2020 (11) TMI 455 - AT - Income Tax

Exemption u/s.54 - assessee sells two properties and re-invests in one residential house - HELD THAT - We find that the exemption u/s.54 of the Act is granted to the assessee for re-investment made in residential house. The Section nowhere restricts the claim of the assessee that he should have sold only one property and claimed exemption u/s.54 of the Act for one property. In fact prior to the amendment made in Section 54 of the Act which came into effect from Finance (No.2 ) Act, 2014 w.e.f. A.Y.2015-16, the very same Section provided for exemption even if assessee had re-invested in more than one residential house. It nowhere prohibited the assessee to sell more than one residential house. In the instant case, the assessee has sold two residential properties and re-invested in one residential property. Hence, entire conditions of Section 54 of the Act, both prior to amendment as well as subsequent to amendment, had been duly satisfied, which had been duly appreciated by the ld. CIT(A) in the instant case. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the grounds raised by the Revenue are dismissed.

Summary

Issues:
1. Claiming exemption u/s 54 at the appellate stage without initial claim in the return of income.
2. Eligibility for exemption u/s 54 on the sale of two house properties and reinvestment in one property.

Issue 1: Claiming exemption u/s 54 at the appellate stage without initial claim in the return of income:
The appeal in ITA No.5840/Mum/2018 for A.Y.2011-12 arose from the ld. Commissioner of Income Tax (Appeals)-34, Mumbai's order against the assessment u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961. The Revenue questioned the acceptance of the claim u/s 54 at the appellate stage under Rule 46A, despite the assessee not initially claiming u/s 54 in the return of income. The ld. AO observed a discrepancy in the sale of a property by the assessee and the subsequent reinvestment. The assessee's explanations were considered, but the ld. AO rejected the capital gain working, leading to the addition of the sale consideration as unexplained investment. The ld. CIT(A) admitted additional evidence and granted relief to the assessee based on legal precedents, including the acceptance of such claims by appellate authorities. The ld. CIT(A) held that the conditions of Section 54 were satisfied, both pre and post-amendment, dismissing the Revenue's grounds.

Issue 2: Eligibility for exemption u/s 54 on the sale of two house properties and reinvestment in one property:
The dispute revolved around whether the assessee, who sold two properties and reinvested in one residential house, was entitled to exemption u/s 54 of the Act. The ld. AO contended that since the assessee sold two properties and reinvested in one house, he was not eligible for exemption u/s 54. However, the ld. CIT(A) examined additional evidence and found that the conditions of Section 54 were met, both pre and post-amendment, allowing the assessee's claim for exemption. The ld. CIT(A) highlighted that the Section did not restrict the claim to reinvestment in only one property and that the assessee's actions complied with the statutory requirements. The appellate tribunal dismissed the Revenue's appeal, upholding the ld. CIT(A)'s decision based on the fulfillment of Section 54 conditions.

In conclusion, the judgment addressed the issues of claiming exemption u/s 54 at the appellate stage and the eligibility for exemption on the sale of two properties and reinvestment in one property. The decision emphasized the statutory requirements under Section 54 and the allowance of such claims by appellate authorities, ultimately dismissing the Revenue's appeal and affirming the relief granted to the assessee.