TMI Blog2017 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant : H. N. Singh For the Respondent : Hari S. Raheja ORDER Ashwani Taneja (Accountant Member) 1. This appeal has been filed by the Revenue against the order of the Commissioner of Income-tax (Appeals)-25, Mumbai (hereinafter, learned CIT(A)) dated July 9, 2014 passed against the assessment order of the Assessing Officer under section 143(3) dated January 29, 2014 for the assessment year 2011-12 on the following grounds : 1. On the facts and in the circumstances, the Commissioner of Income-tax (Appeals) has erred in deleting the addition of ₹ 23,21,83,740 (Rs. 3,00,48,820 + ₹ 19,91,71,462) being disallowance of exemption claimed under sections 54 and 54F by holding that the assessee has made investment in 'a residential house property' without appreciating the finding made by the Assessing Officer during the course of the assessment proceedings that the assessee has purchased two separate house vide two agreements duly executed, in accordance with layout of plan, which is clearly evident from the certificate issued by MCGM. 2. On the facts and in the circumstances, the Commissioner of Income-tax (Appeals) has erred in allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had purchased two residential flats, therefore, the benefit has been rightly granted against one flat only. 5. Per contra, the learned counsel of the assessee vehemently supported the order of the learned Commissioner of Income-tax (Appeals). It was submitted that all the evidences were confronted to the Assessing Officer during remand proceedings. The Assessing Officer had sent a remand report which was duly considered by the learned Commissioner of Income-tax (Appeals) before deciding the appeal. Thus, compliance with rule 46A was made before admitting the additional evidences by the learned Commissioner of Income-tax (Appeals). Thus, ground No. 3 is devoid of any merits and therefore dismissed. 6. With regard to the other objections of the Assessing Officer as well as the learned Departmental representative, it was submitted by the learned counsel that in fact, the assessee had purchased one flat bearing Nos. 2601 and 2602 in C-Wing of the building known as Beau Monde , Prabhadevi, Mumbai. In support of his claim, he drew our attention upon the following documentary evidences which were certified to be made available to the lower authorities also : (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut detailed enquiries under section 131 from the builder, viz. Sheth Developers Pvt. Ltd. and the evidences collected from the said builder in the form of approved plan, booking receipts as well as completion certificates issued by the competent authorities. It was concluded by the Assessing Officer that the builder had constructed two separate flats and the assessee modified them by joining them together illegally, as the permission for the same was not obtained by the developer of the assessee. At this point, the observations of the Assessing Officer was summarised by him in the conclusive part of his assessment order as under : (i) It is a settled principle that deduction under section 54 and section 54F is available against purchase/investment of one residential house property only. However two or more residential units can constitute one residential house property but within the legal frame work and through legal means only. (ii) There is no denying the fact that legally the assessee purchased two separate residential house property on March 9, 2011. (iii) These two residential flats were constructed as two residential house properties as it was proven by the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inct residential house properties for the purpose of section 54 and section 54F. In view of the above discussion there is no doubt that the benefits of section 54 and section 54F are available to the one residential house only. The assessee purchased more than one residential house property. After the flats were bought by the assessee the same were converted in to single house property and of course that too was not done within legal framework. In view of the above discussion, the deduction claimed under section 54 and section 54F of the Income- tax Act, 1961 is hereby disallowed. Long-term capital gain arising on sale of residential house property to the extent of ₹ 3,00,48,820 is added to the total income of the assessee as taxable long-term capital gain. The long-term capital gain arising on sale of shares of M/s. Butala Farm Lands Limited of ₹ 19,91,71,462 and the same is also added to the total income of the assessee as taxable long-term capital gain. 9. During the course of appeal before the learned Commissioner of Income-tax (Appeals), the assessee brought out complete facts in detail and also submitted various evidences showing that the flats were cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 131 of the builder's person, which facts were also confronted to the appellant. However, while going through the assessment order carefully, I find that on following points, the cause of natural justice seems to have vitiated. (i) The appellant, in reply to the very first show-cause notice, had informed the Assessing Officer that the said flat purchased by him was one 4 BHK flat, as per plan appearing in the 'Marketing Brochure', a copy of which was also submitted to the Assessing Officer. I have gone through the copy of said plan attached to the marketing brochure, a copy of which is available on records. The said plan captioned 'Typical Floor Plan (Tower-C) Type 4 BHK, area sq. ft. 5,500 approximately shows a plan containing 1 master bedroom, 3 bedroom, 1 entertainment study room, 1 kitchen, 1 large living room at the north-west corner of entire area, some bathrooms etc. If the building is constructed as per this plan, there is no doubt in saying that it can be nothing but one residential house, even if two separate agreements might have been entered segregating the area in two units. I find that the assessment order itself speaks of the assessee having ask ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge of full facts. Moreover, the cross-examination of RJP, whose statement was so relied on, was also not provided to the appellant. It has been held by the hon'ble High Court of Madras in the Thilagarathinam Match Works v. CCE [2013] 19 GSTR 354 (Mad) ; [2014] 46 taxmann.com 382 (Mad) that one certain reports or statements are relied upon by the Department, it is fundamental that author of report and persons from whom such allegedly recorded should be made available for cross- examination ; it is part of principle of natural justice which cannot be denied. It is further held by the High Court that right to peruse documents