2019 (3) TMI 466 - AT - Income Tax

Eligible u/s 54 and 54F - alleged that on the date of transfer of Dhruv Malad Building the assessee was owner of more than one residential house other than the new asset - complete rights in the property vests with the owner only when he receives possession of the said property - HELD THAT - The duty of the AO is to correctly compute the real income of the assessee in accordance with the statutory provisions. AO is empowered to disallow any deduction claimed by the assessee if it is not in accordance with provisions of Act in the same manner he is duty bound to allow deduction to the assessee if the assessee is eligible for such deduction under the provisions. Since the capital gain arises from sale of residential house the assessee is eligible to claim deduction under section 54. That being the case the restrictions imposed under the proviso to section 54F(1) will not apply to the assessee. Therefore we do not feel the necessity to deliberate on the issue whether the property at Vapi is a residential or commercial building. No infirmity in the decision of Commissioner (Appeals) in this regard. Having held so now it is necessary to examine whether the investments made by the assessee in the new assets (flats) would qualify for deduction u/s 54 of the Act. AO while disallowing assessee s claim has observed that mere letters issued by the real estate development company allotting flats to the assessee does not confer ownership rights hence assessee cannot be considered to be the owner of the flat to claim deduction. However in our considered opinion once the assessee makes investment in purchase of flats and flats are allotted in its name the conditions of section 54 of the Act are satisfied. The materials placed on record clearly prove that not only the flats were allotted to the assessee in the impugned assessment year but the sale deeds relating to the flats purchased were executed and registered in favour of the assessee before the end of the financial year relevant to the assessment year under dispute. That being the case the investments made by the assessee in purchase of flats is within the period prescribed under section 54(1) of the Act. Therefore the assessee is eligible to claim deduction under section 54 of the Act in respect of the investment made in purchase of new flats. - Decided against revenue.

Summary

Issues:
- Eligibility of the assessee to claim deduction under section 54 of the Income Tax Act, 1961.

Detailed Analysis:

1. Background and Assessment Proceedings:
The Revenue appealed against the order dated 6th June 2017 by the Commissioner (Appeals) for the assessment year 2013-14. The primary issue was whether the assessee, a Hindu Undivided Family, could claim deduction under section 54 of the Act. The Assessing Officer noted that the assessee had claimed deduction under section 54F instead of section 54 for the capital gain from the sale of a residential house at Malad. The Assessing Officer rejected the claim, stating the assessee was ineligible as they owned more than one residential house and did not have complete ownership of the new property. The assessee appealed this decision.

2. Appeal Before the Commissioner (Appeals):
The assessee argued before the Commissioner (Appeals) that they were eligible for deduction under section 54 as the capital gain was from the sale of a residential house reinvested in another residential property. The Commissioner (Appeals) allowed the deduction, citing judicial precedents and the fact that the flats were allotted to the assessee within the prescribed period. The Departmental Representative challenged this decision, claiming the revised deduction claim was not bona fide.

3. ITAT Decision on Section 54 Eligibility:
The ITAT analyzed the provisions of sections 54 and 54F of the Act. It clarified that section 54 applies to the reinvestment of capital gain from the sale of a residential house, while section 54F pertains to other long-term capital assets. As the capital gain in question arose from a residential property, the assessee was entitled to claim deduction under section 54. The ITAT emphasized that the Assessing Officer cannot disadvantage the assessee for mistakenly claiming under a different section. The ITAT upheld the Commissioner (Appeals) decision, stating that the property at Vapi's nature was immaterial in this context.

4. Investments in New Assets and Ownership Rights:
Regarding the investments made in new flats, the ITAT dismissed the Assessing Officer's argument that mere allotment letters did not confer ownership rights. It held that once the flats were purchased and allotted in the assessee's name, the conditions of section 54 were met. The ITAT supported this view with judicial precedents and CBDT circulars. The investments made by the assessee within the prescribed period qualified for deduction under section 54, and the ITAT upheld the Commissioner (Appeals) decision.

5. Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the eligibility of the assessee to claim deduction under section 54 of the Act. The order was pronounced on 28th February 2019, upholding the decision of the Commissioner (Appeals) in favor of the assessee.