2015 (9) TMI 434 - AT - Income Tax

Benefit of deduction u/s 54F - whether the AO is right in restricting the benefit for the one property, when two properties are adjacent? - Held that - Assessee had sold two commercial properties and had invested the capital gain within the stipulated period in a Group Housing Complex at Bangalore, in the ground floor and first floor of the same property, numbered as IC-1 and IC-2. Before the AO, the assessee, on query, had contended that both the premises in fact constituted one residential unit, inasmuch as the ground floor thereof comprised one bed room, dining room, hall, kitchen, toilet and servant room and the first floor consisted of two bed rooms, hall, kitchen and two toilets. There was only one staircase, which was internal and led to the first floor. There was no independent entry to the first floor. There was only one kitchen in the entire house. It did not matter that the two floors had been purchased vide separate agreements. In fact, IC-2, i.e., the first floor was purchased just one day after the purchase of the ground floor. The house thus was a duplex or two storied house, comprising one single residential unit. As per the grounds of appeal raised before the CIT(A), the assessee had, during the assessment proceedings, verbally requested the AO to get the house physically inspected by his counter part in Bangalore. This the AO did not do. It cannot be gainsaid that the AO is amply empowered to get such an inspection done. Apropos the AO s observation that no approval was shown to have been obtained by the assessee, nor any payment of statutory dues had been shown to have been made by the assessee, concerning the modification to the house, it is available from the statement of facts filed before the CIT(A), that there was no question of the assessee obtaining any approval or making any payment, since the modification was done by the developer himself, as per the plans, the approval whereof was obtained directly by the developer. Otherwise also, the assessment order does not evince any query in this regard having ever been raised by the AO to the assessee The facts of the present case and the facts of the case relied upon by the AR on Addl. CIT vs. Narendra Mohan Uniyal 2009 (8) TMI 825 - ITAT, DELHI are slightly different. The issue before the Hon ble Delhi bench was whether benefit of exemption u/s 54F can be given to two flats situated in ground and first floor, when the assessee used both the flats for own residential purpose after modifying it as duplex house. The Hon ble Bench rightly held that what the assessee had in her possession was one single residential unit and not two, comprising two floors of one and the same double storied residential house. In the present case on hand, the assessee, claims that he has made it into a single unit of house by purchasing two units of adjacent plots. It was submitted that the house was sold and assessee do not have any copy of the sale deed. Therefore, the issue require examination whether the building is one or two units. Therefore, the issue needs further examination by the assessing officer in the light of the above discussion. - Decided in favour of assessee for statistical purpose.

Summary

Issues:
Whether the AO is right in restricting the benefit of deduction u/s 54F for one property when two properties are adjacent.

Analysis:
The assessee declared total income for A.Y. 2007-08, including agricultural income. Upon relinquishing a property, he reinvested in two residential houses but the AO allowed deduction for only one house. The authorized representative argued that the two houses were remodeled into a single unit for self-occupation. The Departmental representative contended that the properties were distinct residential houses. The ITAT observed that the AO did not consider whether the two houses were remodeled into one unit. The proviso to section 54F does not prohibit constructing a single residential house on two plots. Referring to a Delhi bench case, the ITAT highlighted the importance of physical inspection to determine if two properties constitute one unit. The ITAT directed the assessing officer to re-examine the issue, considering all facts and applicable law.

The ITAT emphasized that the assessing officer should investigate whether the two adjacent plots were transformed into a single residential unit. The ITAT noted that the Delhi bench case highlighted the significance of physical inspection in determining if separate properties constitute one residential unit. The ITAT directed the AO to conduct necessary inquiries and make a fresh decision based on factual examination and relevant legal provisions.

In conclusion, the ITAT allowed the appeal for statistical purposes, setting aside the issue for further examination by the assessing officer. The judgment was pronounced on 31st July 2015.