Tribunal overturns disallowance, assessee's exemption claim upheld, avoids double taxation.

The Tribunal allowed the appeal in favor of the assessee, setting aside the disallowance made by the AO and the CIT(A). The Tribunal concluded that the exemption claimed by the assessee could not be disallowed as the assessee had already withdrawn the exemption in the subsequent year, thereby avoiding double taxation.

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Issues Involved:
1. Computation of Long Term Capital Gain (LTCG) of Rs. 8,35,564/- versus NIL as filed by the assessee.
2. Withdrawal of exemption of Rs. 7,30,539/- under Section 54.
3. Reduction of cost of indexation by Rs. 72,040/-.

Issue-Wise Detailed Analysis:

1. Computation of Long Term Capital Gain (LTCG) of Rs. 8,35,564/- versus NIL as filed by the assessee:
The assessee declared an income of Rs. 20,99,070/- for the assessment year 2009-10. The case was scrutinized, and the AO assessed the income at Rs. 30,70,880/-. The primary contention was the computation of LTCG on the sale of a property at AG/270, Shalimar Bagh, Delhi, for Rs. 18,10,000/-. The property was purchased in the financial year 1998-99 for Rs. 3,72,040/-. The assessee claimed an indexed cost of acquisition of Rs. 6,11,022/- and an exemption under Section 54 for investment in residential property amounting to Rs. 12,07,539/-. The AO computed the capital gain at Rs. 8,35,564/- as against NIL computed by the assessee.

2. Withdrawal of exemption of Rs. 7,30,539/- under Section 54:
The assessee invested Rs. 12,07,539/- in two residential properties: Rs. 4,77,000/- for a residential house in AG-587, Shalimar Bagh (50% share of his son) and Rs. 7,30,539/- for a residential plot in Omaxe City, Sonepat. The AO restricted the exemption to Rs. 4,77,000/- only, arguing that Section 54 allows exemption for investment in a residential house, not a residential plot. The assessee cited Circular No. 667 dated 18.10.1993, which states that the cost of land is an integral part of the cost of a residential house. The AO disallowed the exemption of Rs. 7,30,539/-.

3. Reduction of cost of indexation by Rs. 72,040/-:
The total cost of acquisition claimed by the assessee was Rs. 3,72,040/-, including Rs. 3,00,000/- for purchase, Rs. 60,000/- for renovation and brokerage expenses, and Rs. 12,040/- for professional charges. The AO disallowed Rs. 72,040/- due to the absence of documentary evidence, and this was confirmed by the CIT(A).

Tribunal's Observations and Decision:
The Tribunal examined the facts and legal precedents. It noted that the property was sold in the subsequent financial year, and the assessee withdrew the exemption claimed under Section 54 by paying tax in the following year. This action by the assessee was intended to avoid double taxation.

The Tribunal referred to the judgment of the Delhi High Court in CIT Vs Geeta Duggal (357 ITR 153), which clarified that the term "a residential house" should not be interpreted as a single unit. The judgment emphasized that a residential house could consist of several independent units. The Tribunal also cited the Karnataka High Court's judgment in CIT vs D. Ananda Basappa (309 ITR 329), which supported the interpretation that "a residential house" could include multiple units.

The Tribunal further noted that the amendment to Section 54, effective from 1.4.2015, restricted the exemption to one residential house. However, this amendment was not applicable for the assessment year in question. The Tribunal also referred to the ITAT Mumbai's decision in Nilesh Pravin Vora and Yatin Pravin Vora (2016 (5) TMI 64), which held that exemption under Section 54F would be allowed for multiple residential units before the amendment.

Conclusion:
The Tribunal concluded that the exemption claimed by the assessee could not be disallowed, as the assessee had already withdrawn the exemption in the subsequent year, thus avoiding double taxation. The Tribunal allowed the appeal in favor of the assessee, setting aside the disallowance made by the AO and the CIT(A).

Result:
The appeal filed by the assessee was allowed.

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