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Issues: (i) Whether the sale of shares of a private company to the same group builder and the subsequent purchase of residential property from that builder were sham or interconnected transactions so as to justify addition under section 69 or section 69A and denial of the claim under section 54F; (ii) Whether the amounts paid towards power, water, maintenance, club membership, and similar charges formed part of the cost of the new residential asset for computing deduction under section 54F.
Issue (i): Whether the share sale and property purchase were sham or interconnected transactions so as to justify addition under section 69 or section 69A and denial of section 54F relief.
Analysis: The shares were sold against cheque consideration, supported by the share purchase agreement, transfer documents, valuation material, and bank records. The valuation report adopted book value of the land bank, whereas the underlying land, if valued at market rates, supported a share value of about Rs. 6 crores. The fact that the purchaser of the shares and the seller of the flat was the same builder did not, by itself, establish a fictitious or non-arm's length arrangement. The Revenue failed to show that the share sale or the flat purchase lacked genuineness or that the transaction was an accommodation entry. Section 69A was therefore inapplicable, and section 56(2)(x) also did not apply on the facts found.
Conclusion: The addition on the footing of a sham transaction was rejected and the assessee's claim under section 54F was sustained.
Issue (ii): Whether power, water, maintenance, club membership, and similar charges were includible in the cost of the new residential asset for section 54F.
Analysis: Those payments were found to be mandatory for registration and for obtaining complete possession of the property. They were necessary for acquisition of the new residential asset and formed part of the effective investment in the house property.
Conclusion: The amounts were rightly included in the cost of the new residential asset and were eligible for section 54F computation.
Final Conclusion: The Revenue failed to dislodge the genuineness of the transactions, and the assessee remained entitled to the deduction claimed on the investment in the residential property.
Ratio Decidendi: A genuine share sale supported by market-based valuation and cheque payment cannot be treated as a sham merely because the purchaser is also the seller of the subsequent residential property; payments necessarily made to acquire and register the new house form part of the cost for section 54F purposes.
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