2021 (7) TMI 674 - AT - Income Tax

Disallowance of exemption u/s 54F - assessee had constructed multiple residential houses and not a single residential unit - Scope of amendment to section 54F - HELD THAT - The provisions of section 54F of I.T.Act was amended vide Finance (No.2) Act, 2014 with effect from 01.04.2015 and has withdrawn deduction for more than one residential unit with effect from 01.04.2015 by replacing word a with one . In this context, it is relevant to mention that the Hon ble jurisdictional High Court, prior to the amendment, in the case of CIT v. Smt.K.G.Rukminiamma 2010 (8) TMI 482 - KARNATAKA HIGH COURT had held that residential unit house , used in section 54 makes it clear that, it was not the intention of the legislature to convey the meaning that it refers to a single residential house. As held by the Hon ble High Court that if that was the intention, they would have used the word one . As in the earlier part, the words used are buildings or lands which are plural in number and that is referred to as a residential house, the original asset. It was further observed by the by the Hon ble Court that an asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be a residential house . Therefore, the letter a in the context it is used should not be construed as meaning single . It was concluded by the Hon ble High Court that, being an indefinite article, the said expression should be read in consonance with the other words buildings and lands and, therefore, the singular a residential house also permits use of plural by virtue of section 13(2) of the General Clauses Act - See SMT. RADHA K. GOPAN VERSUS COMMISSIONER OF AGRICULTURAL INCOME-TAX 1993 (6) TMI 7 - KERALA HIGH COURT . As decided amendment to section 54 of the I.T.Act with effect from 01.04.2015 has been held to be prospective by the Hon ble Karnataka High Court in the case of Arun K.Thiagarajan 2020 (6) TMI 513 - KARNATAKA HIGH COURT Thus we hold that the assessee is entitled to the benefit of section 54F of the I.T.Act, since the relevant A.Y. was prior to the amendment to section 54 of the I.T.Act (i.e.01.04.2015). - Decided in favour of assessee. Addition u/s 68 - Violation of provisions of section 269SS - unexplained cash deposit - HELD THAT - In the instant case, the A.O. has not made any opinion on the source of cash deposit in the remand report submitted to the CIT(A), but only pointed out the violation of provisions of section 269SS of the I.T.Act. Violation of provisions of section 269SS of the I.T.Act calls for penalty u/s 271D of the I.T.Act, which is a separate proceeding. Violation of provisions of section 269SS of the I.T.Act cannot be the ground for making addition u/s 68 of the I.T.Act. In the above facts and circumstances of the case, we hold that the addition sustained by the CIT(A) u/s 68 of the I.T.Act is uncalled for and we delete the same. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Whether the CIT(A) was justified in confirming the disallowance of exemption u/s 54F of the I.T.Act, amounting to ?61,44,440.
2. Whether the CIT(A) was justified in confirming the addition of ?17,00,000 u/s 68 of the I.T.Act.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption u/s 54F of the I.T.Act:

The assessee, along with her two children, sold a vacant land in Bangalore North during the relevant assessment year and declared the sale proceeds in her return of income for A.Y. 2013-2014, claiming an exemption u/s 54F for a house property constructed at Hebbal, Bangalore. The assessment was completed by disallowing the exemption on the grounds that the assessee failed to provide documentary evidence supporting the construction of the residential house.

Upon appeal, the CIT(A) confirmed the denial of exemption, stating that the assessee built multiple residential units instead of one and that these units were let out rather than used by the assessee and her family. The assessee contended before the ITAT that the amendment to section 54F, which restricts the exemption to one residential house, was effective from 01.04.2015 and hence not applicable to her case. She relied on the Karnataka High Court judgment in Arun K Thiagarajan v. CIT.

The ITAT noted that prior to the amendment, the term "a residential house" was interpreted by courts to include multiple units. The Karnataka High Court in CIT v. Smt. K.G. Rukminiamma held that "a residential house" could mean multiple units and the amendment to section 54F was prospective, applicable from A.Y. 2015-16 onwards. Therefore, the ITAT concluded that the assessee was entitled to the exemption u/s 54F for the relevant assessment year, as the amendment did not apply to her case.

2. Addition of ?17,00,000 u/s 68 of the I.T.Act:

The Assessing Officer (A.O.) made an addition of ?35,00,000 as unexplained cash deposits in the assessee's bank account, stating that no documentary evidence was provided. Upon appeal, the CIT(A) accepted the source for ?18,00,000 but sustained the addition for the remaining ?17,00,000, questioning the source of these deposits.

The assessee explained the sources of the ?17,00,000, including repayment of a loan by an agriculturist and cash received from relatives. She provided affidavits and confirmation letters from the involved parties. The CIT(A) did not accept these explanations and maintained the addition.

The ITAT noted that the A.O. did not address the source of the cash deposit in the remand report but only pointed out a violation of section 269SS, which pertains to the mode of accepting loans and deposits. The ITAT highlighted that violation of section 269SS calls for a penalty under section 271D, a separate proceeding, and cannot be the basis for an addition under section 68.

The ITAT referenced the Supreme Court decision in Mehta Parikh & Co. v. CIT, which held that an affidavit should not be rejected without cross-examination or a request for additional documentary evidence. Given that the affidavits and confirmation letters were not contested, the ITAT found the addition under section 68 to be unjustified and deleted it.

Conclusion:

The ITAT allowed the appeal, granting the exemption u/s 54F and deleting the addition of ?17,00,000 under section 68. The judgment emphasized the prospective application of amendments and the necessity of proper examination of affidavits and documentary evidence before making additions under section 68.