Assessee's Section 54F Deduction Allowed in Property Classification Dispute

Introduction:

• The case at hand involves an appeal filed by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-18, New Delhi, hereafter referred to as "Ld. CIT(A)," dated 04/08/2016 for Assessment Year 2012-13. The appeal primarily concerns the disallowance of a deduction claimed under Section 54F of the Income Tax Act, 1961. In this article, we will delve into the background of the case, the grounds of appeal, the facts, and the arguments presented by both parties, leading to the ultimate decision in favor of the Assessee.

Background:

• The Assessee initially filed a return of income at Rs. 7,36,270/-, which was processed under Section 143(1) of the Income Tax Act. The case was selected for scrutiny based on the Computer Assisted Scrutiny Selection (CASS) criteria. During the assessment proceedings, the Assessing Officer (A.O.) observed that the Assessee had shown Long Term Capital Gains (LTCG) of Rs. 52,54,619/- and claimed a deduction under Section 54F of the Act for the same amount. The A.O. questioned the Assessee's claim of deduction under Section 54F and disallowed it on the grounds that the Assessee already possessed two residential properties, making them ineligible for the deduction.
• The Assessee appealed this decision before the Ld. CIT(A), who affirmed the A.O.'s decision. The Ld. CIT(A) concluded that the Assessee was not entitled to the deduction under Section 54F, as they owned more than one residential property at the time of the asset transfer, and both properties were used for residential purposes.

Grounds of Appeal:

The Assessee's appeal is based on the following grounds:

1. Contention that the orders passed by the Income Tax Officer and the Ld. CIT(A) are against the law and facts of the case.
2. Disallowance of the deduction claimed under Section 54F for LTCG.
3. Non-appreciation of relevant material by the Assessing Officer.
4. Request for the submission of a detailed statement of facts and submissions.
5. The Assessee reserves the right to add, amend, alter, or withdraw any ground of appeal.

Arguments Presented:

• The Assessee's primary argument was that they owned only one residential property, and the other property was a commercial one, thus making them eligible for the deduction under Section 54F. They provided evidence in the form of a conveyance deed dated 24/09/2010, which clearly indicated the purchase of a commercial property at Nirvana Courtyard, Gurgaon, and a residential property at Aradhna Enclave, New Delhi. The Assessee contended that the A.O. had incorrectly labeled the commercial property as a residential property, leading to the disallowance of the deduction.
• The Departmental Representative, on the other hand, relied on the decisions of the Lower Authorities and argued that the Assessee had falsely claimed the deduction under Section 54F, which had been rightfully denied.

Decision:

• Upon careful consideration of the arguments presented by both parties and the examination of the material available on record, the Appellate Tribunal found merit in the Assessee's grounds of appeal. The tribunal concluded that the A.O. had made an error in classifying the commercial property as a residential one and had subsequently erred in denying the deduction claimed under Section 54F. The Appellate Tribunal ruled in favor of the Assessee and allowed the deduction of Rs. 52,54,619/- claimed by them.

Conclusion:

• This case serves as an example of the importance of accurately determining the nature of properties owned by an Assessee when assessing eligibility for deductions under the Income Tax Act. In this instance, the Assessee's appeal was successful due to the misclassification of a commercial property as residential, ultimately allowing them to claim the Section 54F deduction. It underscores the significance of thorough examination and proper documentation in income tax cases to ensure that taxpayers receive the deductions they are entitled to under the law.

Topic- Kunal Dar Versus Income Tax Officer 

Court-ITAT-Delhi

Date-26/09/2023

Team Taxonation