Principal Commissioner Of Income Tax-5Aayakar Bhavanwanaparthy Block, 5[Th] Floor v. Shri.abhijit Bhandari

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE DR.JUSTICE VINEET KOTHARIANDTHE HONOURABLE MR.JUSTICE C.V.KARTHIKEYAN Principal Commissioner of Income Tax-5Aayakar BhavanWanaparthy Block, 5[th] Floor,121, Mahatma Gandhi RoadChennai – 600 034,... Appellant/Respondent Vs Shri.Abhijit Bhandari ... Respondent/Petitioner PRAYER: The Writ Appeal filed under Clause 15 of the Letters Patent,against the Final order passed in W.P.No.11596 of 2016, dated02.06.2017. W.P.No.11596 of 2016:-Writ Petition filed under Article 226 of the Constitution ofIndia, praying for the issuance of Writ of Certiorari, or anyother appropriate writ, direction or other in the nature ofWrit, Calling for the records in C.No.2(24)/263/PCIT-5/CR-5/2015-16 dated 26.02.2016 on the file of the Respondentrelating to Assessment Year 2008-09 quashing the same. The respondent in W.P.No.11596 of 2016, the PrincipalCommissioner of Income Tax-5, Chennai, is the appellant herein,calling into question the order of the learned Single Judge,dated 02.06.2017. https://hcservices.ecourts.gov.in/hcservices/ 2.W.P.No.11596 of 2016 had been filed by the petitionerAbhijit Bhandari under Article 226 of the Constitution of Indiapraying to issue a Writ of Certiorari or any other appropriatewrit, calling for the records in C.No.2(24)/263/PCIT-5/CR-5/2015-16 dated 26.02.2016, on the file of the appellant hereinrelating to Assessment Year 2008-09 and to quash the same. W.P.No.11596 of 2016: 3.As stated above the Writ Petition had been filed byAbhijit Bhandari, seeking issuance of Writ of a Certiorari tocall for the records and quash the order in C.No.2(24)/263/PCIT-5/CR-5/2015-16 dated 26.02.2016, passed under Section 263 ofthe Income Tax Act, 1961 [in short “the Act”] by the PrincipalCommissioner of Income Tax-5, Chennai. 4.The writ petitioner was the principal shareholder of acompany called Royal Images Direct Marketing Private Company[in short referred to as “RIDM”]. The petitioner, along withother shareholders had entered into a Share Purchase Agreement,dated 17.07.2006 [in short “SPA”] with another entity by nameAccor Services. 5.According to the SPA, 70% of the shareholding in RIDM wasto be sold by way of tranche, followed by a second and thirdtranches comprising 20% and 10% of the equity stake in RIDM. Thesaid three tranches were required to be sold in threeconsecutive years, namely, AY-2007-2008, AY-2008-2009 and AY-2009-2010. The petitioner had received an advance to a sum ofRs.15,82,86,273/- in the previous year 2006-2007, relatable toAY 2007-2008 towards the sale of 70% of the shares in the firsttranche. The petitioner claimed that 70% of the shareholding wassold by him on 05.05.2007 for a total consideration ofRs.22,42,72,478/- in the first tranche including theaforementioned sum received in the form of advance. 6.The petitioner, to avail the benefit of Section 54F of theAct, decided to invest the amount received in two residentialflats located in the Olumpus Building in Altamount Road,Cumbulla Hill, Mumbai [hereafter collectively called as“flats”]. These flats bore Nos. 607 and 612. They were,according to the petitioner adjacent to each other. 7.The Housing Society issued a No Objection Certificate [inshort “NOC”] with respect to flat No.612 on 11.04.2006. Thepetitioner purchased the two flats by two separate sale deeds.Flat No.607 was purchased by sale deed dated 23.05.2006. FlatNo.612 was purchased by sale deed dated 16.01.2007. 8.The petitioner claimed in the writ petition that he hadcommenced the modification and renovation works to convert the https://hcservices.ecourts.gov.in/hcservices/ two adjoining flats into a single residential unit by or aboutJune 2006. 7.The Housing Society issued a No Objection Certificate [inshort “NOC”] with respect to flat No.612 on 11.04.2006. Thepetitioner purchased the two flats by two separate sale deeds.Flat No.607 was purchased by sale deed dated 23.05.2006. FlatNo.612 was purchased by sale deed dated 16.01.2007. 8.The petitioner claimed in the writ petition that he hadcommenced the modification and renovation works to convert the https://hcservices.ecourts.gov.in/hcservices/ two adjoining flats into a single residential unit by or aboutJune 2006. 9.The petitioner also claimed that the Housing Society alsoprovided him only with one single vote in matters relating toadjudicating issues which arise in the Society since for allpractical purposes, he was the owner of one flat though, it wasactually two separate flats conjoined into one. 10.The petitioner filed his returns for AY 2008-2009 on31.07.2008, wherein, he claimed deduction under Section 54F ofthe Act. An assessment order dated 22.12.2010, was passed. 11.In the writ petition, the petitioner further claimed thathe was intimated about an objection raised by Internal RevenueAudit and he further claimed that he had provided all thenecessary details and thereupon the Assessing Officer droppedthe proceedings initiated. The petitioner further stated in thewrit petition that he received a notice dated 20.03.2013, underSection 148 of the Act, with respect to the very same AY 2008-2009 on the ground that income chargeable to tax had escapedassessment. 12.The petitioner sought reasons for the notice and wasinformed that the aspect pertaining to claim made by him underSection 54F of the Act, was the reason for the issuance of thesaid notice. 