No. AEVPM3232R Assessee by : Shri Sunil Surana, AR Revenue by : Shri Monalisha Pal Mukherjee, DR Date of hearing: 16.12.2024 Date of pronouncement : 21.01.2025 O R D E R Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 12.08.2024 for the AY 2017-18. 02. The only issue raised by the assessee is against the order of ld. CIT (A) upholding the order of the ld. AO not allowing exemption u/s 54 of the Act, in respect of sale consideration received on sale of property which was invested in acquisition of new residential house property within the period allowed under the Act. 03. The facts in brief are that the assessee filed the return of income on 27.07.2017, declaring total income of ₹2,54,60,430/-. During the year under consideration, the assessee declared income under the head Page | 2 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 capital gain and other sources. The case of the assessee was selected for limited scrutiny under CASS for examination of deduction/ exemption for capital gain/ loss on sale of property. Accordingly, the statutory notices along with questionnaire were issued, served and duly responded by the assessee. The ld. AO on perusal of the details and documents filed by the assessee observed that assessee has transferred property during the year which was purchased in F.Y. 2005-06 for ₹1,65,68,750/- the index cost of which worked out to 3,73,85,897/-. However, in the ITR filed for the current assessment year, the index cost was taken at ₹37,50,41,756/-, which is more by ₹1,18,819/-and has to be reduced accordingly. The ld. AO further noted that the assessee has claimed deduction of ₹1,06,07,936/- u/s 54 of the Act in respect of property/ sale of house / transferred on 03.06.2016, whereas the agreement for purchase of new property was entered into on 12.03.2014. According to the ld. AO, the new house property was to be purchased within one year before or two year after or to be constructed within three years after the date on which the transfer took place. However, in the instant case, new property was acquired on 12.03.2014, which is more than 1 year from the date of sale of the old house and therefore, denied the claim u/s 54 of the Act. 04. In the appellate proceedings the ld. CIT (A) also dismissed the appeal by observing and holding as under:- “In these grounds the appellant has contested the disallowance of deduction of Rs. 1,06,07,936/- claimed u/s 54 of the Act. I have carefully perused the submissions of the appellant in this regard. The Assessing Officer has given finding that the appellant transferred the old capital asset / property on 03.06.2016 where as the agreement for purchase of new property was entered into on 12.03.2014. As per sec 54 of the Act, the assessee was required to purchase the new property within one year before or after two years, or construct within three years after the date on which the transfer took place. In Page | 3 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 the instant case, the new property was required to be purchased after 03.06.2015, Whereas the agreement for purchase of new asset was entered into 12.03.2014. The Assessing Officer relied on judgement of Hon'ble Supreme Court in Sanjeev Lal vs CIT. I find no infirmity in the decision of AO in disallowing the deduction claimed by the appellant u/s 54 of the Act as the appellant had purchase new property on 12.03.2014 which is way beyond the time period of one year from the date of sale of the old asset/ property i.e. 03.06.2016. Therefore, the disallowance of deduction u/s 54 amounting to Rs. 1,06,07,936/-made by AO is confirmed and these grounds are dismissed.” 05. After hearing the rival contentions and perusing the materials available on record, we find that assessee has sold his old property on 03.06.2016, whereas the agreement to purchase for the new property was rendered into on 12.03.2014, apparently more than one year from the date of transfer. In term of the provisions of Section 54 of the Act, in order to claim the benefit u/s 54F of the Act, the new property has to be purchased within one year before or two year after or constructed within the three years after the date of which the transfer took place. According to the ld. AO, the property was purchased more than one year prior to the date of transfer of the old property and therefore, the benefit of exemption u/s 54F of the Act to the tune of ₹1,06,07,936/- was not available. The same was affirmed by the ld. CIT (A) for the same reasons. However, we note that though the assessee has entered into an agreement to purchase of new property on 12.03.2014 no payments were made under that agreement. The assessee claimed the benefit u/s 54F of the Act only in respect of those payments which were made within one year from the date of transfer of old property. In our opinion, the assessee has rightly made the claim u/s 54F of the Act. The case of the assessee find support from the decision of Hon'ble High Court in the case of CIT Vs. Smt. Beena K. Jain(1996) 217 ITR 363 (BOM) on 23.11.1993 (Bombay), the relevant Para of the decision is extracted below:- Page | 4 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 “2. Under section 54F of the