No Section 54 exemption may be denied merely because a property was purchased in a joint name

Facts and Issue of the Case

Learned counsel for the petitioner states that the facts arising for consideration in the present proceedings are admitted and there is no dispute in this regard. He states that on 25th February, 2015, the property situated at B-83, Defence Colony, New Delhi, comprising of the entire second floor and 50% of the share of the terrace above the third floor along with 20% undivided, indivisible and impartible ownership rights in the said plot of land was sold by the petitioner herein for a sale consideration of Rs. 2 Crores. He states that balance 50% share of the terrace above the third floor which was owned by his brother, Sh. Parkash Keshwani, was sold by the said brother for Rs. 5 Lakhs. He states that the sale consideration of Rs. 2 Crores was received by the petitioner and the buyer deducted 1% Tax Deducted at Source (TDS) on the said sale consideration. He states that petitioner declared the receipt of the said amount of Rs. 2 Crores as Long Term Capital Gain (‘LTCG’) in his Income Tax Return (‘ITR’) for AY 2015-16. He states that subsequently on 01st June, 2015, the petitioner purchased a new property situated at Sector-31-32A, Gurugram, Haryana for a total consideration of Rs. 2,54,20,000/- jointly with his wife Mrs. Rekha Keswani. He states that the entire sale consideration in respect of the purchase of the New Property was paid from petitioner’s bank account. He also states that the stamp duty payable on the sale deed dated 01st June, 2015, was also incurred by petitioner. He states that all the aforesaid transactions are duly recorded in petitioner’s bank account statement held with the HDFC Bank.

The learned counsel for petitioner states that, thereafter, on 23rd September, 2016, petitioner was issued a notice under Section 143(2) of the Act, wherein, the petitioner was informed that his return has been selected for scrutiny under Computer Aided Scrutiny Selection (‘CASS’) and the issue of capital gains was a specific issue identified for examination therein. The petitioner responded to the said notice and duly placed before the AO (‘Assessing Officer’) all the relevant documents including the sale deed pertaining to the sale of the Delhi Property and the purchase of the New Property as well as the HDFC Bank statement. The learned counsel for petitioner states that after consideration of the aforesaid documents, the AO passed an assessment order on 07th November, 2017, under Section 143(3) of the Act by duly taking note that the petitioner had submitted all necessary details and documents. The AO specifically recorded the facts with respect to the deduction claimed by the petitioner under the head of capital gain in the assessment order and no addition or disallowance was made in the return.

The petitioner was thereafter served with a notice dated 23rd June, 2021, under Section 148 of the Act wherein it was alleged that the AO has reasons to believe that the petitioner’s income chargeable to tax for AY 2015-16 has escaped assessment. The said notice was thereafter deemed to be a show cause notice under Section 148A(b) of the Act.

He states that this was the only information provided to petitioner and there was no further information. The petitioner had duly replied to the show cause notice vide reply dated 06th June, 2022. He states that the information annexed to the show cause notice alleges that the sole basis for re-opening the assessment proceedings was on a conjecture that 50% of the ownership of the New Property in favour of the petitioner’s wife since the New Property was purchased in the joint name of the petitioner and his wife. The evidence regarding the payment made from petitioner’s account into which the sale proceeds of Delhi Property owned by him were deposited (not owned by wife) was ignored. He states that the respondent has passed the impugned order dated 28th July, 2022 under Section 148A(d) of the Act opining that the petitioner has claimed excess exemption of LTCG under Section 54 of the Act amounting to Rs. 65,27,400/- however, while passing the said order, the AO had failed to take into consideration the irrefutable documents filed on record which evidence that the entire sale consideration for the New Property has been paid by the petitioner. He states that the impugned order is liable to be set aside as the conclusion drawn by the AO on the admitted facts is contrary to the judgment of this Court in Commissioner of Income-Tax vs. Ravinder Kumar Arora, 2011 SCC OnLine Del 5615, wherein, in similar facts, the Court held that the Assessee is entitled to claim exemption with respect to a new asset purchased in the joint names of the Assessee and his/her spouse if the total consideration has been paid by the Assessee.

The learned counsel for petitioner also submits that in the impugned notice and order, the AO failed to appreciate that during the scrutiny proceedings, the deductions claimed by the petitioner under LTCG was accepted and verified by the AO and therefore, it cannot be reviewed. Issue notice. Mr. Abhishek Maratha, learned Senior Standing Counsel for Revenue accepts notice. He states that there is no dispute with respect to the facts set out in the writ petition. He states that, since admittedly the new property has been purchased in the joint names of the petitioner and his wife, there was an objection raised in the Audit with respect to the LTCG claim.

Observation by the court

The court have heard the learned counsel for the parties. The sale of the residential house by the petitioner and purchase of the New Property by the petitioner within the stipulated time is admitted by Revenue. It is further admitted that the entire sale consideration for the New Property as well as the stamp duty has been paid by the petitioner. The respondent has not disputed that this information was available and scrutinised by the AO during the assessment proceedings which resulted in the assessment order dated 07th November, 2017, and the AO was satisfied with respect to the claim of the LTCG of the petitioner. The judgment of this Court in Ravinder Kumar Arora (supra) relied upon by the petitioner as regards his entitlement to claim LTCG is squarely applicable to the facts of the case.

The court also find merit in the submission of the learned counsel for petitioner that the re-assessment has been initiated on the basis of change of opinion, which is not permissible. There is no new information available with the respondent to re-assess the LTCG claim. The AO had considered the same documents during the earlier assessment proceedings and was satisfied with the claim of LTCG made under Section 54 of the Act. The petitioner is entitled to claim exemption under Section 54 of the Act on these admitted facts, as the conditions stipulated in Section 54 stand fulfilled. The New Property would be treated as the property purchased by the petitioner in his name and merely because he has included the name of his wife and the property has been purchased in the joint names, it would not disentitle the petitioner from claiming the exemption under the statutory provisions. Accordingly, the order dated 28th July, 2022 under Section 148A(d) of the Act, and notice dated 28th July, 2022, issued under Section 148 of the Act by the respondent with respect to the Assessment Year 2015- 16 are set aside.