13.The petitioner then filed his objections. The AssessingOfficer, passed an assessment order on 30.03.2014 and sustainedthe claim of the petitioner. In the meanwhile, the petitionerfiled his return for AY 2009-2010, in which he declared the saleof the second tranche of 20% of the shareholding in RIDM anddeclared a total consideration of Rs.11,24,14,809/-. He alsoclaimed that he paid Rs.40 lakhs out of the said amount asadvance for purchase of immovable property in Alibaug in RajgadDistrict, Maharashtra, to construct a residential property. Healso invested in Capital Gains Account Scheme, maintained in theBank of India. 14.The return for AY 2009-2010 was also subjected toscrutiny and an assessment order was passed under Section 143(3)of the Act, on 12.12.2011. The Assessing Officer disallowed theclaim of the petitioner for a sum of Rs.6.50 Crores, underSection 54 of the Act, on the ground that the flats purchased bythe petitioner were two separate residential units andconsequently, he was not entitled to claim the benefit underSection 54F of the Act. https://hcservices.ecourts.gov.in/hcservices/ preferring an appeal before the Commissioner of Income Tax(Appeals) [in short “CIT(A)”]. The CIT(A), by order dated29.07.2013, allowed the appeal and sustained the deductionclaimed by the petitioner under Section 54F of the Act. It mustbe pointed out that in the very same order the CIT(A) also dealtwith the appeal preferred by the petitioner in respect of AY2008-2009 as some of the issues were common to the two appealspreferred by him. The issue pertaining to the deduction claimedby the petitioner under Section 54F of the Act, arose only inthe appeal preferred with respect to AY 2009-2010. 16.Challenging the order of CIT(A), the Revenue filed anappeal before the Income Tax Appellate Tribunal, Chennai, [inshort the “Tribunal”]. The Tribunal by common order dated08.04.2015, dealt with the two appeals filed by the Revenue anddismissed the appeal pertaining to AY 2008-2009 and partlyallowed the appeal pertaining to AY 2009-2010. 16.Challenging the order of CIT(A), the Revenue filed anappeal before the Income Tax Appellate Tribunal, Chennai, [inshort the “Tribunal”]. The Tribunal by common order dated08.04.2015, dealt with the two appeals filed by the Revenue anddismissed the appeal pertaining to AY 2008-2009 and partlyallowed the appeal pertaining to AY 2009-2010. 17.The Tribunal, had dealt with three aspects, namely,(i)The claim of the petitioner under Section 54F in relationto the investment in the flats.(ii)The investment made by the petitioner to a sum ofRs.6.20 Crores in the Capital Gains Account scheme with Bank ofIndia.(iii)The sum of Rs.40 Lakhs paid by the petitioner forpurchase of immovable property in Alibaug, Rajgad District,Maharashtra. 18.The Tribunal, observed that the Assessee had constructeda residential house in the Alibaug property in or about July2011 from the investment made in Capital Gains Account Scheme.The petitioner claimed exemption under Section 54 of the Act tothe extent of funds utilized for purchase of land andconstruction of residential building which he claimed was withinthree years from the date of investment in the Capital GainsAccount Scheme. 19.The Tribunal, observed that the petitioner had offered asum of Rs.49,24,780/- for taxation. Thereafter, the Tribunal,remanded the matter back to the Assessing Officer, stating thatthere was no discussion by the Assessing Officer about the issueof investment in Capital Gains Account Scheme amounting ofRs.6,10,000/- and Rs.40,00,000/- as advance paid for purchase ofthe Alibaug property. It was further observed by the Tribunal,that the Assessing Officer had only considered the investment inthe flats at Olumpus Building in Altamount Road, Cumballa Hills,Mumbai, for which he had already claimed deduction under Section54F of the Act, for the AY 2008-2009 and which had been allowedby the Assessing Officer. 20.The petitioner further stated in the Writ Petition thatnot withstanding the order of the Tribunal, the PrincipalCommissioner of Income Tax-5, issued a Show Cause Notice dated15.12.2015 to the petitioner under Section 263 of the Act. Inthe show cause notice, the petitioner's claim for deductionunder Section 54F of the Act to a sum of Rs.4,88,78,900/- beingthe amount invested in the flats was questioned. 21.The petitioner claimed that he filed a reply to thenotice. The respondent in the writ petition namely, thePrincipal Commissioner of Income Tax-5, passed the impugnedrevisional order dated 26.02.2016, challenged in the writpetition. By the said order, the respondent in the writ petitionset aside the assessment order dated 31.03.2014, pertaining toAY 2008-2009 passed under Section 143(3) read with Section 147of the Act. This led the petitioner to file writ petitionseeking to call for the records of the said order and to quashthe same. The Order dated 02.06.2017:22.By order dated 02.06.2017, the learned Singe Judge ofthis Court observed that the CIT(A) by common order dated29.07.2017, had held that the petitioner should be alloweddeduction under Section 54F of the Act, as the aspectspertaining to the claim had been considered in AY 2008-2009. Itwas observed that in the order, the CIT(A) had discussed theentire history of the transaction and also the material placedwhich included the Surveyor's report, whereby a categoricalfinding was returned that the two flats were conjoined into oneflat and it was