2022 (6) TMI 1156 - AT - Income Tax

Benefit of exemption u/s 54F - case of the assessee was selected for computer assisted scrutiny selection (CASS) under the limited scrutiny category - According to the AO, as per the JDA, the assessee was entitled to more than 2 residential houses i.e., flats and therefore the deduction under section 54F of the Act cannot be allowed to the assessee - plea of the assessee is that whatever area it got from the developer under the JDA has to be regarded as one residential unit and exemption under section 54 of the Act should be allowed to the assessee - HELD THAT - .According to the terms of the agreement, the assessee bargained for only a built-up area and it has to be regarded as one residential area for the purpose of claiming deduction under section 54F of the Act. In this regard, we find that neither before the AO nor before the CIT(A) such a plea was taken. In fact, the plea before the AO was that the assessee should be allowed the benefit of deduction of exemption atleast in respect of one residential unit and it has been submitted that for the convenience, the built-up area was divided into 3 units and that cannot be basis that the assessee got 3 residential houses. In order to decide this issue, it would be necessary to examine the plan and the manner in which the construction of the 3 units has been done and how the property has been assessed and enjoyed by the assessees. We therefore deem it fit and proper to remand this issue to the AO for fresh consideration after affording opportunity of being heard to the assessee. Thus, both the appeals of the assessees are treated as partly allowed for statistical purposes.

Issues Involved:
1. Justification of AO in examining the benefit of exemption under section 54F of the Income Tax Act, 1961, claimed by the assessee under limited scrutiny.
2. Whether the built-up area received under the Joint Development Agreement (JDA) should be considered as one residential unit for claiming exemption under section 54F.

Detailed Analysis:

1. Justification of AO in examining the benefit of exemption under section 54F of the Income Tax Act, 1961, claimed by the assessee under limited scrutiny:

The first issue addressed whether the Assessing Officer (AO) was justified in examining the exemption under section 54F of the Income Tax Act, 1961, when the assessee's case was selected for limited scrutiny. The assessees, father and son, entered into a Joint Development Agreement (JDA) and claimed exemption under section 54F for the capital gains arising from the JDA. The AO denied the exemption on the grounds that the assessees were entitled to more than one residential house under the JDA, invoking the first proviso to section 54F(1).

The assessees contended that their case was selected for limited scrutiny, which should only cover deductions under section 48 and not exemptions under section 54F. They argued that the AO extended the scope of limited scrutiny without approval from the Commissioner, citing circular F.No.DGIT(Vig.)/HQ/SI/2017-18 dated 30.11.2017.

The Tribunal rejected the assessee's contention, stating that the intent of limited scrutiny was to examine the deduction claimed under section 54F. The Tribunal emphasized that the notice for limited scrutiny should not be read as a piece of legislation and that the AO's examination of the exemption under section 54F was within the scope of limited scrutiny. The Tribunal upheld the AO's decision, stating that the assessees' technical reading of the scrutiny notice would defeat the purpose of limited scrutiny.

2. Whether the built-up area received under the Joint Development Agreement (JDA) should be considered as one residential unit for claiming exemption under section 54F:

The second issue involved whether the built-up area received by the assessees under the JDA should be considered as one residential unit for the purpose of claiming exemption under section 54F. The AO denied the exemption, arguing that the assessees received more than one residential house under the JDA, which violated the proviso to section 54F(1).

The assessees argued that the built-up area received should be considered as one residential house, despite being divided into multiple units for convenience. They cited judicial precedents to support their claim.

The Tribunal admitted the additional grounds raised by the assessees and remanded the issue to the AO for fresh consideration. The Tribunal directed the AO to examine the plan and manner of construction of the units and assess whether they should be regarded as one residential house. The Tribunal emphasized the need to afford the assessees an opportunity of being heard and to consider the terms of the JDA and the actual use of the property.

Conclusion:

The Tribunal upheld the AO's examination of the exemption under section 54F within the scope of limited scrutiny. However, it remanded the issue of whether the built-up area received under the JDA should be considered as one residential unit for exemption under section 54F to the AO for fresh consideration, directing a thorough examination of the construction and usage of the property. The appeals were treated as partly allowed for statistical purposes, and the stay petition was dismissed as infructuous.

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