2018 (5) TMI 1537 - AT - Income Tax

Disallowance of deduction claimed u/s 54 - assessee eligibility to claim deduction in respect of one residential flat - Held that - All the three flats into one residential unit having a single kitchen and private staircase. In our considered opinion, the additional evidence filed by the assessee, since, is crucial for deciding the issue in dispute, needs to be admitted. However, since, the Departmental authorities did not have the opportunity to examine the aforesaid evidence, the same requires to be looked into by them. Moreover, assessee s claim that the three residential units haves been converted into a single unit having common kitchen, common entrance, etc. not only has to be proved through documentary evidence but an enquiry is also required to be made to find out the veracity of assessee s claim.

Issues Involved:
1. Deduction under Section 54 of the Income Tax Act for three residential flats.
2. Deduction under Section 54 of the Income Tax Act for garages.
3. Deduction under Section 54 of the Income Tax Act for cost incurred in remodelling the new residential flat.

Detailed Analysis:

1. Deduction under Section 54 of the Income Tax Act for three residential flats:
The primary issue is whether the investment made by the assessee in three residential flats can be considered as a single residential unit eligible for deduction under Section 54 of the Income Tax Act. The assessee claimed deduction for the total long-term capital gain of ?7,52,21,520/- towards the purchase of three flats and two garages. The AO restricted the deduction to ?5,57,52,000/- for the three flats, excluding the garages and the cost of remodelling. The CIT(A) further restricted the deduction to one flat, concluding that the three flats, situated on different floors with separate entrances and kitchens, do not constitute a single residential unit. The assessee argued that the three flats were converted into a single unit with a common entrance and kitchen, supported by an architect's plan and a letter from the housing society. The Tribunal found that this additional evidence is crucial and needs verification by the AO. Thus, the issue was remanded to the AO for fresh adjudication after proper enquiry.

2. Deduction under Section 54 of the Income Tax Act for garages:
The second issue is whether the garages purchased along with the residential flats qualify for deduction under Section 54. The AO disallowed the deduction for garages, treating them as separate from the residential unit. The assessee contended that the purchase of garages was a condition imposed by the housing society and should be considered part of the residential unit. The Tribunal observed that the judicial precedents cited by the assessee, which were not considered by the departmental authorities, need to be examined. Therefore, this issue was also remanded to the AO for fresh adjudication.

3. Deduction under Section 54 of the Income Tax Act for cost incurred in remodelling the new residential flat:
The third issue is whether the cost incurred for remodelling the new residential flat is eligible for deduction under Section 54. The AO disallowed this claim, and the CIT(A) upheld the decision. The assessee argued that the remodelling cost of ?88,19,520/- should be considered part of the cost of the new residential flat. The Tribunal noted that this issue requires re-examination and remanded it to the AO for fresh adjudication.

Conclusion:
The Tribunal restored the issues related to the assessee's claim of deduction under Section 54 of the Income Tax Act to the AO for de novo adjudication. The AO is directed to re-examine the claims regarding the three flats, garages, and remodelling costs, considering the additional evidence and judicial precedents, and after providing the assessee with an opportunity of being heard. The appeal was partly allowed for statistical purposes.

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