Section 54F allowed if multiple flats sold to purchase one big flat

ORDER

O.P. Kant, Accountant Member – This appeal by the Revenue is directed against order dated 31/07/2014 of the Commissioner of Income-tax (Appeals)-XXIV, New Delhi [in short ‘the CIT-(A)’] for assessment year 2011-12, raising following grounds:

“On the facts and circumstances of the case and in law CIT(A) has erred in-

2. The facts in brief of the case are that the assessee was engaged in the business of manufacturing and export of ready-made garments for ladies and kids wear in the name of proprietary concern M/s. Chelsea Mills. During the year, the assessee sold 5 house properties and invested sale consideration received in construction of another property. The assessee filed return of income on 30/09/2011 declaring total income of Rs.1,73,68,240/-. In the return of income filed, the assessee claimed deduction under section 54F of the Income-tax Act, 1961 (in short “the Act”) for investment in residential house against the capital gain on sale of house properties. The case was selected for scrutiny and notice under section 143(2) of the Act was issued and served upon the assessee. The assessee complied notices issued and assessment was completed under section 143(3) of the Act on 25/10/2013 and income was assessed at Rs.3,83,60,278/- The assessee filed appeal before the Ld. CIT-(A, who allowed part relief on the additions made by the Assessing Officer. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

3. The grounds No. 1 to 3 of the appeal are related to the deduction amounting to Rs.1,59,77,680/- under section 54F of the Act, which has been allowed by the Ld. CIT-(A).

4. The facts in brief in respect of issue in dispute are that during the year under consideration the assessee sold following five properties and computed the capital gain and deduction under section 54F of the Act for investment in construction of house at, 9, Mehandi Farms, Bhatti Mines, New Delhi as under:

5. As regarding claim of deduction under section 54F of the Act, the Assessing Officer informed the assessee that deduction under section 54F of the Act has already been allowed in assessment year 2009-10 amounting to Rs.47,84,000/- for investment made in construction of House at 9, Mehandi Farms, Bhatti Mines, New Delhi. He further noted that claim of deduction under section 54F in assessment year 2010-11 was withdrawn during assessment proceeding. According to the Assessing Officer, on the date of transfer of the original asset, the assessee owned more than one residential house and therefore it was not eligible for deduction under section 54F of the Act. The assessee submitted that it was having only one residential house at D-3/8 Vasant Vihar, New Delhi, apart from the house at 9, Mehandi Farms for which he claimed deduction under section 54F of the Act. The Assessing Officer did not accept the contention of the assessee and disallowed the deduction amounting to Rs.1,59,77,680/-claimed by the assessee.

6. The Ld. CIT-(A) after considering the submission of the assessee allowed the deduction under section 54F of the Act with observations as under:

“5.1 It is further noted that although the appellant had one house at D-3/8 Vasant Vihar, New Delhi, the same was let out during the year, which is also evident from the computation of income for the relevant assessment year, wherein the rental income from the same house has been declared as income from house property. This indicates that the appellant was not using that house as his residence during the relevant assessment year. At the same time, the construction of residential house at 9, Mehendi Farms, Bhati Mines, Chhatarpur New Delhi was also not complete and the appellant was residing during the relevant period in a residential property in the name of Hindu undivided family at E-222,Naraina Vihar, New Delhi. This fact is also evident from the documents such as telephone bill, copy of passports and copy of correspondences with IFCI. The appellant shifted to his residential house at 9, Mehendi Farms, Bhati Mines, Chhatarpur, New Delhi at 21.7.2010 which is evident from the completion certificate as well as the other evidences such as copies of Passports, identity cards issued by the election commission of India etc. which is available on the record. It is worthwhile to mention here that section 54F is a beneficial section and it has to be interpreted liberally, as held by various courts.

5.2 It is further observed that proviso of subsection (1) of Section 54F itself provides that sub section (1) of section 54F shall not apply where the assessee owns more than one residential house, other than the new asset on the date of transfer of the original asset. Even if it is accepted that the appellant was having one residential house at D-3/8 , Vasant Vihar Delhi, the appellant was not owning another house other than the new asset i.e 9, Mehendi Farms, Bhati Mines, Chhatarpur, New Delhi on the date of transfer of the original assets (in this case, lands and shop, as discussed earlier). Therefore, It is clear that the appellant was not having more than one residential house (i.e. at vasant vihar) other than the new asset (i.e. at 9, Mehendi Farms, Bhati Mines, Chhatarpur, New Delhi) on the date of transfer of original asset. Therefore, in my humble opinion, the appellant is eligible for deduction as per the proviso of section 54F, of the income tax act, in respect of the long term capital gains earned during the relevant assessment year.

