2021 (8) TMI 325 - AT - Income Tax

Revision u/s 263 - Deduction u/s 54F - Long Term Capital Gains earned on sale of two different properties - HELD THAT - Dominant objective being the construction of a residential house and not purchase of plot of land and where for the purposes of proper and convenient enjoyment of a residential house, where the assessee wishes to provide for open space for garden or other utilities, etc., lands appurtenant to the building can be considered as part of the residential house, however, the question is the extent of such land which can be held as appurtenant to the building. Though we have held earlier that the assessee has the necessary flexibility to buy two plots of land measuring 622 sq. yards forming one contiguous piece of land which by necessary implications means that the assessee given her social status and family requirement wishes to built a residential house of size and scale which would require such a large plot of land and has actually gone ahead and built such a residential house - where on facts, we find that the assessee has merely carried out construction of a small room measuring 625 sq. ft on one plot of land and even by assuming for sake of argument that such a room qualifies as residential house, can it be held that remaining vacant area measuring 90% approx. of total area will qualify as land appurtenant to proper and convenient enjoyment of such a residential house. In the instant case, where there is 90% approx. of open space and merely 10% of built up area by way of construction of a room, can it be said that assessee has constructed a residential house with land appurtenant thereto. In our considered view, the said matter has clearly escaped the attention of the AO and to that extent, the order so passed is clearly erroneous and prejudicial to the interest of the Revenue. Construction of a room as to whether the same qualifies as a residential house on such contiguous piece of land measuring 612.22 sq.yards - The term 'residential house' has not been given any statutory definition and, thus, has to be assigned meaning as understood in common parlance. As per dictionary meaning, it means abode, a dwelling place or a building for human habitation. A building, in order to be habitable by a human being, is ordinarily required to have minimum facilities of washroom, kitchen, electricity, sewerage, etc. In the instant case, though it has been claimed by the ld AR before the ld PCIT that besides the room, a kitchen and toilet has been built, however nothing has been brought on record before the ld PCIT in terms of building plan, photographs etc which lends credence and demonstrate such facilities being actually built and therefore, where the ld PCIT has held that only a small room has been built, we don t see any infirmity in the said findings and the AO having failed to verify the same during the course of assessment proceedings, setting-aside the same for necessary verification and examination as to whether the construction so carried out qualifies as a residential house or not. In the entirety of facts and circumstances of the case, we find that the claim of deduction u/s 54F has not been properly examined by the AO as per the requirement of law and accordingly, uphold the exercise of jurisdiction by the ld PCIT u/s 263 of the Act and directs the AO to examine the matter of claim of deduction u/s 54F a fresh in light of aforesaid discussion and decide as per law after providing reasonable opportunity to the assessee. Appeal of the assessee is disposed off in light of aforesaid directions.

Summary

Issues Involved:
1. Validity of the order passed under Section 263 of the Income Tax Act.
2. Examination of the deduction claimed under Section 54F of the Income Tax Act.
3. Delay in filing the appeal due to COVID-19 pandemic.

Detailed Analysis:

1. Validity of the Order Passed Under Section 263:
The appellant contended that the Principal Commissioner of Income Tax (PCIT) erred in holding that the assessment order was erroneous and prejudicial to the interests of the revenue. The PCIT argued that the Assessing Officer (AO) failed to properly verify the deduction claimed under Section 54F, leading to an erroneous order. The Tribunal upheld the PCIT's exercise of jurisdiction under Section 263, noting that the AO did not conduct a thorough examination of whether the two plots constituted a single residential unit and whether the construction qualified as a residential house.

2. Examination of the Deduction Claimed Under Section 54F:
The appellant claimed a deduction under Section 54F for the investment made in two adjoining plots and the construction thereon. The PCIT restricted the deduction to one plot, arguing that the law envisages deduction for one residential house and the AO failed to verify the claim properly. The Tribunal emphasized the need for the AO to examine whether the two plots formed a single residential unit and whether the construction qualified as a residential house. The Tribunal referred to the CBDT Circular No. 667, which states that the cost of the land is an integral part of the cost of the residential house. The Tribunal directed the AO to re-examine the claim, considering the extent of the land appurtenant to the constructed area and whether the construction qualifies as a residential house.

3. Delay in Filing the Appeal Due to COVID-19 Pandemic:
The appellant filed the appeal with a delay of 34 days, citing the COVID-19 pandemic and nationwide lockdown as reasons. The Tribunal acknowledged the Supreme Court's suo moto writ petition extending the limitation period due to the pandemic. The Tribunal admitted the appeal, considering it filed within the extended limitation period.

Conclusion:
The Tribunal upheld the PCIT's exercise of jurisdiction under Section 263, directing the AO to re-examine the claim of deduction under Section 54F. The appeal was admitted considering the delay due to the COVID-19 pandemic. The Tribunal emphasized the need for thorough verification of whether the two plots constituted a single residential unit and whether the construction qualified as a residential house. The AO was directed to provide a reasonable opportunity to the assessee and re-determine the assessment in accordance with the law.