Hemant Shridhar Phatak Vs ACIT (ITAT Mumbai)
ITAT Mumbai held that the assessee is eligible to claim exemption u/s. 54 of the Income Tax Act as the construction of residential house completed within three years from the relevant date.
Facts- The assessee in its return of income claimed exemption of Rs.45,46,285/- u/s. 54 of the Act on long term capital gains from sale of a residential house. The assessee had sold a flat on 04/08/2012. The flat sold by the assessee was jointly owned by the assessee with his wife. The assessee booked two flats in the joint name with his wife on 18/4/2011. The possession of the flats was received by the assessee on 26/11/2014.
The assessee claimed that since assessee has utilized long term capital gain arising from sale of residential house towards purchase of new residential house within the time specified u/s. 54(1) of the Act, the assessee is eligible to claim exemption u/s. 54 of the Act.
AO held that the assessee had booked the residential flats, beyond one year before the date of transfer of a residential house and the possession of flat was received after two years from transfer of a residential house, hence, the assessee is not eligible to claim exemption u/s. 54 of the Act. Aggrieved against the assessment order, the assessee filed appeal before CIT(A). The CIT(A) vide impugned order upheld the findings of AO and dismissed appeal of the assessee. Hence, the present appeal.
Conclusion- Held that the assessee is eligible to claim exemption u/s. 54 of the Act as the construction of residential house completed within three years from the relevant date. Consequently, the impugned order is set-aside and appeal of the assessee is allowed.
Held that merely because the assessee has claimed expenditure for which claim was not accepted or was not acceptable to the Revenue that by itself would not attract penalty u/s. 271(1)(c) of the Act. Thus, merely for the reason that the assessee had made claim of exemption u/s. 54 of the Act which was not acceptable to the Assessing Officer, penalty u/s. 271(1)(c) of the Act cannot be levied.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals have been filed by the assessee for Assessment Year 2013-14. In ITA NO.267/Mum/2023 the assessee has assailed the order of Commissioner of Income Tax(Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 29/11/2022, whereby the First Appellate Authority has dismissed the appeal of assessee rejecting claim of exemption u/s. 54 of the Income Tax Act, 1961 [in short ‘the Act’].
1.1 In ITA No.268/ Mum/2022 the assessee has assailed the order of CIT(A) dated 29/11/2022 confirming penalty levied u/s. 271(1)(c) of the Act. Since both the appeals germinate from same set of facts, these appeals are taken up together for adjudication and are decided by this common order.
ITA NO.267/MUM/2022-A.Y. 2013-14:
2. The facts of the case in brief as emanating from records are: The assessee in its return of income claimed exemption of Rs.45,46,285/- u/s. 54 of the Act on long term capital gains from sale of a residential house. The assessee had sold a flat on 04/08/2012. The flat sold by the assessee was jointly owned by the assessee with his wife. The assessee booked two flats in the joint name with his wife on 18/4/2011. The possession of the flats was received by the assessee on 26/11/2014 (possession letters at page 315 and 318 of the paper book). The assessee claimed that since assessee has utilized long term capital gain arising from sale of residential house towards purchase of new residential house within the time specified u/s. 54(1) of the Act, the assessee is eligible to claim exemption u/s. 54 of the Act. The Assessing Officer held that the assessee had booked the residential flats, beyond one year before the date of transfer of a residential house and the possession of flat was received after two years from transfer of a residential house, hence, the assessee is not eligible to claim exemption u/s. 54 of the Act. Aggrieved against the assessment order dated 21/03/2016 passed u/s. 143(3) of the Act, the assessee filed appeal before CIT(A). The CIT(A) vide impugned order upheld the findings of the Assessing Officer and dismissed appeal of the assessee. Hence, the present appeal.
3. Shri Devang Divecha appearing on behalf of the assessee submitted that admittedly the assessee and his wife Rituja Hemant Phatak had jointly sold long term capital asset i.e. Flat bearing No.905, 9th Floor, B-2 Wing in DSK Madhuban(Wing A & B) Co-operative Housing Society Ltd., Mehra Indl Estate, Andheri Kurla Road, Saki Naka ,Andheri (East), Mumbai 400 068. vide agreement for sale dated 04/08/2012. The assessee and his wife in joint name booked two flats i.e. Flat No.1303 &1304 at Raheja Reflection Serenity, B-Wing on18/04/2011. The possession of the flats were handed over to the assessee and his wife on 26/11/2014. The ld. Authorized Representative of the assessee pointed that when the flats were booked they were under construction. It is only after completion of construction in 2014 that the possession of the flats were handed over to the assessee. He asserted that one of the condition u/s. 54 of the Act for claiming exemption is that the assessee has within a period of three years after the date of transfer of long term capital asset has constructed one residential house in India. The Tribunal in the case of Mustansir I Thahasildar vs. ITO, 168 ITD 523(Mum) held that the acquisition of a new flat in a building under construction is akin to construction and not purchase of property for the purpose of claiming relief u/s. 54 of the Act. The possession of flat on completion was handed over to the assessee within a period of three years from the date of transfer of capital asset, hence, the condition for claiming exemption u/s. 54 of the Act is satisfied. He further submitted that the exemption provision being beneficial provision should be liberally construed.
4. Per contra, Shri Dinesh Chourasia representing the Department vehemently supported the order of CIT(A) and prayed for dismissing appeal of the assessee. The ld. Departmental Representative submitted that new property was acquired by the assessee beyond the time limit as specified u/s. 54 of the Act for claiming benefit of exemption.
5. We have heard the submissions made by rival sides and have examined the orders of authorities below. The solitary issue raised by the assessee in appeal by the assessee is against disallowance of claim of exemption u/s. 54 of the Act. Before proceeding further to decide the issue it would be relevant to refer to the sequence of events.
