2024 (8) TMI 823 - AT - Income Tax

LTCG - Deduction u/s 54F - investment in two flats - Assessee combining two flats into one unit - AR first argued that the assessee has made the agreement with the builders for purchasing Joint flats and converting them into one unit - assessee had invested in two fiats which were separate, registered separately and as per plan approved by RERA/NMMC both the flats could not have been made into one due to space between the two flats being open to sky and hence assessee was not entitled to claim deduction u/s 54F(1) . - HELD THAT - AO relies on the core plan of the One Akshar and has noted that the OTS (open to sky) space is structured between flat Nos. 601 602 and there is no common wall between the two flats. Hence both flats cannot be combined as claimed by the assessee. Whereas the plan of the flat and affidavit of the developers mentioned that the assessee has taken both the above said flats and both are adjacent flats. The Bench has asked both parties whether any physical verification was conducted to verify the claim of assessee. But reply was negative. Although the assessee is allowed to combine two flats as a single unit, this issue has not been physically verified by any revenue authorities. AO has expressed the view that both flats cannot be combined. Thus, there is contradiction between parties on facts. Consequently, we are remitting the matter to the file of the learned AO with a specific directive. We instruct the ld. AO to carry out a physical verification of the flats. If both flats are combined, then the assessee should be given deduction u/s 54F of the Act. Appeal of the assessee bearing ITA No.659/Mum/2024 is allowed for statistical purposes.

Summary

Issues:
1. Allowance of deduction under section 54F for investment in two flats as one residential house.
2. Interpretation of the provisions of section 54F regarding investment in multiple flats in the same residential complex.
3. Reliance on affidavit of builder and revised plan as evidence for combining two flats into one unit.
4. Discrepancy between the assessee's claim and the assessment authority's view on combining two flats into one unit.
5. Lack of physical verification by revenue authorities to confirm the combination of two flats.

Analysis:
1. The appeal was filed against the order of the Learned National Faceless Appeal Centre (NFAC) regarding the allowance of deduction under section 54F of the Income-tax Act, 1961 for Assessment Year 2021-22. The revenue contested the decision to treat investment in two flats as one residential house, arguing that the amended provision of section 54F only allows for investment in one residential flat. The assessee claimed exemption for investing in two adjoining residential flats in a project in Navi Mumbai, treating them as a single unit based on the agreement for sale prepared by the developers.

2. The case revolved around the interpretation of section 54F regarding the treatment of investments in multiple flats in the same residential complex. The amendment specified that such investments are not considered as a single flat from Assessment Year 2014-15 onwards. The substitution of words by the Finance Act in 2015 further clarified the requirement to invest in one residential house. The dispute arose from the assessee's claim to combine two separate flats into one unit for exemption under section 54F, which was rejected by the assessing officer.

3. The assessee relied on the affidavit of the builder and a revised plan submitted during the assessment proceedings to support the claim of combining two flats into one unit. The contention was that the two flats were adjacent and treated as a single unit by the developers. However, the assessing officer argued that the physical layout of the flats did not allow for their combination as claimed by the assessee.

4. The disagreement between the parties stemmed from the physical configuration of the flats, with the assessing officer maintaining that the two units were separate due to the absence of a common wall and an open-to-sky space between them. The appellate tribunal noted the lack of physical verification by revenue authorities to confirm the combination of the flats into a single unit. As a result, the matter was remitted to the assessing officer with a directive to conduct a physical verification to determine if the two flats could be considered as a single unit for the purpose of claiming deduction under section 54F.

5. Ultimately, the appellate tribunal allowed the appeal of the assessee for statistical purposes, emphasizing the need for physical verification to resolve the discrepancy regarding the combination of two flats into one unit for the purpose of claiming exemption under section 54F.