2021 (11) TMI 236 - AT - Income Tax

Disallowing the exemption claimed u/s 54/54F - sale of the bungalow as well as the land - Assessee was owner of more than one residential property as on the date of transfer of the Bungalow as well as the land - HELD THAT - Exemption on sale of bungalow - On perusal of the above statement of income of the assessee it is nowhere clear whether the assessee has claimed deduction under section 54/54F of the Act. Rather it shows the deduction claimed under section 54EA of the Act which deals with the capital gain on sale of capital assets invested in specified securities. However we find that none of the authorities including the principal CIT has disputed that the assessee has claimed the deduction under section 54EA of the Act. Rather the issue revolves for the exemption claimed under section 54 or 54F of the Act. Thus the statement of income of the assessee does not give any information to decide the issue on hand. The exemption under section 54 and 54F of the Act are computed in a different manner. As such under the provisions of section 54 of the Act the amount of capital gain is considered for the purpose of making the investment in another residential property whereas under the provisions of section 54F of the Act the amount of net consideration is considered for the purpose of making the investment in another residential property. On perusal of the direction of the learned principal CIT we find that it was directed to the AO to make a fresh assessment in accordance with the provisions of law in terms of section 54F of the Act. Thus it was clear that the AO was authorized to make a fresh assessment as per the provisions of law after the necessary verification in terms of section 54F of the Act. Without prejudice to the above we also note that assuming the assessee has claimed deduction under section 54F of the Act then it was the duty of the revenue to provide the rightful claim of the assessee which is available under the provisions of law but the same was not claimed by the assessee under the wrong believe. As such the Revenue cannot take the benefit of the ignorance of the assessee rather it was duty-bound to extend the benefit available to the assessee under the provisions of law. Exemption u/s 54F of the Act on the sale of land by the assessee - There is no dispute to the fact that the assessee has claimed the exemption under section 54F of the Act on the sale of land. As such the assessee can claim the deduction under section 54F of the Act on the sale of long-term capital asset being land in the present case. Furthermore this fact was also admitted by the assessee before the authorities below. However the authorities below have denied the exemption claimed by the assessee under section 54F of the Act on the sale of land on the reasoning that the assessee on the date of transfer of land was the owner of more than one residential property. The contention of the assessee was that one of the assessee residential property was used as business asset as staff quarters. Therefore as per the assessee the same cannot be held as residential property owned by the assessee as on the date of transfer. Admittedly the onus lies upon the assessee to prove that its residential property was used for the business purposes. For this purpose we have perused the depreciation chart of the assessee to see whether the assessee has claimed depreciation on such alleged building used for the purpose of the business. But we find that there was no depreciation claimed by the assessee on the alleged building rather the depreciation was claimed by the assessee only on the factory building along with other assets. Thus the assessee failed to provide any documentary evidence in support of his contention. Accordingly we hold that the assessee is not eligible for exemption under section 54F of the Act on the sale of land as the assessee was holding more than one residential unit. Hence the ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Disallowance of exemption under sections 54 and 54F of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) under set-aside proceedings.
3. Eligibility for exemption under section 54F concerning ownership of more than one residential property.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Sections 54 and 54F:
The assessee claimed exemptions under sections 54 and 54F of the Income Tax Act, 1961, aggregating to Rs. 1,39,08,029. The original assessment allowed these exemptions, but the Principal Commissioner of Income Tax (PCIT) later revised the order under section 263, finding that the assessee owned more than one residential property on the date of transfer, thus disqualifying him from claiming exemption under section 54F. The AO, following the PCIT's direction, disallowed the exemptions, which was upheld by the CIT(A).

2. Jurisdiction of the AO under Set-Aside Proceedings:
The AO, in set-aside proceedings initiated by the PCIT, was directed to reassess the case concerning section 54F. The AO disallowed exemptions under both sections 54 and 54F. The assessee contended that the AO exceeded his jurisdiction by disallowing the exemption under section 54, which was not part of the PCIT's directions. However, the Tribunal found that the AO was authorized to make a fresh assessment as per the provisions of law, including section 54, after necessary verification.

3. Eligibility for Exemption under Section 54F:
The assessee argued that one of the residential properties was used for business purposes as staff quarters and thus should not be considered a residential property for the purpose of section 54F. However, the AO and CIT(A) found that the assessee failed to provide sufficient documentary evidence to support this claim. The Tribunal upheld this finding, noting that the assessee did not claim depreciation on the alleged business asset, thereby failing to prove the property was used for business purposes.

Conclusion:
The Tribunal concluded that the assessee was not eligible for exemption under section 54F as he owned more than one residential property on the date of transfer. The AO did not exceed his jurisdiction under set-aside proceedings. The appeal was partly allowed, affirming the disallowance of exemptions under sections 54 and 54F. The Tribunal emphasized that the revenue should provide the rightful claim available under the law, even if the assessee did not claim it due to ignorance.

Order Pronounced:
The appeal of the assessee was partly allowed. The order was pronounced in the Court on 30/09/2021 at Ahmedabad.