By TIOL News Service

AHMEDABAD, JUNE 01, 2018: THE ISSUE IS - Whether Section 54 benefits in respect of investment in residential property should not be taken away, simply because such investment was made after discovery of additional sale consideration during search proceedings. YES IS THE ANSWER.

Facts of the case:

The assessee is an individual. Pursuent to filing of his income tax return, there was a search action on Sanghavi Group of cases which included one Smt. Kokilaben. It was found that Smt. Kokilaben had purchased an immovable property from the assessee and during the course of her statement u/s. 132(4), she admitted the payment of unaccounted sale consideration of Rs. 85,00,000/- Pursuant to the said search action, the assessee revised his return and computed the long term capital gains at Rs.NIL after claiming deduction u/s. 54 and u/s 54EC of the Act. Since the assessee had revised return after the admission made by Smt. Kokilaben, the AO was of the firm belief that deduction u/s 54 was not available to the assessee and accordingly him allowed deduction u/s 54C only.

On appeal, the FAA was convinced that the investment in residential house property was made well within the time prescribed under the law for claiming deduction u/s 54. He observed that "in any case, whether there was one unit or more than one unit existing on plots was a factually and physically verifiable aspect and there were at least two unitsone flat and one bungalow wherein the investment made was claimed eligible for deduction u/s 54. The FAA was further convinced that time prescribed u/s 54 i.e. two years from the date of transaction of sale, was not controlled by either the date of filing of return or of the fact of depositing into the capital accounts scheme.

Tribunal held that,

++ there is no dispute that the assessee revised his return after the date of search in the case of Sanghavi Group. It is also true that pursuant to the statement made by Smt. Kokilaben, the assessee enhanced the sale consideration of the property sold by him to Smt. Kokilaben. It is equally true that the enhanced sale consideration was invested in the purchase of house property making the assessee eligible for the deduction u/s. 54. Thus, the assessee is not barred in making a further investment of sale consideration as discovered during the course of search at the purchasers place, if such investment is within the time allowed u/s 54. Once the genuineness of such investment in not in dispute, the benefit of such investment cannot be taken away simply based on the fact that such investment has been made after the discovery by the Department of any additional sale consideration;

++ insofar as the investment in multiple residential houses is concerned, the High Court of Karnataka in the case of K. G. Rukminiamma - 2010-TIOL-778-HC-KAR-IT had held that "for the purpose of section 54, profit on sale of property used for residence purpose, four residential flats cannot be construed as four residential houses for the purpose of Section 54, it has to be construed only as a residential house. The High Court of Delhi in the case of Gita Duggal - 2013-TIOL-143-HC-DEL-IT has held that the words "a residential house” appearing in section 54/54F cannot be construed to mean a single residential house since u/s 13(2) of the General Clauses Act, a singular includes Plural. It is found that because of these and similar judicial decisions, the amendment has been brought in Section 54 by Finance Act, 2014 and the legislature in its wisdom has enacted the amendment with effect from Apr 01, 2015 and therefore the same is not applicable to the subject assessment year. Considering the facts in totality in the light of the judicial decisions, there is no infirmity in the findings of CIT(A).

(See 2018-TIOL-778-ITAT-AHM)