2015 (12) TMI 344 - AT - Income Tax

Rejection of deduction claimed u/s 54F - Held that - On a careful perusal of the orders passed by the tax authorities, we notice that the assessee as well as the tax authorities has not properly applied the provisions of sec. 54 and 54F. The deduction allowed u/s 54 and 54F is property specific. Hence, we are unable to understand as to how the assessee and AO could deduct the amount of ₹ 5.00 lakhs on the reasoning that the deduction to that extent was allowed in the immediately preceding year. We are unable to understand as to the provisions under which such kind of reduction is allowed. The deduction u/s 54 should be allowed against the long term capital gain. However, the AO has not computed the long term capital gain, but allowed the same against the sale value. Thus the deduction claimed by the assessee u/s 54/54F requires fresh examination at the end of the assessing officer. - Decided in favour of assessee for statistical purposes. Assessment of rental income under the head Income from house property instead of assessing the same as Business income - Held that - Ld A.R placed reliance on the recent decision rendered by the Hon ble Supreme Court in the case of Chennai Properties & Investments Ltd. 2015 (5) TMI 46 - SUPREME COURT Hence, we are of the view that this issue also requires fresh examination in the light of the decision of Hon ble Apex Court, referred above. Accordingly, we set aside the order of Ld CIT(A) on this issue also and restore the same to the file of the AO for fresh consideration. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Rejection of deduction claimed u/s 54F of the Act
2. Assessment of rental income under the head Income from house property instead of assessing the same as Business income.

Analysis:

Issue 1: Rejection of deduction claimed u/s 54F of the Act
The appellant challenged the order passed by the Ld CIT(A)-II, Thane for the assessment year 2006-07 regarding the rejection of the deduction claimed under section 54F of the Income Tax Act. The appellant sold various assets during the year and claimed exemption under section 54 of the Act. The Assessing Officer (AO) questioned the eligibility of the deduction claimed under section 54F as the appellant owned two residential houses on the date of transfer of the assets. The appellant contended that the deduction under section 54F was applicable as it involved the sale of a long-term capital asset other than a residential house. However, discrepancies were noted in the application of sections 54 and 54F by both the appellant and the tax authorities. The Tribunal observed several issues such as the inconsistency in the deduction claimed, property-specific deductions, and the nature of the farm house owned by the appellant. The Tribunal concluded that a fresh examination of the deduction claimed under sections 54 and 54F was necessary, directing the AO to reevaluate the claim in accordance with the law.

Issue 2: Assessment of rental income as Income from house property
The second issue raised by the appellant pertained to the assessment of rental income as Income from house property instead of business income. The appellant cited a recent decision by the Hon'ble Supreme Court in the case of Chennai Properties & Investments Ltd. to support their contention. The Tribunal agreed that this issue required a fresh examination in light of the Supreme Court decision mentioned. Consequently, the Tribunal set aside the order of the Ld CIT(A) and instructed the AO to reconsider the assessment of rental income. The appeal by the appellant was treated as allowed for statistical purposes, emphasizing the need for a thorough reassessment of both issues.

In conclusion, the judgment by the Appellate Tribunal ITAT Mumbai highlighted the importance of accurately applying the provisions of the Income Tax Act, particularly sections 54 and 54F, to determine the eligibility of deductions claimed by the appellant. Additionally, the Tribunal emphasized the significance of considering recent legal precedents, such as decisions by the Supreme Court, in assessing complex tax matters. The detailed analysis and directions provided by the Tribunal aimed to ensure a fair and lawful examination of the issues raised by the appellant, ultimately guiding the assessing officer in making informed decisions based on the law.