2016 (1) TMI 795 - AT - Income Tax

Eligibility of deduction u/s 54 - Exemption from long term capital gains - Held that - We find that assessee had entered into an agreement for purchase of a flat no. 1402 on 31.01.2007. However, the said agreement was completely rectified and replace with a new agreement which was entered for purchase of a different flat No. 1302 on 19.04.2008. The possession of the said flat was given on 21.02.2009 and agreement for sale was made on 30.03.2009. Old flat was sold on 6th April, 2009. Thus, the claim of exemption u/s 54 made by the assessee was very much well within the window period as defined in section 54. Therefore the finding of fact as recorded by the CIT(A) (incorporated above) is affirmed - Decided in favour of assessee

Issues Involved:
1. Deduction under Section 54 of the Income Tax Act, 1961.
2. Date of purchase for eligibility of deduction under Section 54.
3. Interpretation of the date of agreement versus the date of rectification deed for the purpose of Section 54.
4. Calculation of Indexed Cost of Acquisition.

Issue-Wise Detailed Analysis:

1. Deduction under Section 54 of the Income Tax Act, 1961:
The primary issue was whether the assessee was entitled to a deduction under Section 54 of the Income Tax Act, 1961. The assessee claimed exemption under Section 54 by investing in a new flat after selling an old property. The Assessing Officer (AO) disallowed the claim, arguing that the investment was not made within the stipulated window period.

2. Date of Purchase for Eligibility of Deduction under Section 54:
The AO noted that the purchase agreement for the new flat was dated 31.01.2007, while the old flat was sold on 06.04.2009. According to the AO, the investment should have been made within one year before and two years after the date of transfer of the old asset. The assessee argued that the relevant date should be the date of the rectification deed, 19.04.2008, which fell within the allowable period.

3. Interpretation of the Date of Agreement versus the Date of Rectification Deed for the Purpose of Section 54:
The CIT(A) analyzed the provisions of Section 54 and the facts of the case. The original agreement for the new property was dated 31.01.2007, but a rectification deed was executed on 19.04.2008 due to changes in the flat number. The CIT(A) observed that the rectification deed, which was duly registered, should be considered the operative document for the purchase. The rectification deed contained clauses indicating the transfer of ownership, which was not present in the original agreement. The CIT(A) held that the deed of rectification should be taken as the date of purchase, thus falling within the allowable period for claiming deduction under Section 54.

4. Calculation of Indexed Cost of Acquisition:
The assessee raised an additional issue regarding the calculation of the Indexed Cost of Acquisition. The CIT(A) noted that this issue was covered by the decision of the Hon'ble Bombay High Court in the case of CIT vs. Manjula J Shah. The court directed the AO to give the benefit of the cost of inflation index for acquisition with reference to the year in which the previous owner had acquired the asset.

Judgment Summary:
The Tribunal upheld the CIT(A)'s decision, affirming that the assessee was entitled to the deduction under Section 54 as the purchase of the new flat was within the allowable period, considering the date of the rectification deed. The Tribunal dismissed the revenue's appeal and partly allowed the assessee's cross-objection, directing the AO to follow the principles laid down by the jurisdictional High Court for calculating the Indexed Cost of Acquisition.

Order Pronouncement:
The judgment was pronounced in the open court on 30th October, 2015, with the revenue's appeal dismissed and the cross-objection of the assessee partly allowed.

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