2022 (1) TMI 485 - AT - Income Tax

Exemption u/s. 54F denied - amount invested in purchase of two adjacent flats - AO denied the exemption claimed by noting both the said flats are independent and separate executed through different Sale Deeds - Assessee argued that amount invested in purchase of two adjacent flats bearing Flat Nos. 701 and 702 as single unit - HELD THAT - We find force in the arguments of the AR that the two adjacent flats are being used as single residential unit by opening the common wall between the two living and dining areas. Coming to the decision in the case of Devdas Naik 2014 (7) TMI 173 - BOMBAY HIGH COURT we note that the Hon ble High Court was pleased to observe that the decision in the case of Ms. Sushila M. Jhaveri 2007 (4) TMI 289 - ITAT BOMBAY-I has been confirmed by this Court in the case of CIT Vs. Raman Kumar Suri 2012 (12) TMI 421 - BOMBAY HIGH COURT . Therefore, as discussed above the Special Bench in the case of Ms. Sushila M. Jhaveri 2007 (4) TMI 289 - ITAT BOMBAY-I held exemption is allowable u/s. 54F of the Act if the two adjacent or contiguous untis converted into one residential house by having common passage/stair case, common kitchen etc. intended to be used as single house for the residence of the family. In the present case, as we noted above that two adjacent flats converted into one unit by opening a common wall between two living and dining area and being used as single unit for residential purpose of the assessee, therefore, in our opinion, the ratio of Hon ble High Court of Bombay is applicable to the case on hand. Thus, we hold that the assessee is entitled to claim deduction u/s. 54F of the Act for entire amount which was invested in purchase of two adjacent flats bearing Flat Nos. 701 and 702 as single unit. The order of CIT(A) is not justified and it is set aside. The grounds raised by the assessee are allowed.

Summary

Issues:
Whether the denial of exemption under section 54F of the Income Tax Act by the Commissioner of Income Tax (Appeals) is justified.

Analysis:
The appellant, a Veterinary Doctor, sold a plot of land and invested the capital gain in two adjacent residential flats in Mumbai. The Assessing Officer (AO) denied the exemption under section 54F as the flats were separate and not converted into a single unit. The Commissioner of Income Tax (Appeals) upheld the AO's decision based on the building plan not supporting the conversion of flats into one unit.

The appellant argued that the two flats were converted into a single unit by opening a common door, citing specific conditions in the Sale Deeds and relevant case laws. The Department Representative opposed, emphasizing the separate Sale Deeds and property tax payments for each flat. The Special Bench of ITAT in a similar case allowed exemption for adjacent units converted into a single house for family residence.

Upon review, it was found that the flats had common areas and were converted into a single unit by the appellant. Referring to the decision of the Hon'ble High Court of Bombay, the Tribunal held that the appellant was entitled to claim deduction under section 54F for the entire investment in the two adjacent flats as a single unit. The CIT(A)'s decision was set aside, and the appellant's grounds were allowed.

In conclusion, the Tribunal allowed the appeal, stating that the appellant could claim deduction under section 54F for the investment in two adjacent flats converted into a single residential unit.