2014 (12) TMI 1255 - AT - Income Tax

Rejection of claim for deduction u/s 54 of the Act in respect of second house property - Held that - The flats were having door numbers 103 and 104 i.e they were contiguous to each other. Further they were combined into one unit having common kitchen. Under these set of facts, the Hon ble High Court in the case of Devdas Naik 2014 (7) TMI 173 - BOMBAY HIGH COURT has held that both the units should be considered as one unit and hence the assessee was entitled for deduction u/s 54 of the Act. The ratio of these decisions shows that the Hon ble jurisdictional High Court has expressed the view that the deduction u/s 54 / 54F shall be available only in respect of one residential house only. If two different contiguous flats are combined together into a single unit, then the deduction u/s 54 and 54F shall be available in respect of the cost of both the flats combined together. There is no doubt that the decision rendered by the Jurisdictional High Court is binding on all authorities and assessees falling under the purview of that High Court. In the instant case, the flats purchased by the assessee were located at two different places. It was not a case of combining of two contiguous flats. Hence, we are unable to follow the decisions rendered by the Hon ble Karnataka High Court, which was relied upon by the assessee, since the said decisions are contrary to the decision rendered by the Hon ble jurisdictional Bombay High Court in CIT Vs. Khoobchand M Makhija 2013 (12) TMI 1525 - KARNATAKA HIGH COURT . Accordingly we uphold the order of the ld. CIT(A) on this issue, since it is in accordance with the decision rendered by the Hon ble Bombay High Court. Accordingly, we hold that the assessee shall be entitled for deduction u/s 54 of the Act only in respect of one residential flat. Assessment of value of two garages for the purpose of computation of capital gains - Held that - We notice from the assessment order that the AO has computed the sale consideration relating to garages purely on surmises and conjuncture without bringing any material on record to show that the assessee had received any money separately for garages over and above the amount declared in the agreement. Hence, we are of the view that the ld. CIT(A) was not justified in confirming the assessment of value of the garages, which was assessed purely on presumptive basis. The alternative view taken by the AO that the cost pertaining to the garages has to excluded from the cost as on 1.4.1981 is also based on surmises and conjecture and hence we are of the view that the ld. CIT(A) was not justified in confirming the alternative view of the AO also. Accordingly, we set aside the order of ld. CIT(A) on this issue.

Summary

Issues:
1. Rejection of claim for deduction u/s 54 of the Act in respect of second house property.
2. Assessment of sale value of garage on notional basis.

Analysis:

Issue 1: Rejection of claim for deduction u/s 54 of the Act in respect of second house property:
The appellant sold a residential property and invested in two residential properties. The AO restricted the deduction claim to one property based on a Tribunal decision. The appellant argued that buying two flats was necessary for family needs and cited precedents where "a residential house" was interpreted to include multiple houses. The appellant also relied on a 2014 amendment and a High Court decision post-amendment. The DR argued for deduction for one residential flat only, citing specific case laws. The Tribunal noted the Special Bench's decision and the Jurisdictional High Court's approval, emphasizing that deduction is available for one residential house only. As the purchased flats were not contiguous, the Tribunal upheld the CIT(A)'s decision, following the Jurisdictional High Court's ruling.

Issue 2: Assessment of sale value of garage on notional basis:
The AO assessed the sale value of garages without concrete evidence, leading to a notional assessment. The Tribunal found this assessment unjustified and set aside the CIT(A)'s decision. The alternative view of excluding garage costs from the 1981 cost was also deemed speculative. Consequently, the Tribunal partially allowed the appeal, ruling in favor of the assessee on this issue.

In conclusion, the Tribunal upheld the restriction of deduction u/s 54 to one residential flat, following the Jurisdictional High Court's precedent. The notional assessment of garage sale value was deemed unwarranted, leading to a partial allowance of the appeal.