DCIT Vs Amit Mahendrakumar Mehta (ITAT Mumbai)
Mumbai ITAT Allows Sections 54 and 54F Exemptions: Two Amalgamated Flats Constitute One Residential House
The assessee sold a residential property for ₹43 crore, earning long-term capital gains of ₹26.59 crore, and also earned capital gains from shares. He claimed exemption of ₹26.59 crore under section 54 and ₹1.86 crore under section 54F by investing in two adjacent flats—Flat Nos. 3101 and 3102—which were subsequently amalgamated into a single residential unit.
The AO restricted the section 54 exemption to the investment of ₹22.56 crore in Flat No. 3102 and taxed the balance ₹4.03 crore. The section 54F claim was entirely rejected because Flat No. 3101 was initially purchased in the names of the assessee’s wife and son.
The Mumbai ITAT upheld the CIT(A)’s finding that the two flats had been legally and physically amalgamated through a registered supplementary agreement. After amalgamation, Flat No. 3101 lost its separate identity and the resulting composite property continued as Flat No. 3102, with one entrance and one kitchen. The assessee held a 70% share and his wife held 30%.
The Tribunal noted that the assessee had funded the entire cost of Flat No. 3102 and ₹6.59 crore of Flat No. 3101. His total investment in the composite house up to the return-filing date was ₹28.45 crore. Additional stamp duty had also been paid on the increased area of the amalgamated flat.