confirmed that it was a single residential unit.The Assessing Officer by order dated 31.03.2014, in theproceedings under Section 143(3) read with Section 147 of theAct, with relation to AY 2008-2009 had also come to the verysame conclusion and had allowed deduction under Section 54F ofthe Act. 23.It was further observed by the learned Single Judge thatwhile the Revenue, had preferred appeals to the Tribunal againstthe common order dated 29.07.2013 of the CIT(A), with relationto AY 2008-2009 and 2009-2010, it also simultaneously initiatedproceedings under Section 263 of the Act, against the Order ofthe Assessing Officer, dated 31.03.2014. It was further observedthat the Tribunal, was obliged to adjudicate the appealspreferred by the Revenue, with respect to both AY 2008-2009 and2009-2010. The Tribunal, had considered not only the issuewhether the said flats formed one residential unit, but alsoexamined the investment made by the petitioner in the Alibaugproperty, wherein he had constructed a residential house. TheTribunal also examined the petitioner's claim that he had invested Rs.6.10 Crores in a Capital Gains Account Scheme withBank of India. 24.It was observed by the learned Single Judge, that theTribunal dealt with all the three aspects in its order dated08.04.2015. After discussing the three aspects, the Tribunal hadremanded the matter back only with respect to the last twoissues, namely, claim with respect to investment of Rs.6.10Crores in the Capital Gains Account Scheme and the investment ofRs.40 Lakhs made by way of advance for purchase of Alibaugproperty. The learned Single Judge observed that the Tribunalhad thought it fit not to entertain the appeal of the Revenue,with respect to the challenge laid to deduction claimed by thepetitioner with respect to the flats under Section 54F of theAct. 25.The learned Singe Judge further observed as follows: “12.3.Therefore, in my opinion, since, theRevenue did not assail the order of theTribunal dated 08.04.2015, the respondentcould not have exercised powers under Section263 of the Act to revisit the issue onceagain, by setting aside the order dated31.03.2014, passed by the Assessing Officerunder Section 143(3) read with Section 147 ofthe Act.” 26.The learned Singe Judge further observed as follows: “13. Furthermore, according to me, ascorrectly argued by Mr.Senthil, on behalf ofthe appellant, the view taken by theAssessing Officer in its order dated31.03.2014, was a possible view, andtherefore, would not, necessarily, as itsought to be projected on behalf of theRevenue, be categorised as an erroneous view.13.1. A perusal of the impugned order wouldshow that the respondent has set aside theorder and directed the Assessing Officer torevisit the issue, as he, according to him,had faulted to take into account the factthat the subject flats had been purchased viatwo separate sale deeds, and had separateelectricity meter connections. According tome, it appears that the respondent wasunnecessarily burdened by the fact that thesubject flats were purchased by two separatesale deeds and had separate electricity meterconnections. The issue at hand, before theAssessing Officer, in my opinion, was whetheror not the subject flats form a singleresidential unit. 13.2. The size of the flat, or, that they hadseparate electricity meter connections wouldnot, necessarily, lead to a conclusion thatthey were two separate residential units. TheAssessing Officer was required to look atother attendant circumstances, which includedthe survey report, in reaching a conclusionin the matter. Notably, what was available onrecord, was not only the survey report, butalso the material provided by the concernedHousingSociety. The survey report, as itappears, did advert to the fact that thesubject flats formed a single residentialunit. 13.3. The learned counsel for the Revenue hasnot assailed the survey report before me.Therefore, quite clearly, there was materialavailable to the Assessing Officer to come toa possible view, if not, definite view thatthe subject flats formed a single residentialunit. 13.3. The learned counsel for the Revenue hasnot assailed the survey report before me.Therefore, quite clearly, there was materialavailable to the Assessing Officer to come toa possible view, if not, definite view thatthe subject flats formed a single residentialunit. 13.4. If, that be the conclusion, then,clearly, the respondent had no jurisdictionto initiate proceedings under Section 263 ofthe Act and thereupon, proceed to pass theimpugned order.” 27.In the result, the learned Single Judge, quashed theimpugned order and allowed the writ petition. W.A.No.1127 of 2017: 28.Challenging the said order, the respondent in the WritPetition namely, the Principal Commissioner of Income Tax-5,Chennai, had filed the present Writ Appeal. 