2022 (7) TMI 676 - AT - Income Tax

Exemption u/s 54F - investment made in two residential units - order passed by the AO u/s 143(3) holding that deduction claimed by the assessee u/s 54F for the year under consideration was liable to be withdrawn and the income to that extent was taxable in the hands of the assessee for AY 2018-19 when the amount kept in capital gain account was withdrawn and utilized for making investment in purchase of two residential units - HELD THAT - Claim as made in the return of income filed for the year under consideration is not disturbed by the authorities below and the assessee having allegedly made investment in purchase of two residential units, the deduction claimed under Section 54F is held to be liable to be withdrawn in AY 2018-19 when the said investment was made by the assessee by withdrawing the amount deposited in the capital gain account in view of the provision of subsection (1) of Section 54F - assessee has contended that the CIT(A) ought to have left with issue open to the Assessing Officer to decide on merits in AY 2018-19 instead of giving a finding on merit that the assessee is not eligible for deduction under Section 54F of the Act since the said issue was not involved for consideration on merit in the year under appeal, i.e. AY 2016-17. We find merit in this contention of assessee and since the learned DR has also not raised any objection in this regard, we modify the impugned order of the learned CIT(A) and direct the Assessing Officer to decide the issue relating to the assessee s claim for deduction under Section 54F of the Act afresh on merit in AY 2018-19 after giving the assessee an opportunity to establish his case that the investment was made by him in purchase of one residential unit and not two residential units as alleged by the Assessing Officer. Appeal of the assessee is treated as partly allowed.

Summary

Issues Involved:
1. Confirmation of the order by the CIT(A) that the appellant was liable to offer income for Long Term Capital Gain due to violation of Section 54F(1) by purchasing two residential units.
2. Jurisdiction of the AO in concluding that the appellant had to offer capital gain in AY 2018-19.
3. Satisfaction of conditions of Section 54F by the appellant by acquiring a common residence.
4. Applicability of amended provisions allowing the purchase of an additional house.
5. Principles of natural justice and adequate opportunity of being heard.
6. Direction by the CIT(A) to the AO to take appropriate action in AY 2018-19.

Detailed Analysis:

1. Confirmation of the order by the CIT(A) that the appellant was liable to offer income for Long Term Capital Gain due to violation of Section 54F(1) by purchasing two residential units:
The appellant argued that the CIT(A) erred in confirming the AO's order that the appellant was liable to offer income of Rs. 2,02,22,198/- for Long Term Capital Gain in AY 2018-19. The appellant contended that the purchase of two residential units did not violate Section 54F(1) as the units were combined into one residential unit. However, the AO rejected this argument, citing independent purchase deeds, separate records in the housing society, and separate utility meters. The CIT(A) upheld the AO's decision, stating that the appellant had indeed violated Section 54F(1) by purchasing two separate units.

2. Jurisdiction of the AO in concluding that the appellant had to offer capital gain in AY 2018-19:
The appellant claimed that the AO exceeded his jurisdiction by concluding that the appellant had to offer capital gain in AY 2018-19, as the assessment for that year was not before him. The CIT(A) dismissed this argument, supporting the AO's view that the violation of Section 54F(1) in FY 2017-18 necessitated the inclusion of the capital gain in AY 2018-19.

3. Satisfaction of conditions of Section 54F by the appellant by acquiring a common residence:
The appellant argued that the conditions of Section 54F were satisfied as the two flats were combined into one residential unit. The AO and CIT(A) disagreed, noting that no evidence of amalgamation was provided, and the flats were recorded as separate units by the housing society and municipal authorities. The CIT(A) concluded that the appellant had violated Section 54F by purchasing two separate units.

4. Applicability of amended provisions allowing the purchase of an additional house:
The appellant argued that the amended provisions allowed for the purchase of an additional house, thus entitling him to the benefit claimed. The CIT(A) referred to the Finance Act 2014, which clarified that the benefit of Section 54F is available only for investment in one residential house in India. The CIT(A) concluded that the appellant's case did not fall within the scope of the amended provisions, as the appellant had purchased two separate units.

5. Principles of natural justice and adequate opportunity of being heard:
The appellant contended that the AO's order was passed without following the principles of natural justice and without providing adequate opportunity to be heard. The CIT(A) did not address this issue directly but upheld the AO's decision based on the merits of the case.

6. Direction by the CIT(A) to the AO to take appropriate action in AY 2018-19:
The CIT(A) directed the AO to take appropriate action in AY 2018-19, which the appellant argued was against the sanction of law. The Tribunal found merit in the appellant's contention that the CIT(A) should have left the issue open for the AO to decide on merits in AY 2018-19. The Tribunal modified the CIT(A)'s order, directing the AO to decide the issue afresh on merits in AY 2018-19 after giving the appellant an opportunity to establish his case.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to decide the issue of the appellant's claim for deduction under Section 54F afresh on merits in AY 2018-19 after providing the appellant an opportunity to present his case.