2017 (10) TMI 777 - AT - Income Tax

Disallowance of transfer fees and brokerage expenses while computing long term capital gains on sale of said residential flat - Held that - The explanation offered by the assessee that he was not informed by his AR about requirement of furnishing these documents before the AO and hence he did not furnish said evidences at the assessment stage is an plausible explanation which cannot be rejected at threshold to be not a reasonable or bonafide reasonable explanation more-so on perusal of invoices for both these expenses which are placed in paper book/page 72-74 the payments were made by the assessee through cheque/banking channel. The powers of learned CIT(A) is co-terminus with the powers of the AO and while deciding the appeal the learned CIT(A) should have caused enquiry of its own or directed AO to make an enquiry to verify bonafide and genuineness of the claim of the assessee instead of rejecting the claim of the assessee at threshold . We are of the considered view and direct that these additional evidences be and are hereby admitted in the interest of justice and matter be restored to the file of the AO for necessary verification / enquiry with respect to these additional evidences as to the bonafide and genuineness of the assessee s claim on merits to be conducted by the AO and issue be decided on merits by the AO in denovo proceedings in accordance with law. Denied deduction to the assessee u/s. 54 - assessee has not purchased the residential flat within two years from the date of transfer /sale of residential flat on 17-02-2009 - Held that - The allotment of flat by the Builder under self financing scheme has to treated as construction and period of three years window will be available for availing deduction u/s 54. The assessee has invested 26 lacs in new residential flat at H wing on 03-03-2011 i.e. within three years from the date of sale/transfer of flat on 17-02-2009 wherein substantial cost of the said flat was paid by the assessee as total cost was 32.76 lacs . The Builder later issued fresh letter of allotment on 15-10-2011 wherein the builder treated 26 lacs as part consideration towards said residential flat at H Wing which is again within three years from the date of sale of flat at Sahayadri Apartments by the assessee on 17-02-2009 on which income from long term capital gain arose. The assessee also paid through the builder service tax on the said payment of 26 lacs to the government which is duly acknowledged by the Builder. The Revenue also made direct enquiry with the builder and it could not be shown that these transactions are not genuine or are colourable device adopted by the assessee in collusion with the Builder to defraud revenue. The assessee has also brought on record government approvals for construction of H Wing on the plot developed by Builder. The assessee thus got right title and interest in the said flat within three years from the sale of flat on which the long term capital gain arose and the assessee will be entitled for deduction u/s 54. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of expenses incurred in connection with the sale of a residential flat.
2. Disallowance of exemption under Section 54 of the Income-tax Act, 1961, and addition of Long Term Capital Gains to the total income.

Issue-wise Detailed Analysis:

1. Disallowance of Expenses Incurred in Connection with the Sale of a Residential Flat:

The assessee claimed expenses of ?25,000 as transfer fees and ?30,000 as brokerage incurred in connection with the sale of a residential flat. The AO disallowed these expenses due to the lack of explanation and proof of payment. The CIT(A) confirmed the disallowance, and the tribunal noted that the assessee did not provide these documents during the assessment stage because his AR did not inform him about the requirement. The tribunal emphasized that technicalities should not override substantial justice and directed the AO to verify the bonafide and genuineness of the claim on merits. The tribunal restored the matter to the AO for necessary verification and decided the issue on merits, allowing this ground of appeal for statistical purposes.

2. Disallowance of Exemption Under Section 54 and Addition of Long Term Capital Gains:

The assessee sold a residential flat and claimed exemption under Section 54 by investing in a new residential flat. The AO disallowed the exemption due to the lack of a registered purchase agreement and the delay in constructing the new flat. The CIT(A) upheld the disallowance, noting that the assessee initially booked a flat, canceled it, and later booked another flat beyond the stipulated two-year period from the date of sale of the original flat.

The tribunal observed that the assessee had invested ?26,00,000 with Neeta Developers in July 2009 for a flat in 'B' Wing, which was later canceled. The same amount was retained by the builder and appropriated towards a new flat in 'H' Wing in March 2011, within three years from the date of sale of the original flat. The tribunal noted that Section 54 is a beneficial provision intended to encourage investment in housing and should be construed liberally. The tribunal referred to CBDT Circulars No. 471 and 672, which treat the allotment of flats under self-financing schemes as construction, allowing a three-year period for investment.

The tribunal concluded that the assessee made a substantial payment towards the new flat within three years from the sale of the original flat and acquired the right, title, and interest in the new flat. The tribunal held that the assessee is entitled to the exemption under Section 54 and ordered the AO to grant the deduction of ?26,00,000. This ground of appeal was allowed.

Conclusion:

The tribunal allowed the appeal of the assessee, directing the AO to verify the expenses incurred in connection with the sale of the residential flat and granting the exemption under Section 54 for the investment in the new residential flat. The order was pronounced in the open court on 17.10.2017.