29.Heard arguments advanced by Ms.Hema Muralikrishnan,learned counsel for the appellant/respondent in the writpetition and Mr.M.P.SenthilKumar, learned counsel for therespondent/petitioner in the writ petition. Arugments Advanced: 30.Ms.Hema Muralikrishnan, learned counsel for the appellantpointed out that the Tribunal had only remanded the issues tothe Assessing Officer for investigation of the facts and to takea decision of merits. It was thereafter, pointed out that thelearned Single Judge ought to have dismissed the writ petition https://hcservices.ecourts.gov.in/hcservices/ and allowed the fact finding authority to investigate andfinally determine the facts. It was further pointed out that thelearned Single Judge had wrongly concluded, that the Tribunalhad dealt with three separate aspects in its order dated08.04.2015. It was urged that the Tribunal had not consideredwhether the flats purchased by the respondent formed a singleresidential unit. It was also pointed out by the learned counselthat the issue whether the respondent was entitled to deductionunder Section 54F of the Income Tax Act, with respect to thesecond flat purchased by him was never discussed by theAssessing Officer for AY 2008-2009 or even by the CIT(A) or bythe Tribunal. The discussion arose in the course of decidingwhether the respondent was entitled for deduction under Section54F for investment made in AY 2009-2010 in Alibaug property.Since the Assessing Officer had not decided this question,Ms.Hema Muralikrishnan, learned counsel insisted that the orderof the appellant in initiating proceedings under Section 263 ofthe Act, was in accordance with law and cannot be termed asprejudicial to the interest of the respondent. It was repeatedlyurged by the learned counsel that the issue as to whether thepurchase of two residential flats by the respondent can beconsidered as purchase of one residential unit eligible forexemption under Section 54F in AY 2008-2009 had not been decidedat all by only of the authorities. 31.The learned counsel also assailed the observation of thelearned Single Judge while setting aside the impugned orderthat the flats formed a single residential unit as a “possibleview” and that consequently, the appellant cannot revise thesame under Section 263 of the Act. It was strenuously argued andclaimed that whether the purchase of two flats can be consideredas purchase of one residential unit or purchase of two separateresidential units had not been considered by the AssessingOfficer and consequently, the appellant was well within hispowers to initiate proceedings under Section 263 of the Act. 31.The learned counsel also assailed the observation of thelearned Single Judge while setting aside the impugned orderthat the flats formed a single residential unit as a “possibleview” and that consequently, the appellant cannot revise thesame under Section 263 of the Act. It was strenuously argued andclaimed that whether the purchase of two flats can be consideredas purchase of one residential unit or purchase of two separateresidential units had not been considered by the AssessingOfficer and consequently, the appellant was well within hispowers to initiate proceedings under Section 263 of the Act. 32.Mr.M.P.Senthilkumar,learnedcounselfortherespondent/writ petitioner, seriously disputed the contentionsraised by Ms.Hema Muralikrishnan. The learned counsel alsosubmitted a synopsis of dates and events and also an additionaltyped set of papers, wherein he had given the sequence of eventsprior to the purchase of two residential flats. The learnedcounsel stated that a No Objection Certificate had been issuedby the Olumpus Co-operative Society Limited, with respect toflat No.612 on 11.04.2006 and immediately thereafter, on20.04.2006, the respondent herein had intimated to the Secretaryof the Housing Society, the scope of the renovation work in flatNos.612 and 607. Among other works it included “breaking thewall between second bedroom of 612 and the passage wall of 607to combine the two flats”. Permission for such renovation was granted on 28.04.2006. The agreement for purchase of flat No.607was entered into on 05.05.2006 and the sale deed was executed on23.05.2006. The sale deed with respect to flat No.612 wasexecuted on 16.01.2007. It must be kept in mind that the firsttranche of sale of 70% of share in RIDM was on 05.05.2007. 33.The learned counsel placing strong reliance on the abovesequence of events stated that within one year prior to orsubsequent to the sale, the two flats had been purchased andconjoined into one single residential unit. The learned counsel,therefore, justified the claim under Section 54F for the cost ofboth the flats as one single residential unit. It was furtherpointed out that the assessment under Section 143(3) for AY2009-2010 was completed on 12.12.2011, disallowing the exemptionclaimed under Section 54F to the extent of Rs.6.50 Crores on twogrounds namely, the property purchased in Alibaug wasagricultural land and on the date of sale of shares of thesecond tranche, the respondent had owned two flats andconsequently, he owned more than one residential unit. 34.This order was challenged by the respondent herein beforethe CIT(A) on 29.07.2013. The CIT(A) passed a common order alsorecording the report of the Surveyor wherein it was stated thatthe respondent herein had converted the two residential flatsinto one single unit. The CIT(A) allowed the claim of therespondent for exemption under Section 54 (AY 2009-2010),stating that all aspects have been duly considered forpermitting relief claimed under AY 2008-2009. It was observedthat the assessment was completed under Section 143(3) by orderdated 22.12.2010. The claim of the respondent that theacquisition was a single dwelling unit in the previous year andcould not be a ground to deny relief under Section 54F in thesubsequent year AY 2009-2010 was accepted. 