2015 (9) TMI 1397 - AT - Income Tax

Penalty u/s 271(1)(c) - disallowance of claim of deduction u/s.54(1) in respect of residential flats acquired by the assessees in consideration of old house sold to the builder - Held that - The Tribunal deliberated the issue with respect to declining the claim of deduction u/s 54 of the Act and by following the decision of the Special Bench in the case of ITO vs Ms. Sushila M. Jhaveri (2007 (4) TMI 289 - ITAT BOMBAY-I) and also Geeta Duggal (2013 (3) TMI 101 - DELHI HIGH COURT) decided the claimed deduction in favour of the assessee. We further note that the ld. Assessing Officer imposed penalty with respect to claimed deduction u/s 54 of the Act therefore when the basis no longer survive on the basis of which penalty was imposed in our view penalty u/s 271(1)(c) of the Act cannot survive. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act.
2. Disallowance of claim of deduction under Section 54(1) in respect of residential flats acquired by the assessees.
3. Consideration of additional flats and amenities as part of the total consideration received by the assessee.
4. Eligibility for exemption under Section 54 of the Income Tax Act.
5. Allocation of new residential property between co-owners and its impact on exemption under Section 54.

Issue-wise Detailed Analysis:

1. Deletion of Penalty Imposed under Section 271(1)(c):
The Revenue was aggrieved by the deletion of a penalty amounting to Rs. 18,75,314/- imposed under Section 271(1)(c) of the Income Tax Act. The penalty was initially imposed based on a quantum addition, which was subsequently deleted by the Tribunal. The Tribunal held that since the quantum addition, which formed the basis for the penalty, was deleted, the penalty under Section 271(1)(c) could not survive. The Tribunal cited the decisions in CIT vs S.P Viz Construction Company (176 ITR 47) and K.C. Builders vs ACIT (265 ITR 562), which support the view that penalty cannot stand if the addition in the assessment is set aside or canceled.

2. Disallowance of Claim of Deduction under Section 54(1):
The common grievance in the appeals was the disallowance of the claim of deduction under Section 54(1) for residential flats acquired in consideration of an old house sold to a builder. The Assessing Officer (AO) had denied the exemption under Section 54 on the grounds that the new flats were received as additional consideration and not purchased or constructed by the assessee within the stipulated period.

3. Consideration of Additional Flats and Amenities:
The AO observed that the assessee received additional flats and amenities as part of the consideration for the old property sold. However, the assessee did not include the market value of these additional flats and amenities in the total consideration while computing the Long Term Capital Gains (LTCG). The AO contended that these additional flats should be considered as part of the total consideration received and added to the income of the assessee.

4. Eligibility for Exemption under Section 54:
The Tribunal found that the new flats received by the assessee amounted to an investment in a residential house. The AO's denial of exemption under Section 54 was based on the interpretation that the flats were received as additional consideration and not purchased or constructed by the assessee. However, the Tribunal referred to the decision in CIT vs. T.N. Aravinda Reddy, which defined 'purchase' to include buying for a price or equivalent of price by payment in kind. The Tribunal concluded that the assessee was entitled to exemption under Section 54 as the new flats were considered an investment in a residential property.

5. Allocation of New Residential Property Between Co-owners:
The AO raised an issue regarding the allocation of new residential property between the co-owners and the eligibility for exemption under Section 54 for investment in one residential flat only. The Tribunal noted that the allocation of the new residential property between the co-owners was already on record and that flats situated on the same floor and adjacent to each other could be treated as one single residential unit for claiming exemption under Section 54. The Tribunal referred to the decision in the case of ITO vs. Ms. Sushila M. Jhaveri and the Delhi High Court's decision in Gita Duggal, which supported the view that multiple units could be considered as one residential house for the purpose of exemption under Section 54.

Conclusion:
The Tribunal upheld the deletion of the penalty imposed under Section 271(1)(c) as the basis for the penalty (quantum addition) was no longer valid. The Tribunal also allowed the assessees' appeals regarding the disallowance of the deduction under Section 54, holding that the new flats received as consideration for the old property sold amounted to an investment in a residential house, thus entitling the assessees to exemption under Section 54. The Tribunal's decision was based on the interpretation of 'purchase' and the allocation of new residential property between co-owners, supported by relevant case laws.