2021 (10) TMI 777 - AT - Income Tax

Exemption u/s 54F - Denial of deduction as assessee was the owner of two houses - assessee on the date of transfer of the original asset owned more than one residential house and that the assessee could not substantiate his claim of having invested in a new residential house on the basis of supporting documentary evidence - HELD THAT - It is a matter of fact borne from the record that both the lower authorities had adjudicated the issue in hand considering the fact that the property in question, viz. Indiabulls Greens, Panvel was an under construction property on the date of transfer of the original asset. In our considered view, the department on the basis of certain facts which are not borne from the record is trying to change the entire complexion of the case and is seeking to improve upon the assessment, which we are afraid is not permissible under Sec. 254 of the Act We find that the D.R had neither placed on record any material in support of the aforesaid claim of the revenue nor raised any contention to the said effect before us. In our considered view, the department on the basis of its totally unsubstantiated claim is trying to build up a fresh case on the basis of certain facts which are not available on record. It was in the backdrop of the aforesaid admitted facts i.e the property in question, viz. Indiabulls Greens, Panvel was an under construction property on the date of transfer of the original asset that the CIT(A) had thereafter adjudicated the issue under consideration. Backed by our aforesaid deliberations, we are of the considered view that the revenue by now raising the aforesaid claim is trying to change the entire complexion of the case by making a complete volte face and improving upon the assessment by canvassing facts which are not borne from the records. Aforesaid claim raised by the revenue before us, which as observed by us hereinabove clearly militates against the factual position that was admitted by the A.O in the course of the assessment proceedings and formed the very basis of framing the assessment order cannot be accepted, specifically when neither any material in support thereof is available on record or filed in the course of the proceedings before us, nor any contention to the said effect had been raised by the ld. D.R. The Grounds of appeal No. 1 2 are dismissed in terms of our aforesaid observations.

Issues Involved:
1. Eligibility of the assessee for exemption under Section 54F of the Income Tax Act, 1961.
2. Ownership status of the assessee regarding residential properties.
3. Interpretation and application of the proviso to Section 54F(1) of the Income Tax Act, 1961.

Detailed Analysis:

1. Eligibility of the Assessee for Exemption under Section 54F:
The core issue revolves around the eligibility of the assessee to claim exemption under Section 54F of the Income Tax Act, 1961. The Assessing Officer (A.O) denied the exemption on two grounds:
- The assessee owned more than one residential house on the date of transfer of the original asset.
- The assessee failed to substantiate the investment in a new residential property with supporting documents.

The Commissioner of Income Tax (Appeals) [CIT(A)], however, overturned the A.O's decision, stating that the assessee had provided the necessary documents to prove the investment in a new asset. The CIT(A) further noted that the assessee was eligible for the exemption as he owned only one residential house capable of generating income from house property on the date of transfer of the original asset.

2. Ownership Status of the Assessee Regarding Residential Properties:
The A.O observed that the assessee owned two residential properties:
- Residential house at 31/348, Akshar Mahol, Matunga, Mumbai.
- Flat No. 2602, Indiabulls Greens, Panvel, Mumbai.

The assessee contended that he was only a joint owner of these properties along with his wife and not the absolute owner. Additionally, the assessee argued that the Panvel property was under construction and thus could not be considered a residential house for the purposes of Section 54F.

The CIT(A) rejected the argument about joint ownership, relying on the Karnataka High Court's judgment in M.J. Siwani Vs. CIT, which held that joint ownership still constitutes ownership for the purposes of Section 54F. However, the CIT(A) accepted the argument regarding the under-construction status of the Panvel property, concluding that it was not capable of generating income and thus did not count as a residential house under Section 54F.

3. Interpretation and Application of the Proviso to Section 54F(1):
The proviso to Section 54F(1) sets out conditions under which the exemption is not available, including owning more than one residential house on the date of transfer of the original asset. The CIT(A) interpreted the proviso to mean that the assessee must not own more than one residential house capable of generating income from house property.

The CIT(A) observed that the word "and" in the proviso requires the cumulative satisfaction of both conditions: owning more than one residential house and the capability of generating income from house property. Since the Panvel property was under construction and not capable of generating income, it did not meet the conditions of the proviso. Thus, the assessee was deemed to own only one residential house on the date of transfer, making him eligible for the exemption under Section 54F.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s order, agreeing that the assessee was eligible for the exemption under Section 54F because he owned only one residential house capable of generating income on the date of transfer of the original asset. The appeal by the revenue was dismissed, and the CIT(A)'s interpretation of the proviso to Section 54F(1) was affirmed.

Order:
The appeal filed by the revenue is dismissed. The order of the CIT(A) is upheld.

Order pronounced in the open court on 06.09.2021.

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