35.The learned counsel pointed out that the Tribunal hadremitted the issue for fresh consideration with respect to theinvestment in Capital Gains Accounts Scheme and advance paid forpurchase of property in Alibaug. In the meanwhile, on15.12.2015, the appellant herein had issued the notice underSection 263 of the Act, with respect to AY 2008-2009 claimingthat the assessee owned more than one residential unit on thedate of sale of shares on 05.05.2007. The learned counselsupported the order of learned Single Judge and urged the Courtto uphold the same.Discussion and Findings: 35.The learned counsel pointed out that the Tribunal hadremitted the issue for fresh consideration with respect to theinvestment in Capital Gains Accounts Scheme and advance paid forpurchase of property in Alibaug. In the meanwhile, on15.12.2015, the appellant herein had issued the notice underSection 263 of the Act, with respect to AY 2008-2009 claimingthat the assessee owned more than one residential unit on thedate of sale of shares on 05.05.2007. The learned counselsupported the order of learned Single Judge and urged the Courtto uphold the same.Discussion and Findings: 36.The respondent, Abhijit Bhandari, had in the writpetition assailed the order of the appellant herein dated26.02.2016, in C.No.2(24)/263/PCIT-5/CR-5/2015-16, with respectto the AY 2008-2009. The appellant was a principal shareholder of a company by name RIDM. He entered into a SPA dated17.07.2006, along with other shareholders, with other entity byname Accor Services. It was agreed under that SPA that initially70% of the shareholding of the RIDM would be sold by way oftranche. The second and third tranches would comprise sale of20% and 10% respectively of the equity stake in RIDM. They wereto be sold in three consecutive years namely, AY-2007-2008, AY-2008-2009 and AY-2009-2010. 37.Therespondent hadreceivedanadvance ofRs.15,82,86,273/- relating to AY 2007-2008 towards sale of 70%of shareholding of RIDM. The total consideration wasRs.22,42,72,478/- and the date of sale was 05.05.2007. Therespondent sought to avail the benefit under Section 54F of theAct. Section 54 is in chapter-IV of the Act relating tocomputation of income from Capital Gains Accounts Scheme andalso relates to profit on sale of property used for residence. 38.Section 54(1) of the Act is as follows:“Profit on sale of property used forresidence:54.Subject to the provisions of sub-section(2), where, in the case of an assessee beingan individual or a Hindu undivided family,the capital gain arises from the transfer ofa long-term capital asset, being buildings orlands appurtenant thereto, and being aresidential house, the income of which ischargeable under the head “Income from houseproperty” (hereafter in this section referredto as the original asset), and the assesseehas within a period of [one year before ortwo years after the date on which thetransfer took place purchased], or has withina period of three after that dateconstruction, one residential house in India,then, instead of the capital gain beingcharged to income-tax as income of theprevious year in which the transfer tookplace, it shall be dealt with in accordancewith the following provisions of thissection, that is to say,--(i) if the amount of the capital gain isgreater that the cost of the residentialhouse so purchased or constructed (hereafterin this section referred to as the newasset), the difference between the amount ofthe capital gain and the cost of the newasset shall be charged under section 45 asthe income of the previous year; and for the purpose of computing in respect of the newasset any capital gain arising from itstransfer within a period of three years ofits purchase or construction, as the case maybe, the cost shall be nil; or purpose of computing in respect of the newasset any capital gain arising from itstransfer within a period of three years ofits purchase or construction, as the case maybe, the cost shall be nil; or (ii) if the amount of the capital gainis equal to or less than the cost of the newasset, the capital gain shall not be chargedunder section 45; and for the purpose ofcomputing in respect of the new asset anycapital gain arising from its transfer withina period of three years of its purchase orconstruction, as the case may be, the costshall be reduced by the amount of the capitalgain.”39.Section 54F provides as follows:“Capital gain on transfer of certain capitalassets not to be charged in case ofinvestment in residential house:54F.(1)Subject to the provisions of sub-section(4), where, in the caseof an assesseebeing an individual or a Hindu undividedfamily, the capital gain arises from thetransfer of any long-term capital asset, notbeing a residential house (hereafter in thissection referred to as the original asset),and the assessee has, within a period of oneyear before or [66][two years] after the dateon which the transfer took place [65]purchased,or has within a period of three years afterthat date [67][constructed, one residentialhouse in India](hereafter in this sectionreferred to as the new asset), the capitalgain shall be dealt with in accordance withthe following provisions of this section,that is to say,- (a) if the cost of the new asset is not lessthan the net consideration in respect of theoriginal asset, the whole of such capitalgain shall not be charged under section 45;(b) if the cost of the new asset is less thanthe net consideration in respect of theoriginal asset, so much of the capital gainas bears to the whole of the capital gain thesame proportion as the cost of the new assetbears to the net consideration, shall not becharged under section 45:Provided that nothing contained in this sub-section shall apply where: (a) the assessee,-- (i) owns more than one residential house,other than the new asset, on the date oftransfer of the original asset; or (ii)------ (iii)-----(b)------” 40.The respondent, quite aware of the legal position that hecould avail benefits of Section 54F of the Act, if he purchasesone residential unit had also taken advantage of an extendedinterpretation of the said provision and had purchased twoadjoining flats and converted the same into one singleresidential unit. In this connection, the respondent venturedto purchase flats Nos.612-607 in Olumpus Building in AltamountRoad, Cumbulla Hill, Mumbai. 