5.3 It is further observed that there is no bar in section 54F for claiming deduction second time or third time for the same property if cost of the property is within the capital gain arisen to the appellant. In the instant case, total capital gain arisen to the appellant in all the three years 2009-10 to 2011-12 was less than the cost of construction of the residential property at 9, Mehendi Farms, Bhati Mines, Chhatarpur, New Delhi. On these facts and circumstances of the case, I am of the considered opinion that the appellant is eligible for the deduction u/s 54F of the Income Tax Act and the AO is directed to impugned addition of Rs. 1,59,77,680/-.

7. Before us the Ld. Senior DR relied on the order of the Assessing Officer and submitted that the assessee had already availed deduction under section 54F of the Act for investment in construction of the property at Mehandi Farms and which constituted another residential property and therefore, the assessee cannot be allowed deduction under section 54F of the Act for investment in construction of the same residential property.

8. The Ld. counsel, on the other hand, relied on the order of the Ld. CIT-(A), and submitted that construction of the said house property at Mehandi Farms was not completed and therefore same could not be termed as another residential property for disqualification for deduction under section 54F of the Act.

9. We have heard the rival submission and perused the relevant material on record. We find that the Ld. CIT-(A) has allowed the deduction under section 54F of the Act on the following three grounds:

10. The Ld. Sr. DR contended that assessee has accepted the disallowance of Rs.86,00,000/- under section 54F of the Act for assessment year 2010-11 and therefore the deduction in the year under consideration should also be disallowed. We are not convinced with this argument of the Ld. Senior DR as in what circumstances the deduction was withdrawn by the assessee in the preceding year, is not relevant for us. What is relevant is whether the assessee satisfies the conditions of section 54F of the Act in the year under consideration. Before us, the Ld. senior DR could not controvert findings of the Ld. CIT-(A). In view of the facts and circumstances of the case, we are of the view that the assessee is entitled for deduction under section 54F of the Act because house property at 9, Mehandi Farms was under construction during the year under consideration and it cannot be said as another residential house owned by the assessee. As the assessee owned only one residential house at D-3/8 Vasant Vihar, New Delhi, the assessee is entitled for deduction under section 54F Act for investment in construction of the house property at 9, Mehandi Farms. In our considered opinion, the finding of the Ld. CIT-(A) on the issue in dispute is well reasoned and we find no error in the said finding. Accordingly, grounds no. 1 to 3 of the appeal of the Revenue are dismissed.

11. In ground No. 4, the Revenue has challenged deletion of addition of Rs.50,000/- on account of business promotions. In ground No. 5, the Revenue has challenged deletion of the addition of Rs.1,20,000/- on account of vehicle running expenses.

12. Before us, the Ld. Senior DR relied on the order of the Assessing Officer, whereas the Ld. counsel relied on the order of the Ld. CIT-(A).

13. We have heard the rival submissions and perused the relevant material on record. The Assessing Officer made disallowance of Rs.50,000/- on the ground that involvement of personal nature of expenses cannot be ruled out. Disallowance of Rs.1,20,000/- out of vehicle running and maintenance expenses was made only on the ground of the status of the assessee. The Ld. CIT-(A) deleted both the additions observing as under:

“5.4 In the second ground of appeal, the appellant has challenged the disallowance of expenses on account of business promotion on estimate basis of Rs.50,000/- and on account of vehicle maintenance on estimate basis at Rs. 1,20,000/-. It is noted that the Assessing Officer has made the aforesaid disallowance only on surmises and without bringing any evidence on record of the personal use of the business promotion expenses and the vehicle running and maintenance expenses. Not a single voucher of expense has been pointed out by the Assessing Officer to indicate that the business promotion expenses or the vehicles were used by the appellant for his personal purposes. Moreover, the Assessing Officer has not given any basis for making the aforesaid disallowances. In the absence of any cogent material evidence on record of the personal use of the business promotion expenses and the vehicles, the estimated disallowance made by the Assessing Officer on these accounts are hereby directed to be deleted.”

14. Before us, the Ld. senior DR could not controvert the finding of the Ld. CIT-(A). We have observed that the Assessing Officer has failed to bring on record any documentary evidence to establish that business promotion expenses were utilised for personal purpose. Similarly regarding for disallowance out of vehicle running and maintenance expenses, the only basis adopted by the Assessing Officer, is status of the assessee and no other cogent material has been brought on record for disallowing the expenses. In our opinion, the finding of the Ld. CIT-(A) on the issue in dispute is well reasoned and no further interference is required in said finding. Accordingly, we dismiss both the ground No. 4 and 5 of the appeal.

15. In the result, appeal of the Revenue is dismissed.