Income-tax Act, in the case of an assessee if any capital gain arises from the transfer of any long-term capital asset, not being a residential house, and the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The Department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in the long-term capital gains. According to the Department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, the petitioner is not entitled to the benefit under section 54F. In our view, the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is July 29, 1988, when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and come to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on July 29, 1988, and handing over of possession of the flat on the next day. 3. In the premises, the application is dismissed and the rule is discharged with costs.” 06. Similarly, in the case of Sunil Amritlal Shah Vs. ITO&Rita Sunil Shah Vs. ITO in ITA Nos.4069 & 4070/MUM/2023 for A.Y. 2011-12 the co-ordinate Bench has allowed the appeal of the assessee by following the decisions of Beena K Jain (supra) by observing and holding as under:- “20. According to section 54 deduction is allowable if assessee purchases the property. In this case by agreement dated 25/07/2009, assessee ‘acquired right to purchase’ a house which was under construction, on 2/2/2011, when house was handed over to the assessee, when it was inhabitable , assessee purchased house. 21. In principal commissioner of income tax &ors. Vs. Akshay sobti&ors. (2020) 423 ITR 0321 (Delhi)honourable Delhi high court held that the provision in question is a beneficial provision for assessees, who replace the original long- term capital asset with a new one. It was further held that booking of bare shell of a flat is a construction of house property and not purchase, therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the LT. Act.In this case also assessee has booked an under Page | 5 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 construction flat and same was handed over to the assessee on completion of construction. 22. Honourable Bombay high court in case of Beena K Jain [ 217 ITR 363 (Bombay) has held [ in question of section 54 F which is PariMateria identical except computation] that :- “2. Under section 54F in the case of an assessee if any capital gain arises from the transfer of any long-term capital asset, not being a residential house and the assessee has, within a period of one year before or two years after the date of which the transfer took place purchased a residential house, the capital gain shall be dealt with as provided in that section. As per the section certain exemption has to be allowed in respect of the capital gains to be calculated as set out therein. The department contends that the assessee did not purchase the residential house either one year prior to or two years after the sale of the capital asset which resulted in long-term capital gains. According to the department, the agreement for purchase of the new flat was entered into more than one year prior to the sale. Hence, the petitioner is not entitled to the benefit under section 54F. In our view the Tribunal has rightly negatived this contention and has held that the new residential house had been purchased by the assessee within two years after the sale of the capital asset which resulted in long-term capital gains. The Tribunal has held that the relevant date in this connection is 29-7-1988 when the petitioner paid the full consideration amount on the flat becoming ready for occupation and obtained possession of the flat. This has been taken by the Tribunal as the date of purchase. The Tribunal has looked at the substance of the transaction and came to the conclusion that purchase was substantially effected when the agreement of purchase was carried out or completed by payment of full consideration on 29-7-1988 and handing over of possession of the flat on the next day.” 23. Further Coordinate bench in Bastimal K jain V ITO [2016] 76 taxmann.com 368 (Mumbai) has also held that he assessee's claim of deduction under section 54 was to be reckoned from the date of handing over of the possession of the flat by the builder to the assessee i.e. 11-9-2009, and if one took that date, the assessee was entitled to deduction under section 54 because the assessee had sold his residential flat on 24-2-2010. 24. All other decisions relied on by the assessee also held that date of possession of new property should be considered as the date of acquisition of the property. 25. In the assessee’s own case while computing capital gain ld. AO has taken date of allotment as the date of acquisition of the property. 26. Hence, we hold that assessee is entitled to deduction u/s 54 of the act on purchase of new property considering the date of possession , when it is completed, as the date of purchase of property as agreement to purchase the Page | 6 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 property was for under construction property. By entering into an Agreement to purchase assessee has acquired right to purchase the property and did not purchased the property as same was under construction. Section requires “Purchase” of property.” 