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2020 (7) TMI 218 - AT - Income TaxDenying exemption u/s 54 - long term capital gains arising on transfer of residential house - HELD THAT - Assessee has purchased two residential flats at Andheri bearing flat A-401 and flat B-401, 4th Floor, Brighton Tower Cooperative Housing Society Ltd., Plot No.356, Cross Road No.2, Lokhanwala Complex, Andheri (West), Mumbai and assessee modified both the flats and converted two units as one residential unit. This fact is also mentioned in statement of facts and by the A.O. in the assessment order. The assessee has further sold both the flats through two separate sale deeds. It is an admitted fact that assessee has purchased residential flat at Noida within the permitted time period from the sale of the residential flats. See DCIT vs., Shri Ranjit Vithaldas 2012 (7) TMI 586 - ITAT MUMBAI - Thus assessee is entitled for exemption under section 54 - Decided in favour of assessee.
Issues: Challenge to denial of exemption under section 54 of the Income Tax Act, 1961 for long term capital gains arising on the transfer of residential house.
Detailed Analysis: Issue 1: Denial of Exemption under Section 54 - The assessee sold two residential flats in Mumbai and purchased one in Noida, claiming exemption under section 54. The Assessing Officer (A.O.) denied the exemption, stating that there must be a set of sale and purchase of one residential house to claim exemption under section 54. - The A.O. noted that the exemption under section 54 requires the sale of a residential house and the purchase of a "residential house," emphasizing the need for a corresponding purchase against the sale. - The A.O. disallowed the exemption for the property sold for a specific amount, as there was no corresponding purchase of a residential house, resulting in an addition to the tax liability. - The Commissioner of Income Tax (Appeals) upheld the A.O.'s decision, confirming the denial of exemption under section 54. Issue 2: Assessee's Argument for Exemption - The Assessee argued that both residential flats in Mumbai were used for residential purposes and were modified into one unit. The Assessee contended that since one flat was purchased in Noida from the sale proceeds of the two Mumbai flats, exemption under section 54 should apply. - The Assessee cited precedents from the Mumbai Bench of the Tribunal to support the claim for exemption. Judicial Precedents: - The ITAT, Mumbai A-Bench held that exemption under section 54 is available for the sale of multiple residential houses if the capital gains are invested in a new residential house, provided other conditions are met. - The Tribunal emphasized that there is no restriction on investing capital gains from the sale of multiple residential houses into one residential house, as long as the conditions of section 54 are satisfied individually for each sale. - The ITAT, Mumbai D-Bench dismissed the revenue's appeal, affirming that an assessee who purchased multiple flats and sold them by a single agreement could still be eligible for exemption under section 54. Conclusion: - Considering the decisions of the Mumbai Tribunal, the ITAT Delhi allowed the Assessee's appeal, setting aside the lower authorities' orders and deleting the addition to the tax liability. - The ITAT Delhi concluded that the Assessee was entitled to exemption under section 54 of the Income Tax Act, 1961, based on the facts and circumstances of the case and the precedents cited from the Mumbai Tribunal. - The appeal of the Assessee was partly allowed, and the entire addition to the tax liability was deleted. This detailed analysis highlights the interpretation of section 54 for claiming exemption on long term capital gains from the sale of residential properties and the significance of judicial precedents in supporting such claims.
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