Shri Khemchand Fagwani Vs ITO (ITAT Mumbai)
Summary: The assessee challenged the order dated 21/09/2010 of the first appellate authority concerning denial of exemption under section 54 of the Income-tax Act amounting to Rs.23,77,683/-. The assessee submitted that the sale proceeds had been invested in purchasing a residential flat at Thane and that the allotment letter and proof of payment had been furnished before the Assessing Officer and the first appellate authority.
The Revenue opposed the claim on the ground that the assessee had not produced an agreement relating to investment in the residential flat. The Tribunal noted, however, that an allotment letter dated 9/9/10 together with evidence of payment had been submitted before the authorities.
The Tribunal held that where the allotment letter and proof of payment were produced, it could not be said that the assessee had not invested in the purchase of the new property. It observed that section 54 concerns investment of capital gains arising from transfer of a long-term capital asset within the specified period and that the provision did not require the assessee to necessarily produce an agreement, particularly when the allotment letter and proof of payment or investment had been produced.
Relying on the judicial pronouncements cited in the order, the Tribunal held that what was material for attracting section 54 and section 54EC was investment of the sale consideration in acquiring the new property or in the specified bonds. The ground relating to denial of section 54 exemption was accordingly allowed.
As the section 54 claim had been decided in favour of the assessee, the Tribunal treated the levy of interest under section 234B as consequential. The appeal was ultimately allowed.
Section 54 Exemption on Investment in Residential Flat
The dispute concerned disallowance of exemption under section 54 amounting to Rs.23,77,683/-. According to the assessee, the sale proceeds had been invested in a residential flat at Thane.
The assessee’s counsel submitted that the allotment letter along with proof of payment had been furnished at both the assessment stage and before the first appellate authority. The Revenue contended that no agreement relating to the investment in the residential flat had been produced.
Allotment Letter and Proof of Payment
The Tribunal recorded that the Assessing Officer had denied the exemption on the ground that the assessee had not produced a purchase agreement for the Thane residential flat. However, it found that an allotment letter dated 9/9/10 and evidence of payment had been duly submitted before the authorities.
The Tribunal observed that once the allotment letter and proof of payment were produced, it could not be said that the assessee had not invested in purchasing the new property.
Requirement of Purchase Agreement
The Tribunal observed that section 54 speaks about investment of capital gains arising from transfer of a long-term capital asset within the specified time. It further noted that, under sub-section (2) of section 54, where the proceeds or capital gains are not invested or utilised for purchase of the new asset within the specified time, the amount is required to be deposited in the specified bank account and utilised in the notified scheme, with the prescribed proof accompanying the return.
The Tribunal found that there was no requirement in the Act that the assessee necessarily produce an agreement, particularly when the allotment letter together with proof of payment or investment had already been produced before the concerned authorities.
Judicial Precedents Considered
In reaching its conclusion, the Tribunal referred to the ratio laid down in Smt. Jyothi K. Mehta (2001) 201 Taxmann 79 (Kar.), Smt. Sashi Verma, 224 ITR 106(M.P.), CIT vs. Smt. Brinda Kumari (2001) (114 Taxmann 266 (Del.), CIT vs. Smt. Bharti C. Kothar,i 244 ITR 352 (Cal.), CIT vs. Dr. Laxmichand Narpal Nagda 211 ITR 804 (Bom.) and CIT vs. Shehzada Begum 173 ITR 379 (AP).
In particular, the Tribunal noted the decision in Shehzada Begum, where it was held that the date of taking over possession of the property purchased, rather than registration of the sale in favour of the assessee, was relevant for computing the prescribed time limit.
The Tribunal stated that, for attracting section 54 and section 54EC, what was material was investment of the sale consideration in acquiring the new property or investment of the amount in the bonds specified under section 54EC. Once the sale consideration was invested in one of these manners, the assessee would be entitled to the benefit conferred under the provision.
Interest under Section 234B
The assessee also challenged the levy of interest under section 234B. Since the Tribunal had decided the claim for exemption under section 54 in favour of the assessee, it held that the levy of interest under section 234B was consequential in nature.
