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Shri Harish M Aggarwal, Aggarwal Estates,Chitalsar Manpada,S V Road,Thane-400610.Vs. The Asstt. Commissioner of Income Tax, Circle-1,Vardhaman Building, MIDC, Wagle Industrial Estate,Thane
August, 28th 2015
                    ,  , 

  ,    ..,  

                   ./I.T.A. No.6361/Mum/2011
                 (   / Assessment Year :2006-07)
 Shri Harish M Aggarwal,  / The Asstt. Commissioner of
                           Vs. Income Tax, Circle-1,
 Aggarwal Estates,
 Chitalsar Manpada,             Vardhaman Building, MIDC,
 S V Road,
                                Wagle Industrial Estate,
        ( /Appellant)              ..     ( / Respondent)

        ./   ./PAN/GIR No. :AAOPA2367G

             / Appellant by              Shri Vimal Punamiya
             /Rspondent by               Shri Jeetendra Kumar

             / Date of Hearing
                                             : 7.7.2015
            /Date of Pronouncement: 26.8.2015

                                / O R D E R


       The assessee has filed this appeal challenging the order dated
26.5.2011 passed by Ld CIT(A)-II, Thane for assessment year 2006-07 on
the following issues:-
     (a) Rejection of deduction claimed u/s 54F of the Act
     (b) Assessment of rental income under the head Income from house
        property instead of assessing the same as Business income.

2.      We heard the parties and perused the record.         During the year
under consideration, the assessee sold following assets and claimed
exemption u/s 54 of the Act as detailed below:-
                                     2                  I . T . A . N o . 6 3 6 1 / M/ 2 0 1 1

      "2.2 During the year under consideration, the assessee had sold
      certain properties and computed the long term capital gains as
      under :
      1. On sale of FSI                                  `.2,31,69,247/-
      2. On sale of RH No/16 Madhuban CHS Ltd                `.19,40,399/-
      3. On sale of land at Indore                         Rs.4,09,934/-
         Long Term Capital Gains                         `.2,55,19,581/-

         Less: Investment u/s 54
         Purchase of Residential House
         At B-3, Styanand, Thane            `.42,13,760/-
         Add: Cost of improvement             `.9,59,270/-
         Less : Exemption claimed
                in AY-2005-06                 `.5,00,000/- `.46,73,030/-

         Income from Long Term Capital Gains           `.2,08,46,551/-"

3.   The assessee claimed deduction of the cost of new residential house
purchased at B-3, Satyanand, Thane u/s 54 of the Act. Since deduction
u/s 54 is available on sale of residential house property, the AO asked the
assessee to explain as to how he could claim deduction u/s 54 on sale
proceeds of FSI and land. The assessee submitted that he has actually
claimed deduction u/s 54F of the Act. The deduction u/s 54F is available
on the capital gain arising on transfer of any long term capital asset other
than a residential house. However, the deduction u/s 54F is not available
if the assessee owns two residential houses on the date of transfer of the
long term capital asset other than the residential house. The AO noticed
that the assessee is having two residential houses on the date of transfer
of FSI and land, viz., one located at Chembur and another farm house
located at Thane.   Hence he held that the assessee is not entitled for
deduction u/s 54F of the Act.

4.   We may notice that the assessee had also sold a residential house,
viz., RH No.16, Madhuban CHS Ltd for a consideration of Rs.19,40,399/-.
                                          3                I . T . A . N o . 6 3 6 1 / M/ 2 0 1 1

It appears that the assessee had claimed deduction of Rs.5.00 lakhs in the
immediately preceding year. Accordingly, the AO allowed deduction u/s 54
of the Act on the amount of Rs.14,40,399/- (Rs.19,40,399 less Rs.5.00
lakhs) in respect of the residential house purchased at B-3 Satyanand,
Thane. The Ld CIT(A) also confirmed the same and hence the assessee
has filed this appeal before us.

