2018 (6) TMI 1856 - AT - Income Tax

LTCG - denial of deduction u/s. 54F - extension of an old existing house would not be equivalent to construction of a new residential house - HELD THAT - The number of dwelling units is mentioned as two, both for sewage connection as well as for water connection. No doubt, AO has questioned the authenticity of the above letter, for want of seal and signature. However, in our opinion, the letter above produced could not have been disbelieved since it was issued on a standardized format and carried specific reference number with factum of a site inspection done by the Depot Engineer. In any case it is not disputed by the lower authorities that the construction in the first floor had a separate kitchen in it. Separate water connection, separate sewage connection and existence of a kitchen clearly in our opinion indicate that what was constructed by the assessee in the first floor was an independent dwelling unit. We also find that there were separate EB meters for the two units and EB cards evidencing this has been placed at paper book page 9 to 12. Assessee had also placed on record photos of separate EB meters. In such circumstances, we are of the opinion that assessee's case that it had constructed new residential house in the upper floor of its existing residence is on a strong wicket. Here the assessee had constructed an independent dwelling unit in the floor. In our opinion, assessee was eligible to claim deduction u/s. 54F of the Act on the cost of such new dwelling unit. AO is directed to give the deduction sought by the assessee u/s. 54F of the Act. Assessee appeal allowed.

Summary

Issues:
- Disallowance of deduction claimed under section 54F of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of deduction under section 54F
The assessee claimed a deduction of Rs. 30,03,000 under section 54F of the Income Tax Act, 1961, which was disallowed by the Assessing Officer. The Assessing Officer required details regarding the reinvestment for which the deduction was claimed. The assessee mentioned that the claim was based on additional construction to an existing building owned by her. Despite providing proof of additional construction, the Assessing Officer denied the claim, citing a judgment stating that extension of an existing house does not qualify as construction of a new residential house under section 54F.

Issue 2: Appeal before Commissioner of Income Tax (Appeals)
The assessee appealed before the Commissioner of Income Tax (Appeals), arguing that the new construction was a self-contained residential unit eligible for the deduction under section 54F. The Commissioner sought a remand report from the Assessing Officer, who maintained that the construction was merely an extension of the existing property, not a new residential house. Relying on the remand report, the Commissioner upheld the Assessing Officer's decision, denying the deduction under section 54F.

Issue 3: Appeal before Appellate Tribunal
The authorized representative of the assessee contested the lower authorities' decisions before the Appellate Tribunal, emphasizing that the construction on the first floor constituted a separate dwelling unit eligible for the deduction under section 54F. The representative presented evidence of separate connections for sewerage water and electricity to support the claim. The Departmental Representative supported the lower authorities' decision, citing a previous judgment.

Conclusion:
The Appellate Tribunal reviewed the contentions and evidence presented by both parties. The Tribunal noted the presence of a separate staircase, kitchen, water connections, and electricity meters for the construction on the first floor, indicating an independent dwelling unit. Referring to a letter from the Chennai Metropolitan Water Supply and Sewerage Board confirming the existence of two dwelling units, the Tribunal found the assessee eligible for the deduction under section 54F. The Tribunal distinguished the case from the precedent cited by the Departmental Representative, as the facts in the present case supported the claim for the deduction. Consequently, the Tribunal allowed the appeal, directing the Assessing Officer to grant the deduction under section 54F to the assessee.