Neville J Pereira Vs ITO (ITAT Mumbai)
The case of Neville J Pereira vs. ITO before ITAT Mumbai focused on the disallowance of exemption under Section 54 of the Income Tax Act, 1961. The assessee had sold a residential property and reinvested in four new flats in the same building, claiming exemption under Section 54. The Assessing Officer (AO) disallowed the exemption for three of the four flats, arguing that Section 54 permits exemption only for investment in a single residential house. The assessee contended that the flats were intended to form a single unit for his family’s residence, citing their adjacency and common usage, including a shared kitchen. However, the AO relied on the precedent set in Mrs. Gulshanbanoo R. Mukhi vs. Jt. CIT, which held that exemption is only allowable for one residential house. The CIT(A) upheld this view, emphasizing that the term “a residential house” should not be stretched beyond its specific meaning.
The ITAT examined conflicting judicial views and referred to the Special Bench ruling in ITO vs. Sushila N. Jhaveri, which clarified that exemption under Sections 54 and 54F applies to a single residential house unless multiple adjacent units are integrated into one functional unit. Since the four flats in question were on different floors with separate kitchens and entrances, they did not qualify as a single residential house. Additionally, the assessee introduced a new argument at the appellate stage, claiming that the original property sold comprised multiple independent residential units, making each unit’s reinvestment eligible for Section 54 exemption. However, ITAT ruled against this claim, stating that the new evidence altered the case’s factual basis and was not previously considered by lower authorities. Consequently, the ITAT upheld the AO’s order, allowing exemption for only one flat and dismissing the assessee’s appeal.
