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2015 (9) TMI 1397 - ITAT MUMBAI

2015 (9) TMI 1397 - ITAT MUMBAI - TMI - 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 .....

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er For the Appellant : Shri B. Yadagiri-DR For the Respondent : Shri Jitendra Singh & Ms. Neha Paranjpe O R D E R Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 10/01/2014 of the ld. First Appellate Authority, Mumbai, deleting penalty of ₹ 18,75,314/-, imposed u/s 271(1)(c), even though the quantum addition has been upheld by the ld. Commissioner of Income Tax (Appeals). 2. During hearing of this appeal, the ld. counsel for the assessee, at th .....

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27/02/2015 for ready reference:- These two appeals have been filed by two assessees against the order of CIT(A), for the assessment year 2007-08, in the matter of order passed u/s.143(3) of the I.T.Act. 2. Common grievance in both the appeals relate to 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. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee .....

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. two flats having a carpet area of 1200 sq.ft. each and one flat having carpet area of 750 sq.ft. and three parking spaces (two stilt and one open) as part of additional consideration. However, the additional consideration was not shown as part of the total consideration received by the assessee in her computation of LTCG on transfer of the said property during the year. Further, the assessee had taken the FMV of the said property as on 1.4.1981 at ₹ 35,00,000/- on the basis of valuation .....

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year while computing the LTCG for the year on sale of property. 2. Please furnish purchase proof at" NHA bonds against which deduction uls.54EC has been claimed. Please furnish copies of relevant bank extracts with narration of each entry to support your claim. 3. Proof of payment of professional fees and allowability of the same as deduction from the LTCG shown. 4. Basis of division of share of the property sold during the year. Please furnish evidences to support your claim. 5. Please exp .....

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during the year. Valuation done by Odilio Fernandes on 31.7.2006 as on 1.4.1981 at ₹ 35 lacs. Your honour may refer to departmental valuer for further verification. In case your honour is not satisfied without valuation report. 4. The aforesaid submission of the assessee was considered by the A.O. According to the A.O. the new flat and car parking are nothing but additional consideration. If the said new flat is receivable for old flat and old car parking place, how the assessee has claime .....

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ty. 5. The A.R. of the assessee vide his submission dated 12.11.2009 stated that if market value of the new flat is added to income of the assessee, then the investment in new residential property should be allowed u/s.54 at market value. The AO. analysed the contention of the assessee. According to the A.O., exemption u/s.54 is available only when the assessee has purchased a new flat one year before or two years after the date of transfer or has constructed a new residential' house within .....

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or constructed by her. The A.O. held that since the assessee has not fulfilled the conditions laid down in section 54, she is not eligible for exemption u/s.54 of the LT. Act. The A.O. has further elaborated this issue in para 10 of the assessment order wherein he has held that exemption u/s.54 of the I.T.Act is allowable only when the assessee makes an investment towards purchase or construction of a new house property within the stipulated period. Thus for availing exemption u/s.54, the assess .....

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These flats (alongwith car parking spaces) received by the assessee as part of 'consideration' cannot simultaneously be treated as investment. In order to avail the exemption u/s.54, the assessee should have made the investment in a new residence either by way of purchase or construction of the same. In the instant case, as per AO, the assessee has not fulfilled this condition which is the requirement of the Act. In view of the above, the A.O. held that the assessee is not eligible for e .....

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Savio Pereira sold the ancestral residential property for consideration of ₹ 3,05,00,00/- and 3 flats admeesurinq 3150 sq. ft. with one open and two stilt parking in kind. 2. In the assessment order. the A.O. has valued the consideration received in kind for ₹ 3,32,70,540/- and additions were made in the assessment order under the head long term capital gains without considering the said amount as reinvestment is neither purchased nor constructed by the assessee. 3. As regards benef .....

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f one year before the transfer or within two years after the date of transfer or has constructed a residential house property within a period of three years after the date of transfer. The appellant has fulfilled the precondition mentioned at point Nos.(a) & (b) above was not in doubt. This was also not in dispute that the assessee had purchased new residential property by way of construction. This was because it was clear from the agreement with developer that the developer would construct .....

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aid consideration received in kind for acquiring of new residential house properly. 5. The A.O. has misinterpreted the definition of 'purchase' held by the Apex Court in the assessee of CIT vs. T.N. Aravinda Reddy. In this case, the definition of the term 'purchase' has been given as under: "....... We find no reason to divorce the ordinary meaning of the word purchase as buying for a price or equivalent of price by payment in kind or adjustment towards an old debt or for ot .....

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netary consideration. The word 'purchase' in section 54 has to be given its common and wider meaning. It should include buying or adjustment towards old debt or for other monetary consideration. 6. In the present' case before your honour, the assessee has purchased/constructed the new residential property and paid the consideration equivalent of price by payment in kind. Therefore the assessee has purchased the residential property and is entitled for exemption u/s.54 of the I T.Act .....

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ts by declining claim of deduction u/s.54 of the I.T.Act. 10. In the present case before us, the assessee has purchased/constructed the new residential property and paid the consideration equivalent of price by payment in kind. Therefore, the assessee is entitled for exemption u/s.54 of I.T.Act, 1961 in respect of these flats. 11. An issue was also raised by the AO with regard to sharing of 3 flats between the co-owners of the property and the exemption u/s.54 allowable in case of investment in .....

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the valuation report. Furthermore, the co-owner will get the area according to their ratio in the new residential property. Since flat no.301 & 302 are situated in the same floor and adjacent to each other and will be treated as one single residential unit for the purpose of claiming exemption u/s.54. The same view has been taken by the Special Bench of the Mumbai Tribunal in the case of ITO Vs. Ms. Sushila M. Jhaveri, (2007) 292 ITR (AT) 1 (Mumbai). 12. The issue raised by the AO is also co .....

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e, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential h .....

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. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in .....

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to the allowance of the deduction under s.54/54F. It isneither expressly nor by necessary implication prohibited. Tribunal was therefore justified in allowing exemption under s.54 in respect of entire investment in construction of basement, ground floor, first floor, second floor and third floor. 13. In view of the above discussion, we do not find any merit in the action of the AO for decline of claim of deduction u/s.54 in respect of residential flats allotted by builder in consideration of sal .....

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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. 2.3. There is no dispute that quantum addition has been deleted by the Tribunal, therefore, in our humble opinion, the ld. Commissioner of Income tax (Appeals) is justified in deleting the penalty. Our view fur .....

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