Long Term Capital Gain on the transfer of a residential house under the Income Tax Act

This Income Tax Appellate Tribunal case concerns the calculation of long-term capital gains tax on the transfer of a residential property. The assessee argued that two small flats in the same building, treated as one residence, should be considered as a single unit for capital gains tax purposes. The tribunal reviewed whether the sale consideration was correctly determined and if deductions under Section 54 for acquiring a new residence were appropriate.

THE INCOME TAX APPELLATE TRIBUNAL
“SMC” Bench, Mumbai

 Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
 I.T.A. No. 6613/Mum/2019 (Assessment Year 2013-14)

Madhu B.Khatri
A-301, Bathia Building
No.1, S.V.Road
Borivali(W)
Mumbai-400092
PAN : AITPK8826F
(Appellant) 

Vs. 

ITO,Ward-32(2)(2)
C-11, R.No.304, 3rd Floor
Pratyakshkar Bhavan
BKC, Bandra(E)
Mumbai-400 051
(Respondent)

Assessee by Shri Prakash
Jhunjhunwala
Department by Ms. Usha Gaikwad

Date of Hearing 18.05.2021
Date of Pronouncement 01.07.2021

 O R D E R

Per Shamim Yahya (AM) :-

This appeal by the Assessee is directed against the order of learned CIT(A)-45 dated 23.05.2019 and pertains to Assessment Year 2013-14.

2. The grounds of appeal read as under :

1.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the addition of long term capital gain of Rs.37,47,819/- on transfer of a residential house on erroneously considering the notional sale consideration of Rs.92,11,288/- though the market value determined by the Stamp valuation department u/s.50C is ofRs.53,70,125/-;

2.0 The Ld. CIT(A), before confirming the sale consideration determined by Ld. AO on adopting the market value of 2 residential flats, ought to have considered the understated facts, being;

a) The Ld, AO determined the sale consideration on considering the excessive area of 2 flats wherein the carpet area had been hypothetically converted into built-up area on the basis of incorrect presumptions;

b) The sale consideration had been determined on considering the ready reckoner rate without considering the locational disadvantages, etc;

3.0 The Ld. CIT(A) ought to have ought to have admitted the appellant's alternate prayer made u/s.50C(2) to refer the valuation matter to DVO to determine the fair value of the capital asset transferred during the year;

4.0 On facts and circumstances of the case and in law, Ld. CIT(A) erred in confirming the disallowance of deduction u/s.54 of Rs.35,68,144/- in respect of the 2nd flat acquired by the appellant;

4.1 The Ld. CIT(A), before confirming the disallowance of deduction u/s.54 of Rs.35,68,144/-, ought to have considered the understated vial facts being;

a) The 2 small flats acquired by the appellant in same building constitutes as one residential house;

b) The amendment to Sec 54 made in Finance Act 2014 w.e.f. 01/04/2015 would not apply retrospectively.

3. Brief facts of the case are that in the assessment order, the AO allowed deduction u/s 54 on one residential house of Rs.35,68,144.

4. Against the above order, Ld.CIT(A) noted that elaborate assessees submission as under:-

'In assessment order, Ld, AO allowed the deduction u/s.54 on one residential houseof Rs.35,63,244/- and ought to have allowed the deduction of Rs.71,36,288/-. The appellant humbly submits that Ld. AO ought to have allowed the deduction it/s.54 on both flats of Rs.71,36,288/- [instead of 1 flat of Rs.35,68,144/-] and in this respect, the appellant humbly submits as under :-

3.1 The appellant had acquired a residential house being flats nos. 102&302 which are situated in same residential building. The appellant, under redevelopment agreement, was allotted the 2 flats by the developer and since the size of such flats were very small (carpet area of 492 Sq.fts per flat), accordingly the appellant had treated such 2 flats as a residential house. There is a common kitchen since the appellant had used one small size flat as her Kitchen and another flat had been held as bedrooms. The Ld. AO is not justified in considering the 2 flats as two residential houses and ought to have considered as a residential house. 

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