relied upon by the Department and cross-examine relied upon witnesses, are basic rights available with an assessee, and no reason need be stated by any person for exercising said rights. The hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713 (SC) has also upheld the right of the assessee to cross-examine the evidences relied upon by the Assessing Officer. (iv) In the remand proceedings, the Assessing Officer has objected to the admission of the certificate from the structural engineer by questioning his independence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of building plan is not necessary. In the present case, the fact that the assessee has raised new construction is evident from the interim order issued by the Corporation of Salem. We are of the considered opinion that in view of the above facts, it is evident that the assessee has put up a new construction in place of old residential building ; thus, the assessee is entitled to claim exemption under section 54F The impugned order is set aside and the appeal of the assessee is allowed.' Having discussed as above, I find that the only substantial question remains is whether the alteration to the approved plan was made before or after the appellant became the owner of the flat(s). In my opinion, the said alterations made, in whatsoever circumstances, do not alter the basic fact that the appellant is the owner of 'a residential house' and he is using the said units as 'a residential house'. In the present case, I am of the considered opinion that the factual position should prevail over legality, as far as the provisions of sections 54 and 54F are concerned, which in my opinion are beneficial provisions, and hence should be interpreted liberally. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r flats can be combined into one. However, the admitted fact is that the flats were converted into one unit and for the purpose of residence of the assessee. It is in these circumstances, the Commissioner of Income-tax (Appeals) held that the acquisition of the flats may have been done independently but eventually they are a single unit and house for the purpose of residence. This factual finding could have been made the basis for recording a conclusion in favour of the assessee. We do not find that such a conclusion can be termed as perverse. Reliance placed by the Tribunal on the order passed by it in the case of Ms. Sushila M. Jhaveri and which reasoning found favour with this court is not erroneous or misplaced. The language of the section has been noted in both the decisions and it has been held that so long as there is a residential unit or house, then the benefit or deduction cannot be denied. In the present case, the unit was a single one. The flats were constructed in such a way that they could be combined into one unit. Once there is a single kitchen then, the plans can be relied upon. We do not think that the conclusion is in any way impossible or improbable so as to ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residential house. But no limit has been prescribed under the law upon the size, shape and nature of the residential house property. Thus, it may also happen sometimes that a smaller unit may not be sufficient for use of an assessee's family and therefore, he may choose to combine more than one unit so as to make it useful for him and his family. No such embargo has been laid down by the law as would be clear from the plain reading of section 54/54F. Under these circumstances, the Assessing Officer is also not permitted to read any such restrictions under the law while examining the claim of the assessee. 12. Turning back to the facts of this case, it is noted that the Assessing Officer had himself noted in the assessment order while summarising his observations at point No. 4 which has been reproduced by us in the earlier part of our order that two residential house properties were converted into one residential house property and it has also been noted by him in point No. 1 that as per law, two or more residential units can constitute one residential house property. Thus, there is no dispute on the principle. According to the Assessing Officer also, principally speaking, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t complete enough to draw final conclusions. Few evidences were submitted by the assessee in support of contention that the impugned flat was constructed as one residential unit by the builder itself. These evidences were sent by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer for their examination in the remand proceedings, wherein the Assessing Officer carried out further enquiries and also recorded statement of the accountant of the builder. But, again the Assessing Officer made an error by not going to the bottom of the truth and also erred by relying upon irrelevant or half-cooked pieces of information and also erred in disregarding evidences submitted by the assessee that too without making proper verification. The assessee had, time and again, requested the Assessing Officer to carry out physical examination of the property to know the truth, but the Assessing Officer disregarded or ignored the same for the reasons best known to him. 15. Our attention was drawn upon few evidences which throw light directly on the issue before us. Our attention was drawn on the typical floor plan of Tower C , 25th Floor of Beau Monde Bldg., Prabhadevi, Mumbai c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts were not separated by any wall and (c) there was no separate entrance or separate kitchen for each such flat. In fact, the builders have constructed and sold similar flat of one residential flat of 4 BHK with one kitchen and one entrance (although bearing two flat numbers) on each and every floor of the same build ing which is used by respective owners as single dwelling unit. None of the flat owners (including Mr. Sanjay B. Pahariya) have carried out any alteration/modification to the said flats either on their own or through the builders at any time i.e. before or after handing over of flats by the builders. 17. Thus, from these facts, it becomes clear that in any case and viewed from any angle, it becomes clear that when the assessee acquired the flat, the intention was to use it as one residential unit. In our considered view, it will not make any distinction whether the flats were constructed as such by the builder or the same was altered or combined into one at the instance of the buyer (assessee). Thus, the assessee is very much eligible to claim the benefit of deduction under section 54/54F on the entire amount of investment made in residential flat bearing Nos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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