41.The Olumpus Co-operative Society Limited, had issued a noobjection certificate on 11.04.2006 for sale of flat No.612. Therespondent had entered into correspondence with the Society asearly as 20.04.2006. In the said letter, the respondent had veryclearly stated that he intended to conjoin flat Nos.612 and 607and sought permission for commencing work to that need. Amongother works, the respondent also sought permission for “breakingthe wall between the second bedroom of 612 and the passage wallof 607 to conjoin the two flats”. It is thus seen that rightfrom the inception, the respondent always wanted to convert thetwo flats into one single residential unit. The respondentpurchased flat No.607 by sale deed dated 23.07.2006 and flatNo.612 by sale deed dated 16.01.2007. 42.As had been pointed out earlier, the Society had alsorecognized the respondent as the owner of one single residentialunit alone and had also provided the facility of only one votein matters relating to the Society. These facts have not beenseriously disputed by the appellant herein. 42.As had been pointed out earlier, the Society had alsorecognized the respondent as the owner of one single residentialunit alone and had also provided the facility of only one votein matters relating to the Society. These facts have not beenseriously disputed by the appellant herein. 43.The respondent had also filed his return for AY 2008-2009on 31.07.2008 and he claimed deduction under Section 54F of theAct. It was taken up for scrutiny and the order dated22.12.2010, was passed. It was then intimated to the respondentthat the Internal Revenue Audit had raised an objection withrespect to the claim under Section 54F of the Act. 44.The Assessing Officer, on receipt of the informationprovided by the respondent dropped the proceedings which hadbeen initiated pursuant to the objection of the Internal RevenueAudit. The respondent received a notice dated 20.03.2013, underSection 148 of the Act, in respect of the very same AY 2008-2009, on the ground that income chargeable to tax has escapedassessment. When the respondent sought reasons for issuance of https://hcservices.ecourts.gov.in/hcservices/ notice under Section 148 of the Act, it was informed that claimmade by him under Section 54F of the Act, was the reason ofissuance of the notice. 45.The respondent then filed his objections. The Assessingofficer, passed the assessment order under Section 143(3) readwith Section 147 of the Act, on 31.03.2014. The AssessingOfficer had made the following observations and had sustainedthe claim made by the respondent. "3.4..... With regard to the merits of thecase the assessee vide letter dated09.07.2013 submitted that the assessee hadsold the shares of the Royal Images DirectMarketing Private Limited shares on05.05.2007. Annual Return filed by the saidcompany to the ROC reflecting the above facthas already been submitted at the time ofassessment. A copy of the same has beenattached with this letter for your reference.This being the case for purchase of the flatsby the assessee on 23.05.2006 and 16.01.2007 is well within the limits of one year, asprescribed by the sub section Section (sic)54F of the Income Tax Act, 1961. For the above reasons, the deduction allowed underSection 54F cannot be withdrawn. The detailsprovided by the assessee were verified andthe assessee's claim is found to be in order. ....." 46.The respondent then, in the interregnum period had filedhis return for AY 2009-2010. He declared the sale of secondtranche of shareholding in RIDM for total consideration ofRs.11,24,14,809/-. This return was also subject to scrutiny andan assessment order was passed under Section 143(3) of the Acton 12.12.2011. The respondent had laid a claim for a sum ofRs.6.50 Crores, under Section 54 of the Act. This was rejectedand the Assessing Officer held that the flats purchased by therespondent were two separate residential units and that therespondent was not entitled to claim the benefit. It is to beseen that the Assessing Officer had differed from the view takenwith respect to the same issue in the year 2008-2009, whilepassing the assessment order under Section 143(3) for AY 2009-2010 on 12.12.2011. This order was challenged by the respondentbefore the CIT(A). By order dated 29.07.2013, the appeal wasallowed. 