Shri Sudeshkumar G. Nagdev Shop No.5 & 6, Below Tilak Bridge, S.B. Marg Dadar (W), Mumbai-400 028. Vs. Income tax Officer-18(2)(4) Piramal Chambers, Lalbaug Mumbai-400 012.
July, 29th 2015
INCOME TAX APPELLATE TRIBUNAL,MUMBAI "E" BENCH
. . , , ,
Before S/Sh. AD Jain,Judicial Member & Rajendra,Accountant Member
/.ITA No.3199/Mum/2011, /Assessment Year-2007-08
Shri Sudeshkumar G. Nagdev Income tax Officer-18(2)(4)
Shop No.5 & 6, Below Tilak Bridge, Vs Piramal Chambers, Lalbaug
S.B. Marg Mumbai-400 012.
Dadar (W), Mumbai-400 028.
PAN: AACPN 2693 Q
( /Appellant) ( / Respondent)
/Assessee by : Ms. Vasanti Patel (AR)
/ Revenue by : Mrs. Vinita Menon (DR)
/ Date of Hearing :27 -07-2015
/ Date of Pronouncement :27 -07-2015
Order u/s.254(1)of the Inco me-tax Act,1961(Act)
PER RAJENDRA, AM-
Challenging the order dated 28.12.2010 of the CIT(A)-29,Mumbai,assessee has raised following
Grounds of Appeal:
"The CIT(A) erred in confirming the action of the Assessing Officer (AO) in not granting
exemption of Rs.25,00,000/- under section 54 to the appellant even though all the conditions laid
down in the said section were complied with by the appellant.
2.The CIT(A) erred in holding that exemption under section 54 cannot be allowed on the basis of
letter of allotment.
3. The CIT(A) erred in holding that allotment letter giving details of residential house purchased
and payment of Rs.25,00,000/- is not adequate evidence to prove purchase of a residential house.
4. The CIT(A) erred in failing to appreciate that to claim exemption under section 54 it is not
necessary to have a duly registered purchase agreement for the new residential house.
5. The CIT(A) erred in failing to appreciate that it would be sufficient compliance with the
requirements of section 54, if the appellant is able to lead sufficient evidence to prove that he has
purchased another residential house and his intention is clearly brought out from the said
The appellant craves leave to add, alter, amend and / or modify any of the above grounds at the
time or before the date of hearing."
Assessee-an individual,engaged in the business of trading in readymade garments,filed his return
of income on,31.10.2007,declaring income of Rs.4.84 lakhs.The Assessing Officer(AO)
completed the assessment u/s.143(3)of the Act on 29.12.2009,determining his income at Rs.40,
2.Effective ground of appeal is about not granting exemption of Rs.25 lakhs to the assessee u/s.
54 of the Act.During the assessment proceedings,the AO found that the assessee had claimed
deduction u/.s.54 in respect of investment of sale proceeds in new flat at Balewadi Road, Pune
amounting to Rs.25,00,000/-.In support of the said claim,the assessee furnished a copy of
allotment letter dated 15-10-2007 issued by M/s.Astrix Properties P.Ltd.(APPL).The AO
directed the assesseer to furnish purchase deed/agreement in support of his claim.The assesseer
explained that allotment letter giving details allotment of flat,payment made of Rs.25,00,000/-
was a sufficient document for claiming the exemption u/s.54.The AO held that the assessee's
contention was not tenable,that as per provisions of section 54,the assessee should have
purchased the new flat within one year before or two year after the date on which the transfer
took place,that the word purchase had its vital importanc,that the act of purchase would be
completes only when there was an agreement between the seller and buyer,that the allotment
letter could any time be withdrawn or cancelled with mutual consent without any intervention
of the Govt. authority,that the amount paid on the basis of the allotment letter could at most be
treated as an advance given.Finally,he held that exemption u/s.54 on the basis of allotment letter
was not allowable.
3.Aggrieved by the order of the of the AO the assessee preferred and appeal before the First
Appellate Authority(FAA).Before him,it was stated that he had invested in a flat developed by
APPL,that an amount of Rs.25,00,000/- was invested within the time prescribed by section 54 of
the Act,that a letter of allotment,dated 15.10.2007,was issued by the same company.He has relied
upon the decisions of Satish Chandra Gupta(54 ITD508), Dr.RK.Bhjatnagar(45ITD45),
Chimanlal Thakordas (39ITD159), Shahajada Begam 173 ITR 397 (A), Smt. Savita Rani 5 ITD
After considering the assessment and the submissions of the assessee,the FAA held that the
assessee had only received a letter of allotment and had paid Rs.25 lakhs towards consideration
to APPL,that there was n o agreement for purchase or purchase deed,that the allotment letter
giving details of flat and payment was not adequate evidence to prove the purchase of flat,that
there was no binding contract between the parties,that the second condition of purchasing the
property within the stipulated period of two years was not proved,that in the absence of a
agreement for purchase or any other evidence showing the acquisition of the immovable property
the condition of section 54 would not be satisfied,that the amount paid on allotment could be
regarded as an advance given.Finally,he upheld the order of the AO.
