2019 (7) TMI 1610 - AT - Income Tax

Exemption u/s 54F - whether the assessee is eligible for deduction u/s. 54F in respect of both the house property purchased by the assessee or not? - HELD THAT - Provisions of section 54F (1) has been amended by Finance (No. 2) Act, 2014 w.e.f. 01.04.2015. In the pre amended provisions, the following words were part of sub section (1) of section 54F constructed, a residential house . But as per the amended provisions, these words are replaced by the following words constructed, one residential house in India . Specific provision of section 54F, after the amendment w.e.f. 01.04.2015 i.e. Assessment Year 2015-16, deduction is allowable u/s. 54F(1) only in respect of one residential house purchased or constructed by the assessee and hence, on this aspect, we find no infirmity in the order of CIT(A) and we hold that the assessee is not eligible for deduction u/s. 54F(1) in respect of both the house properties purchased by the assessee. Applicability of the proviso (a)(ii) to section 54F (1) - In respect of the applicability of this proviso, this is the only submission of ld. AR of assessee in para 13 of written submissions as reproduced above that since as per the claim of the assessee, deduction is allowable in respect of the property purchased on 28.04.2014 and the assessee has not purchased any other property after this date, this proviso is not applicable. In this regard, we find no merit in this contention of ld. AR of assessee because as per the proviso (a)(ii) of section 54F (1) as reproduced above, this is not the requirement that no other property other than the new property should be purchased after the purchase of new asset. In fact, the requirement of the proviso is this that if the assessee purchases any residential house other than the new asset within the period of one year after the date of transfer of original asset, deduction is not allowable u/s. 54F (1). Hence whether the deduction u/s. 54F (1) is allowable in respect of second property or first property, it is not material because in both the situations, the proviso will be operating and as a result, the assessee will not be eligible for deduction u/s. 54F (1). - Decided against assessee.

Summary

Issues Involved:
1. Validity of the appellate order dated 01-10-2018 by CIT(A), Bangalore.
2. Confirmation of the addition of ?54,18,924/- by disallowing the deduction claimed under section 54F of the Income Tax Act.
3. Withdrawal of the deduction amounting to ?28,85,940/- without issuing a Notice under section 251(1) of the Income Tax Act.

Detailed Analysis:

1. Validity of the Appellate Order:
The assessee challenged the appellate order dated 01-10-2018 passed by CIT(A), Bangalore, claiming it was opposed to law, facts, and circumstances of the case. The appellate tribunal examined the grounds raised by the assessee and the facts noted by CIT(A) in para 4 of the order. The tribunal reiterated the brief facts, including the sale of a vacant site for ?90,00,000/- and the subsequent purchase of two flats for ?30,98,100/- and ?55,74,770/-, respectively.

2. Disallowance of Deduction under Section 54F:
The primary contention was whether the assessee was entitled to a deduction under section 54F for both properties purchased. The CIT(A) referenced amendments in section 54F effective from 01.04.2015, which stipulated that the exemption is available only if the investment is made in one residential house in India. The CIT(A) concluded that the assessee’s claim for deduction under section 54F for both properties was not allowable due to the amendment and the proviso (a)(ii) of section 54F(1), which disqualifies the deduction if another residential house is purchased within one year after the transfer of the original asset.

3. Withdrawal of Deduction without Notice:
The CIT(A) directed the AO to withdraw the previously allowed deduction of ?28,85,940/- due to the application of the proviso (a)(ii) to section 54F(1). The assessee argued that the AO should not have allowed the deduction in a sequential order and that the entire reinvestment of ?86,72,870/- should be allowable. The tribunal examined whether the amended provisions of section 54F applied to the assessee's case, given the purchase dates of the properties and the amendment effective from the assessment year 2015-16.

Tribunal's Findings:
- The tribunal upheld the CIT(A)'s decision, stating that the amendment to section 54F effective from 01.04.2015 applied to the assessment year 2015-16, and hence, the deduction was allowable only for one residential house.
- The tribunal dismissed the contention that the proviso (a)(ii) to section 54F(1) was not applicable because the assessee did not purchase any other property after the second property. The tribunal clarified that the proviso disqualifies the deduction if any residential house other than the new asset is purchased within one year after the date of transfer of the original asset, regardless of the sequence of purchases.
- The tribunal concluded that there was no merit in the assessee's arguments and upheld the CIT(A)'s order, disallowing the deduction under section 54F for both properties and directing the withdrawal of the previously allowed deduction.

Conclusion:
The appeal filed by the assessee was dismissed, and the tribunal confirmed the CIT(A)'s order, holding that the assessee was not eligible for the deduction under section 54F for both properties purchased. The tribunal emphasized the applicability of the amended provisions of section 54F and the proviso (a)(ii) to section 54F(1) in disallowing the deduction.