Appellate Tribunal Affirms Exemption for Combined Residential Unit

The Appellate Tribunal upheld the Commissioner of Income Tax (Appeals)' decision to allow the exemption under Section 54 for the combined residential unit formed by three flats. The Tribunal affirmed that the flats were used as a single residential unit, citing relevant case law and emphasizing the unity of structure. The Revenue's appeal was dismissed, and the CIT(A)'s decision was upheld.

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Issues Involved:
1. Disallowance of exemption under Section 54 of the Income Tax Act.
2. Treatment of multiple flats as a single residential unit for tax exemption purposes.

Issue-wise Detailed Analysis:

1. Disallowance of exemption under Section 54 of the Income Tax Act:

The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] dated 28.04.2014, which directed the Assessing Officer (AO) to delete the disallowance of Rs. 1,88,18,852/- claimed as an exemption under Section 54 of the Income Tax Act. The AO had disallowed the exemption on the grounds that the assessee had purchased and sold three separate flats (Flat Nos. 701, 702, and 703 at Glen Eagle) through distinct agreements and later combined them into one unit. The AO allowed the exemption for Flat No. 701, which was the residential address on the electricity bill, but disallowed the exemption for Flats No. 702 and 703, resulting in a disallowance of Rs. 78,80,279/- and Rs. 1,09,38,573/- respectively.

2. Treatment of multiple flats as a single residential unit for tax exemption purposes:

The CIT(A) overturned the AO's decision, stating that the three adjoining flats were merged into one residential house by the previous owner and were used as a single unit by the assessee. The CIT(A) noted that there was only one electricity meter for the three flats and that the appellant had deposited Rs. 3,50,00,000 in a Capital Gains Account Scheme before the due date for filing the return of income. The CIT(A) emphasized that the execution of separate agreements does not determine the issue; instead, the actual use of the flats as a single residential unit is crucial. The CIT(A) cited the jurisdictional Hon'ble Bombay High Court's decision in CIT vs. Devdas Naik, which supported the view that adjoining flats combined into one unit for residence qualify for exemption under Section 54.

The CIT(A) further referenced the Hon'ble Allahabad High Court's decision in Shiv Narain Choudhary v. CWT, which held that self-contained dwelling units within a common boundary and having unity of structure could be regarded as one house. The CIT(A) also pointed out that Section 54 does not restrict the exemption to the sale of a single residential house; rather, it allows for the capital gain from the sale of multiple residential houses to be invested in one residential house, provided the other conditions of Section 54 are met.

The CIT(A) concluded that the assessee was eligible for the exemption under Section 54, as the flats were used as a single residential unit, and directed the AO to delete the disallowance of Rs. 1,88,18,852/-.

Final Judgment:

After hearing both parties and reviewing the material on record, the Appellate Tribunal upheld the CIT(A)'s detailed and reasoned order. The Tribunal found no reason to deviate from the CIT(A)'s conclusion that the assessee was using all three flats as a compact unit with a single electricity bill. The Tribunal also noted that the issue was covered by the Hon'ble Bombay High Court's decision in CIT vs. Devdas Naik. Consequently, the Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order.

Conclusion:

The appeal of the Revenue was dismissed, and the order pronounced in the open court on 05.02.2019 affirmed the CIT(A)'s decision to allow the exemption under Section 54 for the combined residential unit formed by Flats No. 701, 702, and 703 at Glen Eagle.

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