Case Law Details
DCIT Vs Priyanka Bhaskar Shah (ITAT Mumbai)
Disagreeing with this view, Ms. Priyanka appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who ruled in her favor, treating the two flats as a single unit. The Revenue then appealed to the ITAT, which remanded the case back to the Assessing Officer, instructing physical verification of the flats. The ITAT clarified that if the flats were found to be combined as claimed, the exemption should be granted. This case emphasizes the need for physical inspection in determining whether adjoining flats qualify as a single residential unit under Section 54F for capital gain exemption.
1. Section 54 of the Income Tax offers an exemption on Capital gain from the sale of any asset if the proceeds are reinvested in a residential property.
2. There is always a debate over whether an investment in two adjoining units will be considered a single residential property or two different properties for exemption under Section 54.
3. The expression ‘a residential house’ should be understood because the building should be residential and ‘a’ should not be understood to indicate a singular number. – Held by Hon’ble HIGH COURT OF KARNATAKA in the case of Commissioner of Income-tax v.
D. Ananda Basappa.
4. In the recent case of Ms. Priyanka Bhaskar Shah v. ITAT Mumbai Bench [2024], there was a contradiction between the assessing officer and the assessee whether the two flats are adjoining flats or not, for claiming exemption under section 54F.
4.1 Ms. Priyanka earned long-term capital gain on the sale of equity shares. She invested the sale proceeds of the shares in two adjoining residential flats and claimed exemption under section 54F.
4.2 The assessee, Ms. Priyanka, has agreed with the builders to purchase joint flats and convert them into one unit. All the relevant documents as proof of evidence for combining two flats into one unit were filed before the Assessing Officer. The plan of the flat and affidavit of the developers mentioned that the assessee has taken both the above-said flats and both are adjacent flats.
5. The Assessing Officer rejected the assessee’s plea for treating two flats as one flat and allowed exemption under section 54F only in respect of one flat.
5.1 The Assessing Officer has expressed the view that both flats cannot be combined. He relies on the fact that as per the core plan of the property, there was no common wall between the two flats, and Open to Skyscape was structured between the two flats.
5.2 According to the Assessing Officer, Finance Act, with effect from AY 2014-15, the words “a constructed residential house “were substituted by the phrase “Constructed One Residential house in India “. Thus, the investment made in multiple flats in the same residential complex is not treated as a single flat w.e.f. AY 2014-15.
5.3Accordingly, only one flat was duly accepted for exemption under section 54F, and the claim of exemption related to the other flat was duly rejected by the AO.
6. The aggrieved assessee filed an appeal before CIT(A). CIT(A) considered the submission of the assessee and considered both the flats as a single flat as per the exemption claimed under section 54F of the Act.
7. Being aggrieved on the appeal order, the Revenue filed an appeal with ITAT MUMBAI.
8. The ITAT Mumbai has asked both parties whether any physical verification was conducted to verify the claim of the assessee. But the reply was negative. Although the assessee is allowed to combine two flats as a single unit, this issue has not been physically verified by any revenue authorities.
9. ITAT Mumbai remanded back to the Assessing Officer with a specific directive to carry out a physical verification of flats and if both flats were combined, the assessee should be given an exemption under section 54F.
10. Thus, the Assessing Officer must do physical verification before disallowing the exemption on the ground that two flats are not considered adjoining flats.
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FULL TEXT OF THE ORDER OF ITAT MUMBAI
Instant appeal of the assessee was filed against the order of the Learned National Faceless Appeal Centre (NFAC), Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2021-22, date of order21.12.2023.The impugned order was emanated from the order of the Learned National e-assessment Centre (NEAC), Delhi, order passed under section 143(3) read with section 144B of the Act, date of order 29/12/2022.
2. The revenue has taken the following grounds of appeal:-
“(i) “Whether On the facts and circumstances of th& case and in Law, the Ld CIT(A) erred in allowing deduction u/$ 54 F amounting to Rs.9,50,16,715/-treating investment in two flats as one residential house by not appreciating the facts that as per the amended provision of section 54F{1} with effect from 01.04,2015, the assessee was allowed to invest and claim deduction under said section in respect of only one residential flat.