47.By this order, the CIT(A) also dealt with the appealpreferred by the respondent in respect of AY 2008-2009, sincethe issues were common. The issue specifically related to the deduction claimed by the respondent under Section 54F of theAct. The CIT(A) had given a specific finding that the apartmentis a single residential unit comprising of a single kitchen andconnected by a common passage inside the house. Further, therewas only one entry for the house. There was no independent entryto the flat No.607. It was further observed as follows: 47.By this order, the CIT(A) also dealt with the appealpreferred by the respondent in respect of AY 2008-2009, sincethe issues were common. The issue specifically related to the deduction claimed by the respondent under Section 54F of theAct. The CIT(A) had given a specific finding that the apartmentis a single residential unit comprising of a single kitchen andconnected by a common passage inside the house. Further, therewas only one entry for the house. There was no independent entryto the flat No.607. It was further observed as follows: “9.11 All these aspects have been dulyconsidered for permitting relief u/s 54Fclaimed during the A 2008-09. The assessmentfor the said year was completed u/s 143(3)vide order dated 22.12.2010 by accepting theassessee's submission and considering theacquisition as a single dwelling unit in theprevious year it is (not) appropriate to denyrelief u/s 54F, in the subsequent year i.e.AY2009-2010 by taking a stand that the assesseehas more than one house. 9.12.I have verified the assessment order, remand report of the AO, assessee'sreply to the remand report and note onsequence of events. Mr.Abhijit Bhandari, theappellant was the principal share holder ofM/s Royal Images Direct Marketing Pvt Ltd., acompany that was engaged in management ofCustomer Loyalty Programs. The propertypurchased consist of two adjacent flats FlatNo.612 and Flat.No.607 in Olympus Apartments,5 C, Altamount Road, Mumbai 26, combinetogether to make a single residential unit,the assessee claimed deduction u/s 54F duringthe AY 2008-09 for the said investment andthe same was accepted by the AssessingOfficer during the scrutiny assessmentproceedings and allowed the investment asdeducted u/s 54F. The assessee has sold hisbalance share holding in Royal Images DirectMarketing Pvt.Ltd, on 14.07.2008 (AY 2009-10).TheappellanthasdepositedRs.6,10,00,000/- on the balance long termcapital received during the AY underconsideration in Capital gains Accountsscheme (CGAS) as specified u/s 54F of IT Actfor the purpose of claiming deducting u/s54F. The AO had disallowed in the claim onthe ground that the assessee was inpossession of more than one residential unitat the time of investment in a newresidential property and hence the deductionclaimed u/s 54F was denied. The propertypurchased by the appellant relating to two different apartments which are adjacent toeach other pertains to the AY 2008-09 whereinthe Assessing Officer has examined the issuesinvolved treating the investment made inpurchase of the two adjacent apartmenttreating the same a single dwelling unitwhich is having a common kitchen a commonpassage inside the house, and only one entryfor the entire house without havingindependent entires to either flat No.607 or612. Both the apartments are contiguous andconsidered as single unit and even by theOlympus Housing Society the owner is eligibleto only one vote and allowed the exemptionclaimed u/s 54F. ........” 48.The Revenue took up the matter before the Tribunal. TheTribunal, by common order dated 08.04.2015, broadly adverted tothree aspects, namely, (i) Investment made by the respondentin the flats, (ii) Investment made by the respondent to a sum ofRs.1.60 Crores with Capital Gains Account maintained with Bankof India and (iii) The sum of Rs.40 Lakhs paid by the respondentfor purchasing the Alibaug property. The Tribunal, remanded thematter to the Assessing Officer with the following observationin paragraph 10: 48.The Revenue took up the matter before the Tribunal. TheTribunal, by common order dated 08.04.2015, broadly adverted tothree aspects, namely, (i) Investment made by the respondentin the flats, (ii) Investment made by the respondent to a sum ofRs.1.60 Crores with Capital Gains Account maintained with Bankof India and (iii) The sum of Rs.40 Lakhs paid by the respondentfor purchasing the Alibaug property. The Tribunal, remanded thematter to the Assessing Officer with the following observationin paragraph 10: "..... 10. After considering the remandreports and the order of the first appellateauthority, we find that there is nodiscussion by the Assessing Officer aboutthe issue of investment in capital gainsaccounts scheme amounting to Rs.6,10,000/-and Rs.40,00,000/- and advance paid for thepurchase of property. It means that theAssessing Officer has not given any commentsregarding this issue. Being so, in ouropinion, it is appropriate to remit thisissue. being so, in our opinion, it isappropriate to remit this issue back to theAssessing Officer, as there is violation ofRule 46A. Accordingly, we remit the issuesfor fresh consideration with regard toinvestment in capital gains accounts schemeand the advance paid for the purchase ofproperty totalling at Rs.6,50,00,000/- backto the Assessing Officer, as he has onlyconsidered the investment in flat Nos.607and 612, Altamount Road, Cumballa Hills, forwhich the assessee has already claimeddeduction u/w.54F for assessment year 2008-09 and allowed by the Assessing Officer in the assessment year 2008-09. Therefore, thesame cannot be considered once again in theassessment year 2008-09 (sic 2009-2010).This issue to be decided afresh by theAssessing Officer. ...." 