4.Before us,the Authorised Representative stated that the allotment letter was issue by APPL on
15.10.2007,that the agreement of purchasing the flat was signed on 29.03.2010,that allotment
letter was enough to claim deduction u/s.54 of the Act.The AR relied upon the cases of
Sambandan Udaykumar(19Taxmann.17)of the Hon'ble Karnataka High Court and Hilla J B
Wadia (69 Taxman114)of Hon'ble Mumbai High Court.Departmental Representative(DR)
supported the order of the FAA.
5.We have heard the rival submissions and perused the material before us.We find that the
assessee had sold a flat and the sale proceeds were invested in another flat,that the flat was
jointly purchased in 1988,that it was sold on 03.04.2006,that the assessee was allotted a flat by
APPL vide letter dated 15. 10.2007,that the purchase deed was signed in March 2010,that the
AO and FAA held that the allotment letter issued by APPL was not sufficient to claim deduction
u/s.54 of the Act.It is said that when capital gains arise to an assessee from the transfer of a long-
term capital asset and the assessee within the period of one year before or two years after the date
on which the transfer took place purchases or within a period of three years after the date,
constructes a residential house then instead of the capital gains being charged to tax as income of
the previous year in which the transfer took place,they would be dealt with in accordance with
section 54 of the Act,which grants exemption from payment of tax on capital gains.In the case
before us,the only issue is as to whether the payment made to APPL and allotment letter issued
in favour of the assessee were sufficient to claim deduction u/s.54 of the Act.We find that the
Hon'ble Bombay High Court has in the case of Hilla J B Wadia(supra)decided the issue
conclusively in following manner:
"In the present case, the assessee had transferred the property in which she had a half share and
which was being used for the purpose of her residence to the society. The question is whether she
can be said to have constructed a house property for the purpose of her residence within a period
of 2 years from that date. This provision will have to be construed in the context of the manner in
which such residential properties are now being constructed in a city like Bombay where, looking
to the cost of the land, co-operative housing societies are being formed for constructing a
building in which flats are allotted to members. This must also be viewed as a method of
constructing residential tenements. What we have to see is whether the assessee has acquired a
right to a specific flat in such a building which is being constructed by the society and whether
she has made a substantial investment within the prescribed period which will entitle her to
obtain possession of the flat so constructed and in which she intends to reside. The material test
in this connection is domain over the flat and investment in it. The assessee satisfies both these
conditions. She had acquired such a domain and has invested almost the entire requisite amount
in it within a period of 2 year? prescribed under section 54.
9. In this connection our attention was drawn to a Board Circular No. 471 dated 15-10-1986 (See
Yearly Tax Digest & References 1987, p. 3.52)which dealt with the investment in flats under the
Self-Financing Scheme of the Delhi Development Authority. The Board has stated in the circular
that when an allotment letter is issued to an allottee under this scheme on payment of the first
instalment of the cost of construction, the allotment is final unless it is cancelled. The allottee,
thereupon, gets title to the property on the issuance of the allotment letter and the payment of
instalments is only a follow-up action and taking delivery of possession is only a formality. The
Board has directed that such an allotment of flat under this Scheme should be treated as cost of
construction for the purpose of capital gains. The present case is on a much stronger footing
because there is not merely an allotment of the flat but even almost the entire cost of construction
is paid by the assessee within a period of 2 years.
10. Our attention in this connection was also drawn to a decision of the Andhra Pradesh High
Court in the case of CIT v. Mrs. Shahzada Begum  173 ITR 397 . In the case before the
Andhra Pradesh High Court, the assessee had paid a substantial purchase instalment and
secured possession of the property within one year of the sale of her residential property, but the
sale deed in respect of the property so purchased by her was executed and registered after the
expiry of one year. The Andhra Pradesh High Court said that the assessee was entitled to the
benefit of section 54(1) because the house property purchased by the assessee had come into full
domain and control of the assessee within a period of one year."
Respecfully,following the above judgment and the principles enumerated in it,we reverse the
order of the FAA.Effective ground of appeal is decided in favour of the assessee.
As a result,appeal filed by the assessee stands allowed.
Order pronounced in the open court on 27th,July,2015.
(.. /A.D. JAIN) ( / RAJENDRA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
/Copy of the Order forwarded to :
1.Appellant / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5.DR E Bench, ITAT, Mumbai / , ,.. .
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.