(It) Whether. On the facts and circumstances of the case and in Law, the Ld CIT(A) erred In allowing deduction u/s 54F of the Act ignoring the fact that the assessee had invested in two fiats which were separate, registered separately and as per plan approved by RERA/NMMC both the fiats could not have been made into one due to space between the two flats being “open to sky” and hence assessee was not entitled to claim deduction u/s 54f(1) of the Act.
(iii) Whether On the facts and circumstances of the case and in Law, the Ld, CIT(A) erred in relying upon affidavit of builder and revised plan submitted by the assessee during the course of assessment proceedings showing it to be a one residential house out of two separate flats, which were nothing but self serving documents and assessee could not submit contemporaneous evidences bearing the seal of Municipal Authorities or RERA dates back to October 2020 to till passing of the assessment order as noted by the AO in his assessment order and even before the Ld.CIT(A).
(iv) The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary.”
3. The brief facts of the case are that the assessee has earned long term capital gain (in short, ‘LTCG’) amount to Rs.9,50,16,715/- on sale of unsold equity shares. The assessee invested the sale proceeds of the shares in two adjoining residential flats and accordingly claimed exemption under section 54F of the Act amount of Rs.9,50,16,715/-. The address of the two adjoining flats is – 601 & 602 in residential project, ‘One Akshar’ situated at Sanpada, Navi Mumbai. The developers are ‘M/s Akshar Realtors’. The agreement for sale was prepared on the basis of combined flats and treated both the flats as one and total consideration of the flats amounting to Rs.12,54,00,000/-. The assessment was initiated and the Ld.AO rejected the assessee’s plea for treating the two flats as one flat. As per the amendment to section 54F, when investments is made in multiple flats in the same residential complex, are not treated as a single flat w.e.f. A.Y. 2014-15. Thereafter, consequent to substitution of words “constructed residential house” by Finance Act (No.2) Act with effect from 01/04/2015, for the phrase, “constructed one residential house in India”. Accordingly, only one flat was duly accepted for exemption under section 54F and the claim of exemption related to the other flat was duly rejected by the Ld.AO. The aggrieved assessee filed an appeal before the ld. CIT(A). The ld.CIT(A) considered the submission of the assessee and considered both the flats as a single flat as per the exemption claimed under section 54F of the Act. Being aggrieved on the appeal order, the Revenue filed an appeal before us.
4. We heard the rival parties and considered the documents available on record. The Ld.AR filed a written submission which is kept in the record (APB). The Ld.AR first argued that the assessee has made the agreement with the builders for purchasing Joint flats and converting them into one unit. All the relevant documents as proof of evidence for combining two flats into one unit were filed before the ld. AO, before the appellate authority and as well as the documents are filed before the Bench. The case of the Ld.AO is that the two units are separate. The Ld.AO relies on the core plan of the ‘One Akshar’ and has noted that the ‘OTS’ (open to sky) space is structured between flat Nos. 601 & 602 and there is no common wall between the two flats. Hence both flats cannot be combined as claimed by the assessee. Whereas the plan of the flat and affidavit of the developers mentioned that the assessee has taken both the above said flats and both are adjacent flats. The Bench has asked both parties whether any physical verification was conducted to verify the claim of assessee. But reply was negative. Although the assessee is allowed to combine two flats as a single unit, this issue has not been physically verified by any revenue authorities. The Ld.AO has expressed the view that both flats cannot be combined. Thus, there is contradiction between parties on facts. Consequently, we are remitting the matter to the file of the learned AO with a specific directive. We instruct the ld. AO to carry out a physical verification of the flats. If both flats are combined, then the assessee should be given deduction u/s 54F of the Act.
5. In the result, the appeal of the assessee bearing ITA No.659/Mum/2024 is allowed for statistical purposes.
Order pronounced in the open court on _____ day of August, 2024.
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