2015 (12) TMI 1858 - AT - Income Tax

Deduction u/s 54F - capital gain declared on sale of two residential houses - assessee sold two residential flats and one shop located at Pune - As per AO assessee should not own more than one residential house, other than the new asset, on the date of transfer of original asset - Date of sale of shop - HELD THAT - As assessee had sold the residential flat on 31.7.2007 and thereafter sold the shop on 01-02-2008, while the tax authorities have presumed the residential units have been sold after the sale of shop. Since the factual aspects relating to this contradictory stand require verification, we set aside this matter to the file of the assessing officer for carrying out proper examination of the facts. Assessee has violated the second condition prescribed u/s 54F - We have noticed that the assessing officer has already submitted a remand report by obtaining details from the society office, where in it was certified that both the flats are used by the assessee as a single residential unit. Since this fact has been accepted by the tax authorities, merely because, the two flats have been purchased by way of two separate agreements, in our view, will not make any difference. Accordingly, we are of the view that both the flats purchased by the assessee and joined and also used together as a single unit should be considered as a single residential house for the purpose of sec. 54F. Quantum of deduction allowable u/s 54F - We are of the view that there is merit in the contentions of the A.R. There is nothing in the provisions of the Act that the cost of new asset shall be arrived at by deducting the deduction allowed u/s 54 of the Act for the purpose of computing deduction u/s 54F of the Act. There is also no provision in the Act which list out the priority of the deductions. Accordingly, we direct the AO to compute the deduction u/s 54F of the Act by taking the cost of new asset without deducting the deduction allowed u/s 54 of the Act, subject to the decision taken with regard to the verification of the dates of sale of residential house and shop. With the above said observations, we set aside the matter relating to the deduction u/s 54F of the Act to the file of the assessing officer. Assessee Appeal partly allowed for statistical purposes.

Summary

Issues:
1. Reduction of indexed cost of acquisition by Rs. 37,117
2. Rejection of claim for deduction u/s 54F of the Act
3. Interest charged u/s 234B and penalty initiated u/s 271(1)(c) of the Act

Analysis:

Reduction of indexed cost of acquisition:
The appeal pertains to the assessment year 2008-09, where the appellant contested the reduction of indexed cost of acquisition by Rs. 37,117. The AO allowed indexation benefit to stamp duty and registration charges paid on the purchase of a shop, starting from FY 2006-07 onwards. The appellant argued that the tax authorities misinterpreted the sequence of events, as the residential flat was sold before the shop. The Tribunal found a factual error and remanded the matter to the AO for proper examination.

Rejection of claim for deduction u/s 54F:
The appellant claimed deduction u/s 54F against long-term capital gains from the sale of old properties, citing the purchase of two adjacent flats as a single residential unit. The AO disallowed the claim based on the conditions of sec. 54F(1) proviso, stating the appellant owned more than one residential house and purchased two flats violating the one-year condition. However, the Tribunal, referring to a High Court decision, upheld the appellant's contention that the adjacent flats used as a single unit should be considered one residential house for sec. 54F purposes.

Interest charged u/s 234B and penalty u/s 271(1)(c):
The Tribunal deemed the interest charged under sec. 234B as procedural and premature to contest, rejecting the grounds related to it. The initiation of penalty proceedings was also considered premature. The Tribunal directed the AO to recompute the deduction u/s 54F without deducting the allowance u/s 54, emphasizing that the Act does not specify deducting the latter before computing the former. The appeal was partly allowed, and the matter was remanded to the AO for further assessment.

In conclusion, the Tribunal's judgment addressed the issues of indexed cost reduction, deduction under sec. 54F, and procedural aspects related to interest and penalty charges. The decision provided detailed analysis, considered legal provisions, and directed the AO to reevaluate the deduction calculation while ensuring proper verification of facts.