2022 (1) TMI 837 - AT - Income Tax

Disallowance of deduction claimed u/s. 54 - As per AO nature of the property sold is an industrial plot as is apparent from the contents of the sale deed - whether the assessee has transferred a residential house or not? - HELD THAT - The parking area has been built in the basement floor covering 15000 sq.ft. having RCC framed structure, RCC retaining walls with Tremix flooring. The office area is built on the ground floor covering 18805 sq.ft. consisting of RCC framed structure, Aluminium windows, vitrified tile flooring. The residential area is on first floor with a covered area of 15304 sq.ft. having specification of masonry structure, granite flooring, ceramic tiles in the bathrooms, wooden doors and windows. If we look at the residential area, though it talks about masonry structure, granite flooring and ceramic tiles which is more a broad specification of a built up area which could possibly be used for residential purposes, however, at the same time, it does not have all the necessary attributes of a residential house in terms of bedrooms and kitchen facility. In any case, what the law contemplates is a transfer and sale of property which is being used for residential purposes. Therefore, what is essential is that the property should necessarily and solely be a residential house and used for residential purposes only. In the instant case where on an industrial plot of land, there is an office built up area on ground floor and so-called residential built-up area on the first floor, can it be said that what has been transferred is a residential house. To our mind, the answer to the same cannot be in affirmative and what has been transferred is an industrial plot of land having mixed constructed area consisting of office-cum-residential area. We, therefore, agree with the findings of the Ld. CIT(A) that the transacted property is an industrial plot and not a residential plot which is clearly borne out from the contents of the Sale Deed to which the assessee is himself a signatory and duly acknowledges the contents thereof. In the light of the same, subsequent oral evidence in form of an affidavit cannot be accepted and we affirm the findings of the Ld. CIT(A) that merely having Aadhar Card and Bank Account showing the same address do not accord the status of a residential house to the property under consideration and claim of the assessee cannot be accepted. We have also gone through the decision of Shri Navin Jolly Vs. ITO 2020 (6) TMI 514 - KARNATAKA HIGH COURT and find that the facts of the said case are distinguishable from the facts of the case in hand and the legal proposition laid down therein, therefore, does not support the case of the assessee. The grounds of appeal raised by the assessee are dismissed.

Summary

Issues Involved:
1. Eligibility for deduction under Section 54 of the Income Tax Act, 1961.
2. Nature of the property sold (industrial plot vs. residential house).
3. Applicability of Section 54F of the Income Tax Act, 1961.
4. Validity of evidence submitted by the assessee (Aadhar Card, bank account, affidavit).
5. Relevance of cited case laws.

Detailed Analysis:

1. Eligibility for Deduction under Section 54 of the Income Tax Act, 1961:
The primary issue revolves around the assessee's eligibility to claim a deduction under Section 54 of the Income Tax Act, 1961. The assessee claimed a deduction under this section for the sale of an immovable property, which he declared as a residential house. Section 54 allows for a deduction on the sale of a residential house if the proceeds are reinvested in another residential house within a specified period.

2. Nature of the Property Sold:
The core dispute is whether the property sold by the assessee was a residential house or an industrial plot. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] both observed that the property in question was an industrial plot, as evidenced by the sale deed and a valuation report. The sale deed explicitly described the property as "Industrial Plot No. C-10" with construction thereon, and the valuation report prepared by M/s. Syal & Associates confirmed it as an industrial property. The CIT(A) noted that the assessee's claim of residing in the property and using it as a residential house did not alter its industrial classification for tax purposes.

3. Applicability of Section 54F of the Income Tax Act, 1961:
Since the property was classified as an industrial plot, the AO allowed the assessee a deduction under Section 54F instead of Section 54. Section 54F pertains to the sale of any long-term capital asset (other than a residential house) and allows for a deduction if the proceeds are reinvested in a residential house. The AO disallowed the deduction under Section 54 and recalculated the Long Term Capital Gains accordingly.

4. Validity of Evidence Submitted by the Assessee:
The assessee provided an Aadhar Card, bank account details, and an affidavit to support his claim that he resided in the property. However, the CIT(A) and the Tribunal found these documents insufficient to reclassify the industrial plot as a residential house. The CIT(A) emphasized that urban laws and estate authority rules clearly demarcate property categories, and unauthorized residential use of an industrial plot does not change its classification for tax purposes. The Tribunal agreed, noting that the sale deed and valuation report were more reliable indicators of the property's nature.

5. Relevance of Cited Case Laws:
The assessee cited several case laws to support his claim, but the CIT(A) distinguished these cases based on their facts. For example, the case of Meenu Bansal involved a Shop-cum-Flat, not an industrial plot. The Tribunal also reviewed the cited case of Shri Navin Jolly Vs. ITO and found its facts distinguishable from the present case, thus not supporting the assessee's position.

Conclusion:
The Tribunal upheld the findings of the CIT(A) and the AO, concluding that the property sold was an industrial plot and not a residential house. Consequently, the assessee was not eligible for a deduction under Section 54 but was allowed a deduction under Section 54F. The Tribunal dismissed the assessee's appeal, affirming that the evidence provided did not alter the property's classification, and the cited case laws were not applicable to the facts of this case. The appeal was dismissed, and the order was pronounced on 12.01.2022.