5.     On a careful perusal of the orders passed by the tax authorities, we
notice that the assessee as well as the tax authorities has not properly
applied the provisions of sec. 54 and 54F.          The discrepancies/fallacies
noticed by us are listed out below:-
     (a)   In the grounds of appeal, the assessee is claiming that the
     exemption u/s 54 of the Act was denied, which resulted in an addition
     of Rs.2,40,79,181/-. However, in the return of income, total deduction
     claimed was only Rs.46,73,030/-.
     (b) The deduction allowed u/s 54 and 54F is property specific. Hence,
     we are unable to understand as to how the assessee and AO could
     deduct the amount of Rs.5.00 lakhs on the reasoning that the
     deduction to that extent was allowed in the immediately preceding
     year. We are unable to understand as to the provisions under which
     such kind of reduction is allowed.
     (c)   The deduction u/s 54F was denied on the reasoning that the
     assessee owns a farm house, which was also considered as residential
     house property by the AO. The assessee now claims before us that the
     same was not a residential house property, but was only a store house
     used to dump all unused articles.        The nature of house property is
     determined on the basis of its usage, i.e., very same property could be
     used for residential purposes as well as for commercial purposes. We
     notice the assessee has also not brought any material on record to
     show that the farm house was not used for residential purposes or was
                                   4                  I . T . A . N o . 6 3 6 1 / M/ 2 0 1 1

not fit to be used as a residential house. The assessing officer has also
not conducted necessary enquiries/inspection to find out the actual
user of the property. Hence, in the absence of relevant details, we are
unable to resolve this controversy.

(d)   The assessee has filed a letter dated 26.12.2008 before the
assessing officer, which was discussed in paragraph 3.8 of the
assessment order. A perusal of the same would show that the assessee
is referring to many other properties viz., F1, F2 & G, G-302, G602, F1-
501A etc. It is not clear as to whether the above said properties were
also held as residential house properties or not? The answer to the
above said question will determine the eligibility of the assessee to
claim deduction u/s 54F of the Act.

(e)   The assessee has sold a flat located at RH No.16, Madhuban CHS
Ltd. The date of sale of the above said flat was not brought on record.
Similarly, the dates of sale of FSI and land were also not brought on
record. The eligibility of the assessee to claim deduction u/s 54F should
be ascertained as per the number of residential houses available on the
date of sale of the long term capital asset other than the residential
house property. Hence, the date of sale of the above said assets is
crucial to determine the eligibility of the assessee to claim deduction u/s
54F of the Act.

(f)   The deduction u/s 54 should be allowed against the long term
capital gain. However, the AO has not computed the long term capital
gain, but allowed the same against the sale value.

(g)    In respect of the purchase of residential house located at B-3,
Satyanand, Thane, in our view, the assessee has got an option to claim
                                       5                  I . T . A . N o . 6 3 6 1 / M/ 2 0 1 1

     deduction either u/s 54 or u/s 54F, if he is eligible to claim deduction
     under both the sections. In view of our discussions made supra, the
     assessee should be given an opportunity afresh to exercise his option.

6.       In view of the foregoing discussions, we are of the view that the
deduction claimed by the assessee u/s 54/54F requires fresh examination
at the end of the assessing officer. Accordingly, we set aside the order of
Ld CIT(A) on this issue and restore the same to the file of the AO with the
direction to examine the claim afresh in accordance with the law, after
affording necessary opportunity of being heard.

7.      The next issue contested by the assessee relates to the assessment
of rental income as income from house property, instead of assessing the
same as business income. Before us, the Ld A.R placed reliance on the
recent decision rendered by the Hon'ble Supreme Court in the case of
Chennai Properties & Investments Ltd. Hence, we are of the view that this
issue also requires fresh examination in the light of the decision of Hon'ble
Apex Court, referred above.      Accordingly, we set aside the order of Ld
CIT(A) on this issue also and restore the same to the file of the AO for
fresh consideration.

8.      In the result, the appeal filed by the assessee is treated as allowed
for statistical purposes.

              Pronounced accordingly on 26th       August, 2015.
                                            26th   August, 2015    

       Sd                                               sd
( /JOGINDER SINGH)                         (.. ,/ B.R. BASKARAN)
  / Judicial Member                         /Accountant Member

  Mumbai: 26th August, 2015.

                          6              I . T . A . N o . 6 3 6 1 / M/ 2 0 1 1

.../ SRL , Sr. PS

    /Copy of the Order forwarded to :
1.  / The Appellant
2.    / The Respondent.
3.     () / The CIT(A)- concerned
4.      / CIT concerned
5.    ,   ,                      /
     DR, ITAT, Mumbai concerned
6.     / Guard file.

                                           / BY ORDER,
True copy
                                       (Asstt. Registrar)
                                ,  /ITAT, Mumbai
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