Final Decision
Considering the facts, the statutory provisions and the judicial pronouncements referred to in the order, the Tribunal allowed the ground relating to exemption under section 54.
The appeal of the assessee was allowed.
Order pronounced in the open court in the presence of ld. Representative from both sides at the conclusion of the hearing on 10th Day of September, 2014.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The assessee is aggrieved by the impugned order dated 21/09/2010 of the ld. First Appellate authority. Ground nos.1 and 2 pertains to disallowance of exemption u/s. 54 of the Act amounting to Rs.23,77,683/- which as per the assessee was without appreciating the details and submissions filed before the ld. CIT(A) for claiming such exemption.
2. During hearing of this appeal the ld. Counsel for the assessee, Shri Hiro Rai contended that sale proceeds were duly invested in purchasing a residential flat at Thane, therefore, the assessee is entitled to claim exemption u/s. 54 of the Act. It was further submitted that letter of allotment along with proof of payment were duly submitted at assessment as well as First Appellate Stage. On the other hand Shri Jeevanlal Lavadiya-ld. DR defended the conclusion by submitting that the assessee did not produce any agreement with respect to the investment in the residential flat, therefore, the claimed exemption u/s. 54 of the Act was rightly denied.
2.1 We have considered the rival submissions and perused the material available on record. We note that the claimed exemption u/s. 54 of the Act was denied to the assessee by the ld. AO on the plea that assessee did not produce any purchase agreement with regard to investment in the residential flat at Thane. Still there is no dispute that an allotment letter dated 9/9/10 along with evidence of payment was duly submitted before the authorities. If the allotment letter and proof of payment is produced it cannot be said that the assessee did not invest in the purchase of new property. Section 54 of the Act speaks about investment of capital gains arising from transfer of a long term capital asset within a specified time. As per s/s. 2 to Sec.54 if such proceeds / capital gains, if not invested /utilized for purchase of new asset, within specific time then such proceeds will have to be deposited in a specified 3 bank account and has to be utilized in any scheme which the Central Govt. notifies and proof of such shall be accompanied with the return. There is no requirement in the Act that necessarily the assessee has to produce the agreement more specifically when the letter of allotment along with proof of payment/investment was duly produced before the concerned authorities. The ratio laid down in Smt. Jyothi K. Mehta (2001) 201 Taxmann 79 (Kar.), Smt. Sashi Verma, 224 ITR 106(M.P.), CIT vs. Smt. Brinda Kumari (2001) (114 Taxmann 266 (Del.), CIT vs. Smt. Bharti C. Kothar,i 244 ITR 352 (Cal.), CIT vs. Dr. Laxmichand Narpal Nagda 211 ITR 804 (Bom.), CIT vs. Shehzada Begum 173 ITR 379 (AP) supports our view. In the case of Shehzada Begum it was held by the Hon’ble Andhra Pradesh High Court that date of taking over possession of property purchased (in the present case investment in the new property within the specified time) and not the registration of sale in favour of the assessee, is relevant for computing the prescribed time limit. To our mind to attract Sec.54 and Sec.54EC of the Act what is material is the investment of sale consideration in acquiring the new property or investment of the amount in bonds set out in sec.54EC is to be seen and once the sale consideration is invested in any of these manner the assessee would be entitled to the benefit conferred under this provision. In view of the available facts, clear position of provisions of the Act and the ratio laid down in the aforementioned judicial pronouncements the ground raised by the assessee is allowed.
3. The next ground pertains to levy of interest u/s. 234B of the Act for which the liability of the assessee was strongly denied. Since we have decided the claim of exemption u/s. 54 of the Act in favour of the assessee, therefore, levy of interest u/s. 234B of the Act is consequential in nature.
4. Finally the appeal of the assessee is allowed.
Order pronounced in the open court in the presence of ld. Representative from both sides at the conclusion of the hearing on 10th Day of September, 2014.
