2012 (5) TMI 416 - AT - Income Tax

Exemption / deduction u/d 54F - assessee has purchased two separate flats under two separate agreements - single unit or not - flats not adjacent to each other but are opposite to each other and are separated from each other by common passage, lobby staircase etc. - held that - Merely because the assessee has let out the two flats to one person for use as a single unit, the same, in our opinion, cannot entitle the assessee to claim benefit of deduction u/s 54F of the Act. - exemption u/s 54F granted in respect of one flat only. Lost of sale of flat (capital loss) - allegation of sale of flat to his wife on loss deliberately to set off the long term capital gain on sale of shares and other assets. - held that - not a single instance of sale of such property in the vicinity has been given by verifying the records of the District Sub. Registrar. - When the agreement for sale is made and the stamp duty has been paid and the loss has been claimed which has been set off against the long term capital gain, the A.O. has got every right to find out the genuineness of such sale price. - matter remanded back to the file of the A.O. with a direction to give one more opportunity to the assessee to substantiate with evidence to the satisfaction of the A.O. Set off long term loss on sale of unlisted shares against long term capital gain on sale of shares - allegation that assessee had sold the shares to his wife at a sole purpose of generating loss. - Held that the assessee had not furnished the valuation report before the A.O. during the course of assessment proceedings, we deem it proper to restore the issue to the file of the A.O. for fresh adjudication of the issue. - when the shares are sold to his wife at a lower price and the A.O. has given an observation that the same is just to offset the gain arising to the assessee, the same in our opinion, requires thorough scrutiny at the level of the A.O. This ground by the Revenue is accordingly allowed for statistical purposes.

Issues Involved:
1. Exemption under Section 54F of the Income Tax Act for investment in two flats.
2. Disallowance of long-term capital loss on the sale of flats to the assessee's wife.
3. Allowance of long-term capital loss on the sale of unlisted shares to the assessee's wife.
4. Disallowance of short-term capital loss on the sale of distressed assets.
5. Set-off of brought forward long-term capital loss from A.Y. 2001-02 against long-term capital gain in the current year.

Issue-wise Detailed Analysis:

1. Exemption under Section 54F of the Income Tax Act for investment in two flats:
The Revenue challenged the CIT(A)'s order allowing the assessee's claim for exemption under Section 54F for two separate flats purchased out of the capital gain. The AO had disallowed the exemption, arguing that the flats were under construction and were two separate properties. The CIT(A) allowed the exemption, noting that the two flats were adjacent and converted into a single unit. However, the Tribunal found that the flats were not adjacent but opposite each other, separated by a common passage and staircase. Therefore, the assessee was entitled to exemption under Section 54F for only one flat, specifically Flat No. 701, which provided the maximum benefit.

2. Disallowance of long-term capital loss on the sale of flats to the assessee's wife:
The AO disallowed the claim of long-term capital loss on the sale of flats to the assessee's wife, suspecting the transaction to be a sham intended to set off long-term capital gains. The CIT(A) allowed the claim, noting that the sale was genuine, supported by valuation reports, and the consideration was paid through bank transactions. The Tribunal restored the matter to the AO for fresh adjudication, directing the AO to verify the genuineness of the sale price and the transaction.

3. Allowance of long-term capital loss on the sale of unlisted shares to the assessee's wife:
The AO disallowed the claim of long-term capital loss on the sale of shares of George Philips to the assessee's wife, as the sale value was not substantiated. The CIT(A) allowed the claim based on a valuation report provided by the assessee. The Tribunal restored the matter to the AO for fresh adjudication, emphasizing the need for thorough scrutiny of the valuation report and the sale transaction.

4. Disallowance of short-term capital loss on the sale of distressed assets:
The AO disallowed the claim of short-term capital loss on the sale of distressed assets, suspecting the transaction to be a sham intended to offset short-term capital gains. The CIT(A) upheld the AO's decision, noting that the transaction lacked commercial substance and appeared to be a mere paper arrangement. The Tribunal agreed with the CIT(A), finding no commercial benefit to the assessee in selling the assets at a loss and considering the entire exercise to be a sham and fictitious.

5. Set-off of brought forward long-term capital loss from A.Y. 2001-02 against long-term capital gain in the current year:
The assessee claimed a set-off of brought forward long-term capital loss from A.Y. 2001-02 against the long-term capital gain in the current year. The CIT(A) disallowed the claim, stating that it was not made in the return filed under Section 139(1) and could not be done without a revised return under Section 139(5). The Tribunal admitted the ground as a legal issue and restored the matter to the AO to verify the records and decide the allowability of the claim in accordance with the law.

Conclusion:
The Tribunal's judgment involved detailed scrutiny of various claims for exemptions and losses under the Income Tax Act, directing fresh adjudication by the AO for certain issues, and upholding the CIT(A)'s decisions in other matters. The judgment emphasized the need for thorough verification and genuine transactions to claim tax benefits.

← Previous Next →