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2021 (6) TMI 669 - AT - Income TaxDeduction u/s 54F - AO restricting the claim of the assessee u/s 54F to one flat as against the claim of the assessee for exemption in respect of the entire constructed area received - whether CIT(A) is justified in allowing the exemption claimed u/s 54F when the assessee received multiple flats located on different floors separated by different blocks of a gated community/ apartment complex? - HELD THAT - As gone through the allotment of apartment, it is clear that some of the Blocks have been allotted fully to the assessee/assessees and some of the Blocks are partially allotted amongst the assessees and developers. Assessee has not submitted any documents or any allotment letter for ascertaining the number of flats allotted to the assessee/assessees by the developers which is root for determining the deduction u/s 54F - CIT(A) s decision is right if the assessee has been allotted a house or more than a house in a Block/Tower as per the decision cited supra. The said blocks consist of more than a floor i.e. 5 floors. We, therefore, remit this file back to the AO for verification for the allotment of flats, which have been allotted to the assessee in a Block/Tower or in different Blocks/Towers. If the AO is found that the assessee has been allotted residential units in more than Blocks/Towers, the AO will recompute the capital gain afresh in the hands of the assessee as per law after providing reasonable opportunity of hearing to the assessee. The assessee is also directed to substantiate its claim u/s 54F by producing necessary documents and avoid unnecessary adjournments. Accordingly, the grounds raised by the revenue are partly allowed for statistical purposes.
Issues Involved:
1. Whether the CIT(A) erred in allowing the claim of the assessee under Section 54F of the Income Tax Act. 2. Whether the CIT(A) erred in not upholding the AO's restriction of the Section 54F claim to one flat. 3. Whether the CIT(A) was justified in allowing the exemption for multiple flats located on different floors and blocks. 4. Whether the CIT(A) was justified in deleting the addition relying on the decision of Sri Syed Ali Adil. Detailed Analysis: 1. Allowing the Claim under Section 54F: The primary issue is the CIT(A)'s decision to allow the assessee's claim for exemption under Section 54F of the Income Tax Act. The assessee had claimed exemption for multiple residential flats received as consideration for the transfer of land. The AO restricted this exemption to one flat, while the CIT(A) allowed the claim for all flats received. The CIT(A) relied on various judicial precedents, including the jurisdictional High Court's decision in CIT vs Syed Ali Adil, which held that exemption under Section 54F could be allowed for a residential house consisting of multiple units. 2. Restriction of Section 54F Claim to One Flat: The AO restricted the exemption under Section 54F to one residential flat, while the CIT(A) allowed the exemption for multiple flats. The CIT(A) noted that an amendment to Section 54F by the Finance Act, 2014, which restricted the exemption to "one residential house in India," was effective from 01.04.2015. Therefore, for the assessment year in question (2011-12), there was no such restriction, and the exemption could not be limited to one residential house. 3. Exemption for Multiple Flats: The CIT(A) allowed the exemption for multiple flats received by the assessee, even though they were located on different floors and blocks of a gated community. The CIT(A) relied on judicial precedents that held that the exemption under Section 54F could be allowed even if the residential house consisted of multiple independent units. However, the ITAT noted that the assessee did not provide sufficient documentation to ascertain the exact number of flats allotted. Therefore, the ITAT remitted the matter back to the AO for verification. 4. Deleting the Addition Relying on Sri Syed Ali Adil: The CIT(A) deleted the addition made by the AO by relying on the decision in the case of Sri Syed Ali Adil, where it was held that exemption under Section 54F could be allowed for a residential house consisting of multiple units. The ITAT observed that the CIT(A)'s decision would be correct if the assessee was allotted a house or more than one house in a block/tower. However, since the exact allotment details were not clear, the ITAT directed the AO to verify the allotment of flats and recompute the capital gain accordingly. Conclusion: The ITAT partly allowed the appeals for statistical purposes, directing the AO to verify the allotment of flats to the assessee and recompute the capital gain as per law. The assessee was also directed to provide necessary documentation to substantiate the claim under Section 54F. The ITAT emphasized the need for proper verification of the number of residential units allotted to the assessee to determine the eligibility for exemption under Section 54F.
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