49.The Revenue, did not raise any issue regarding the aboveorder, but issued a show cause notice under Section 263 of theAct, on 15.12.2015, questioning the deduction made under Section54F to a sum of Rs.4,88,78,900/- which was the amount investedin the two flats. The respondent herein filed a reply. Theimpugned order was then passed on 26.02.2016 by the appellant,whereby the assessment order dated 31.03.2014, was set aside.This related to AY 2008-2009 and passed under Section 143(3)read with under Section 147 of the Act. The show cause noticewas passed under Section 263 of the Act. 50.The respondent had filed the writ petition challengingthe impugned order. The learned Single Judge has observed asfollows in his order dated 02.06.2017:“10. The Tribunal, therefore, while adjudicating uponthe appeals preferred by the Revenue for both AYs,i.e., AY 2008-2009 and 2009-2010, was required to dealwith the issue, which is, as to whether the subjectflats formed one single residential unit. 11. The fact that this issue came before the Tribunalis quite evident, if, one were to peruse the paragraph9 of the impugned order dated 08.04.2015. For the sakeof convenience, the same is extracted hereafter : "..... 9. In the remand report, it wasstated by the Assessing Officer that thetransfer of assets involving financialtransactions took place on 7.7.2008. Theassessee claimed ownership of Flat No.607and 612 of Olympus Apartments. The AssessingOfficer emphasized on the two conditions forclaiming deduction u/s.54F. According to theAssessing Officer, the first condition isthat the assessee should not own more thanone residential property. The AssessingOfficer is of the opinion that whileclaiming deduction u/s.54F of the Act, theassessee as on date of transfer of long termcapital gain, the assessee should possessonly one residential house property. It isbrought out by the Assessing Officer thatthe assessee has bought the properties on "..... 9. In the remand report, it wasstated by the Assessing Officer that thetransfer of assets involving financialtransactions took place on 7.7.2008. Theassessee claimed ownership of Flat No.607and 612 of Olympus Apartments. The AssessingOfficer emphasized on the two conditions forclaiming deduction u/s.54F. According to theAssessing Officer, the first condition isthat the assessee should not own more thanone residential property. The AssessingOfficer is of the opinion that whileclaiming deduction u/s.54F of the Act, theassessee as on date of transfer of long termcapital gain, the assessee should possessonly one residential house property. It isbrought out by the Assessing Officer thatthe assessee has bought the properties on different dates, viz., flat Nos.607 and 612on 23.5.2006 and on 16.1.2007 respectivelyand that the assessee produced copies ofpermission for renovation by Olympus Co-operative Housing Property Ltd., for sale offlat No.612 layout of combined FlatNos.607/612 of Olympus Apartments andcertificate from V.S.Modi Associates. TheAssessing Officer's question is that on thedate of capital gain transaction, i.e., on7.7.2008, how many residential propertiesthe assessee was holding. The AssessingOfficer states that the submissions by theassessee did not support the assessee'scontention of holding single residentialunit on the date of transfer of capital gainand also no supporting documents werereceived from the assessee regardingcompletion of renovation and occupation ofthe assessee in the combined residentialunit of flat Nos.607 & 612. Further,according to the Assessing Officer, thesecond condition for disallowance is thatthe assessee should have invested in aresidential house. The Assessing Officerstates that as per deduction of claimu/s.54F, the assessee could invest either inpurchase of residential property one yearprior to the date of transfer or 2 yearsafter the date of transfer or constructhouse within 3 years after the date oftransfer. In the assessee's case theAssessing Officer states that the assesseehas utilized the amount in agricultural landlocated at Dhokawade Village, Alibag, Talukaof Rajgad District, which is evident fromthe document describing the property as'pieces and parcels' of agricultural land.The Assessing Officer also pointed out thatthe assessee had not produced any proof likeapproval obtained from the MunicipalCorporation of competent Authority forconstruction of residential property fortreating the assessee's agricultural land asresidential area." “11.1. A perusal of the aforesaid extract would showthat the Tribunal was considering, not only the issueas to whether or not the subject flats formed one residential unit, but also, was looking at theinvestment made by the petitioner in the Alibaugproperty, on which, a residential structure had beenbuilt by him. 11.2. Furthermore, a perusal of paragraph 8 of theTribunal's order would also establish that it was alsoexamining the petitioner's claim that he had investedRs.6.10 crores in a Capital Gains Account scheme viathe Bank of India. This aspect is evident from theperusal of the following extract of the Tribunal'sorder dated 08.04.2015 : “11.1. A perusal of the aforesaid extract would showthat the Tribunal was considering, not only the issueas to whether or not the subject flats formed one residential unit, but also, was looking at theinvestment made by the petitioner in the Alibaugproperty, on which, a residential structure had beenbuilt by him. 11.2. Furthermore, a perusal of paragraph 8 of theTribunal's order would also establish that it was alsoexamining the petitioner's claim that he had investedRs.6.10 crores in a Capital Gains Account scheme viathe Bank of India. This aspect is evident from theperusal o