2022 (9) TMI 468 - AT - Income Tax

Deduction u/s. 54F - LTCG - Claim denied since the assesse was owning two house property - Assessee claimed that these properties are Farm House / Commercial property instead - assessee s claim of agricultural activity and dairy activity is not substantiated with proof of evidence and not declared in the Return of Income filed by the assessee - CIT(A) held that Vishubag Property is the second residential property of the assessee s residence property and therefore not eligible for deduction u/s. 54F as well as the assessee having failed to declare any agricultural income from the Farm property, on that count also the claim of the assessee the Farm property as a commercial property was rejected by CIT-A HELD THAT - The assessee has built Residence/Bungalow, Manager soffice, Workers residence/Outhouse, Storehouse/farm equipments, Cow shed, etc. in 22 acres of land at Vishubaug to substantiate the claim that there is a residence property or Bungalow in Vishubaug property by the assessee. The assessee ought to have produced the property tax details and electricity connection details to prove the nature of the above property however, the same is not produced before us or before the Lower Authorities. Therefore the claim made by the assessee is hereby rejected. Further the assessee has not offered the agricultural income/loss in its Return of Income. Therefore the claim of the assessee, it was a commercial property cannot be entertained. Therefore the grounds raised by the assessee are devoid of merits and the same are rejected. Appeal filed by the Assessee dismissed.

Issues Involved:
1. Eligibility for deduction under Section 54F of the Income Tax Act.
2. Classification of Vishubag Farm property as agricultural or residential.
3. Joint ownership of the Vishubag property and its impact on Section 54F eligibility.
4. Agricultural and commercial activities at Vishubag Farm property.
5. Procedural fairness in the assessment process.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 54F:
The primary issue revolves around whether the assessee is entitled to claim a deduction under Section 54F of the Income Tax Act, 1961. The assessee claimed a deduction by reinvesting the consideration from the transfer of shares into a residential property in Colaba, Mumbai. The Assessing Officer (AO) denied this deduction, asserting that the assessee already owned more than one residential property, which disqualifies him under the proviso to Section 54F.

2. Classification of Vishubag Farm Property:
The AO and the Commissioner of Income Tax (Appeals) [CIT(A)] classified the Vishubag property as a residential property based on the Inspector's report and photographs, which showed a bungalow, manager's office, workers' residence, and other structures. The assessee argued that the Vishubag property is agricultural land used for dairy farming and cultivation, not a residential property. However, the AO and CIT(A) found that the property contained a fully equipped bungalow and other residential features, making it a residential property for the purposes of Section 54F.

3. Joint Ownership of Vishubag Property:
The assessee contended that he was only a 1/3rd co-owner of the Vishubag property along with his wife and daughter, citing the Madras High Court's decision in CIT vs. Dr. Smt. P.K. Vasanthi Rangarajan. However, both the AO and CIT(A) rejected this argument, stating that joint ownership does not exempt the property from being considered a residential house under Section 54F.

4. Agricultural and Commercial Activities:
The assessee claimed that the Vishubag property was used for agricultural activities, including dairy farming, and thus should not be classified as a residential property. The CIT(A) noted that the assessee did not report any agricultural income in his return, and the income from dairy farming is not considered agricultural income as per the Orissa High Court's decision in State of Orissa vs. Ramchandra Chaudhary. Consequently, the claim that the property was used for commercial purposes was not substantiated.

5. Procedural Fairness:
The assessee argued that the inquiry conducted by the Income Tax Department was not fair, as he was not provided with the documents or materials collected during the inquiry. However, the CIT(A) and the Tribunal found that the assessment was based on substantial evidence, including the Inspector's report and photographs, and the procedural fairness was upheld.

Conclusion:
The Tribunal upheld the decisions of the AO and CIT(A), confirming that the Vishubag property is a residential property, and the assessee is not eligible for the deduction under Section 54F. The appeal filed by the assessee was dismissed, and the addition made by the AO was confirmed. The Tribunal emphasized the lack of evidence to support the claim of agricultural or commercial use of the Vishubag property and the existence of more than one residential property owned by the assessee. The procedural fairness in the assessment process was also upheld.

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