07. Similarly, in the case of Shri Varun Seth Vs. ACIT in ITA No. 1388/Del/2019 for A.Y. 2015-16, the co-ordinate Bench after following the decision of Hon'ble Apex Court in the case of Sanjeev Lal s. CIT [2014] 365 ITR 389 (SC) held that the amount utilized for by the assessee in execution of land should be constitute as amount invested in the purchase/ construction of residential house. The relevant paras of the decision are as under:- “9. The real issue in the present case is that new residential house has not been constructed within a period of three years from the date of the transfer of the residential property which resulted in the long-term capital gain. On this issue, the assessee's contention has been that inspite of having made payment for the plot, the Jaypee (Developer) failed to offer possession and execute sale deed even up till the expiry of three years from the date of sale of property by him, because of reasons beyond his control which cannot be disputed. This vital fact assumes great significance as assessee had taken all the steps to make the investment for the purchase of house, and also assessee had deposited Rs. 25,10,000/ in the capital gain account with PNB so as to construct the house. This unequivocally demonstrate that assessee really intended to construct the new residential house thereon. It was based on this bonafide intention assessee had claimed exemption under section 54 of the Act. Without the purchase of land, house could not have been constructed. The first step was to purchase the land, which was done. Thereafter the developer was to handover the plot, so that assessee could have constructed the house within time allowed of 2 years. However, no step could be put forward thereafter because possession of land was not given by the Developer, for reasons beyond the control of the assessee. If an assessee sells his house property and utilises the money for acquiring a plot for the construction of the house and if facts and circumstances point out that assessee intended to construct the house, which has been found so, then it is clear that he wants to avail exemption as provided under the law. Now if the developerafter receiving the money could not fulfill the obligation within time, then can assessee be held responsible for not complying the law. 10. The Hon’ble Supreme Court in the case of Sanjeev Lal Vs. CIT [2014] 365 ITR 389 (SC) has laid down the purposive interpretation of section 54 to give a liberal approach to the assessee who clearly intended to claim benefit of section 54. Their Lordships held that section 54 is a beneficial provision and is to be construed keeping in view the intention of the Legislature to give relief in the Page | 7 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 matter of payment of tax on the long-term capital gain, relevant observation of their Lordships reads as under: - “22. In addition to the fact that the term \"transfer\" has been defined under section 2(47) of the Act, even if looked at the provisions of section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long-term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under section 54 of the Act, the Legislature does not want him to be burdened with tax on the long-term capital gain and, therefore, relief has been given to him in respect of paying income-tax onthe long-term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income-tax Act and it is also said that equity and tax are strangers to each other, still this court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. CIT [2001] 3 SCC 359 this court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which sub-serve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the afore stated observations and the principles with regard to the interpretation of statute pertaining to the tax laws, one can very well interpret the provisions of section 54 read with section 2(47) of the Act, i.e., the definition of \"transfer\", which would enable the appellants to get the benefit under section 54 of the Act.” [Emphasis in bold is ours] 11. If we apply the law as clarified by the Hon’ble Apex Court, on the facts of the instant case, then we are of the opinion that the amount utilized by the assessee in the acquisition of land should be construed as amount invested in purchase/ construction of residential house. The intention of the statute as provided in section 54 has been fully satisfied by the assessee in the present case. Thus, on the facts of the present case, we hold that the assessee is entitled for exemption under section 54 of the Act and AO is directed to allow the exemption us/ 54. 12. In result, the appeal filed by the assessee is allowed.” 08. Considering the facts of the assessee’s case and the ratio and finding in the above decisions, the appeal of the assessee is allowed by Page | 8 ITA No.1953/KOL/2024 Mayura Mohta; A.Y. 2017-18 setting aside the order of ld. CIT (A).Accordingly the AO is directed to allow deduction u/s 54 of the Act. 09. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 21.01.2025. Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated:21.01.2025 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Kolkata "