Yatin Prakash Telang Vs ITO (ITAT Mumbai)
Facts: Assessee sold immovable property for INR 1.11 Crore on 4th Feb, 2012, LTCG on sale of property was INR 83,04,453. Assessee had purchased residential flat on 19th April, 2011 for INR 1.25 Crore, in which he had 70% share, therefore his part of investment was INR 91.20 Lakhs. Assessee invested INR 91.20 Lakhs, out of his saving bank account INR 24 Lakhs and bank loan of INR 67 Lakhs.
Assessee claimed exemption under section 54 for investment of new residential house. AO disallowed the claim contending that assessee has not utilized capital gain /sale consideration amount for purchase of new residential house.
Held: As per section 54, capital gain arising on transfer of house property is exempt if the assessee within a period of one year before or after the date of transfer purchases or within a period of 2 years construct house property for the purpose of his own residence.
In the case of K. C. Gopalan, Hon’ble HC has observed that the assessee has to construct / purchase a house property for his own residence in order to get the benefit of section 54. The wording of section itself would make it clear that the law does not insist that the sale consideration obtained by the assessee itself should be utilized for the purchase of house property.
FULL TEXT OF THE ITAT JUDGMENT
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-33, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-33/Rg.21/385/2015-16 dated 22.12.2017. The Assessment was framed by the Income Tax Officer, Ward-21(3)(5), Mumbai (in short ITO / AO) for the assessment year 2012-13 order dated 26.03.2015 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the claim of deduction under section 54 of the Act on purchase of new residential house. For this assessee has raised the following three grounds, without prejudice to each other: –
“The appellant prefers an appeal against the order passed by Ld. Commissioner of Income Tax (A)-33, Mumbai on following amongst other grounds each of which are without prejudice to any other :-
1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the disallowance of deduction u/s 54 of Rs. 83,04,453/- on purchase of a residential house;
2.0 On facts and circumstances of the case and in law, Ld. CIT(A) before confirming the disallowance of deduction u/s.54, ought to have considered the vital facts and settled law stated as under:-
a) The appellant purchased a residential house on 19/4/2011 i.e within one year of the sale of a residential house on 04/02/2012 undisputedly within the time limits prescribed uls.54(l);
b) The entire payments for purchase of a residential house had been paid prior to the due date of filing of IT return u/s 139(1);
c) Sec 54(1) mandates the purchase of a residential house and does not postulate any condition to utilise the capital gain for purchase of new residential house;
c) The incentive provision of Sec. 54 is required to be construed liberally;
3.0 Without prejudice, a fresh claim is made to allow the deduction u/s 54 in respect of re-investment of long term capital gain utilised for purchase of a new residential house at Mahindra Life spaces of Rs.59,25,017/-.
The appellant craves leave to add, amend, alter, and/or withdraw any of the grounds of appeal at the time of hearing.”
3. Briefly stated facts are that the assessee sold an immovable property No. B/802, Jupitar CHS, Goregaon West, Mumbai for a total consideration of ₹ 1.11 crores on 04.02.2012. Out of this sale of immovable property, the assessee earned long term capital gain of ₹ 83,04,453/-.The assessee purchased a residential flat at B/104, Raheja Exotica, Malad West on 19.04.2011 of ₹ 1.25 crores on 19.04.2011. The assessee stated that, to the extent of his 70% share, he has invested a sum of ₹ 91.20 lakhs, and the source of the same is ₹ 24 lacs from savings bank accounts of the assessee and balance sum of ₹ 67 lacs is from Bank loan i.e. from Union Bank of India. The assessee filed copies of saving bank accounts and copy of sanctioned letter of Union Bank of India sanctioning home loan. The assessing officer required the assessee to explain as to why the claim of exemption under section 54 of the Act be not disallowed, on the grounds that the investment made out of borrowed funds. The assessee claimed that it has purchased a Flat at B/104, Raheja Exotica, Malad West on 19.04.2011, for a sum of Rs. 91.20 lakhs to the extent of his share. The assessee explained before the AO that he has sold residential flat at B/802, Jupitar CHS, Goregaon West, Mumbai for a total sum of ₹ 1.11 crores on 04.02.2012, which gives long term capital gain of ₹ 83,04,453/-. The assessee claim that in view of the provisions of section 54 of the Act, the assessee is entitled for claim of exemption on the investment/ purchase of new residential house i.e. before the sale of the another residential house, that was sold on 04.02.2012. The AO has not accepted the explanation of the assessee and disallowed the claim of exemption of long term capital gain by observing that the assessee has not utilized capital gains of ₹ 83,04,453/-for purchase of new residential house contending that the new residential house has been purchased out of own sources i.e. savings from saving bank account and bank loans. According to AO, the assessee has not utilized this long term capital gain for the purchase of new assets and not eligible for claim of deduction under section 54 of the act. Aggrieved, assessee preferred the appeal before CIT(A).
4. The CIT(A) relying on the decision of co-ordinate Bench of ITAT Mumbai in the case of Milan Sharad Ruparel vs. ACIT (2009) 27 SOT 61 (Mum), Co-ordinate Bench of Indore in the case of Sushil Kumar Bafna vs. ITO (2017) 81 taxmann.com 50 (Indore – Trib.), co-ordinate bench of Hyderabad in the case of Smt. V. Kumuda vs. DCIT (2012) 18 taxmann.com 256 (Hyd.), confirm the action of the AO by observing in Para 5.10 as under:-
“5.10 It is observed that the above mentioned judgements not only covers the issue under consideration but have discussed the case laws relied upon by the appellant, which has been distinguished too by the Hon’ble Tribunals. Since the facts of the instant case as identical to the facts mentioned in the judgements mentioned above, respectfully following the ratio of the judgements it is held that the appellant is not eligible for claim of deduction under section 54 of the IT Act since he has not utilized the sale consideration for the purpose of change of the new property. He has also not utilized the sale consideration of the purpose of repayment of the loan. He has also not deposited the capital gain from the sale of the old property in the capital gain account scheme. Thus the disallowance made by the AO ₹ 83,04,453/- is confirmed. Thus the ground of appeal number 3 is dismissed.”
Aggrieved, now assessee is in second appeal before Tribunal.
5. We have heard the rival contentions and gone through the facts and circumstances of the case. From the facts of the case, we find that the assessee has work out long term capital gain as under: –
