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05-02-2019,Bipin N. Sagar, Section 54, 540, Tribunal Mumbai

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4 months 1 week ago #8636 by amit
Section - 54, 540
Order Date - 05-02-2019
Favouring - Assessee
Court - Tribunal Mumbai
Appellant - ACIT
Respondent - Bipin N. Sagar
Justice - MAHAVIR SINGH JM & RAJESH KUMAR AM
Citation - 219Taxpundit132
Appeal No. - ITA No.1507/M/2017
Asstt. Year - 2011-12

Order

PER : Rajesh Kumar

The present appeal has been preferred by the Revenue against the order dated 28.04.2014 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2011-12.

2. The only issue raised by the Revenue in various grounds of appeal is against the order of Ld. CIT(A) directing the AO to delete the disallowance of Rs.1,88,18,852/- of exemption under section 54 of the Act which was disallowed by the AO on the ground that the assessee has purchased and sold three flats by three separate agreements for flat No.701, 702 & 703 at Glen Eagle and thereafter converted them into one.

3. The facts in brief are that the AO observed on the basis of details filed by the assessee that assessee has sold three flats i.e. flat No.701, 702 & 703 at Glen Eagle and claimed exemption under section 54 of the Act. The AO accordingly issued show cause notice dated 19.02.2014 which was replied by the assessee vide letter dated 28.02.2014 submitting therein that all the flats were located on the same floor when purchased and later on the same were combined and conver ed into one flat. The assessee submitted before the AO that due to legal formalities, these were purchased by three separate agreements and when sold the assessee entered into three agreements again. The assessee fully complied with all the conditions as envisaged in the section 54 of the Act. The AO rejected the submissions of the assessee on the ground that there were three separate agreements for purchase/sale for these flats and assessee was paying maintenance charges for each of the flat i.e. 701, 702 & 703. The AO further noticed that as per the provisions of section 540, the deduction under section 54 of the Act is allowable if the capital gain has arisen from transfer of long term capital asset being building or lands thereto being a residential house. However, in the present case the AO observed that the assessee sold three flats by way of three separate agreements. Accordingly, the AO allowed the deduction in respect of long term capital gain in respect of flat No.701 which was shown as the residential address in the electricity bill of the assessee and disallowed the long term capital gain of Rs.78,80,279/-, in respect of flat No.702 Rs.1,09,38,573/- and Rs.1,88,18,852/-in respect of flat No.703 by framing assessment under section 143(3) of the Act vide order dated 21.03.2014. The Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under:

“5.5 I have considered the submission of the appellant and observation of the A.0,During the appellate proceedings, the Appellant has stated that the transfer is of one residential house. The three adjoining flats were merged and made it one residential house not by the Appellant but by previous owner. The Appellant ever since the date of purchase used it as one residential house. There is one electricity meter in respect of the three flats. As against a long term capital gain of Rs. 3,00,46,935, arising on transfer of a residential house, the Appellant has before the due date of filing return of income deposited a sum of Rs. 3,50 00,000 in an account opened under the Capital Gains Account Scheme.

5.6 Generally, it may not be possible to find a bigger residential unit and that requires combining two or more adjoining flats into one unit. However, that does not mean that each flat is in itself a separate residential unit. What is to be seen is whether the adjoining flats were actually united and used as a common single unit or not. Execution of separate agreements cannot decide this issue. The flats were constructed in such a way that adjustment units of flats can be combined into one. The acquisition of flats may be done independently but eventually there is a single unit and house for the purpose of residence. Recently, the jurisdictional Hon'ble Bombay High Court in the con ext of section 54 of the Act, in CIT vs. DevdasNaik [2014] 49 taxmann.com 30 (Bombay) decided similar issue as under:

"We are unable to agree. We found that the evidence based on which the claim was granted by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal has been noted by the Tribunal in paragraph 4 of ts order. Prior thereto, the factual position has also been noticed that the Assessee alongwith his wife jointly owned bungalow. The bungalow was sold at Rs.3/-crores. With this sum, they bought three flats, one in the Assessee's name, another in the name of Assesses and his wife and third in the name of the wife. The Assessee claimed deduction under section 54 on purchase of two flats in which he is either a sole owner or a joint owner. Though these flats were acquired under two distinct agreements and from different sellers, what has beer, noted by the Tribunal as also the Commissioner of Income Tax (Appeals) is that the map of the general layoutplan as well as internal layout plan in regard to flat Nos. 103 and 104 indicate that there is only one common kitchen for both the flats. The flats were constructed in such a way that adjacent units or flats can becombined into one. However, 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 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.

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