2024 (9) TMI 1621 - AT - Income Tax

Revision u/s 263 - primary error found by the Ld. PCIT in the order passed by the AO was with regards to allowance of claim of exemption/ deduction u/s 54F which was claimed by the assessee on account of having invested long term capital gains earned in a new residential house - PCIT found the claim to be not allowable since he found the assessee to have contravened the provisions of the said section by owning more than one residential house property on the date of sale of original asset HELD THAT - Incomes from residential houses held as stock in trade were not liable to tax under the head Income from house property in the impugned year i.e. A.Y 2015-16, and therefore did not qualify as residential house as per Section 54F. Assessee also pointed out that the provisions of Section 54F of the Act are incorporated in the chapter dealing with the computation of income under the head income from capital gains and it deals primarily with gains on sale of transfer of capital assets. That it provides exemption also on investment in capital assets. He further pointed out that the PCIT has given no basis whatsoever, nor any reasoning to arrive at the finding that even assets not qualifying as capital assets and being in the nature of stock in trade are to be considered for purposes of said section. We are in complete agreement with the ld. Counsel for the assessee on this account. PCIT has given no reasoning or basis for holding the Flat No. A/1.B1 located at Vastu Luxuria at Surat, admittedly held as stock in trade by the assessee, as being residential house for the purposes of section 54F - assessee has on the contrary demonstrated that, as per law applicable in the impugned year, assets held as stock in trade do not qualify as residential houses in terms of section 54F of the Act. There is, therefore, we hold, absence of a valid basis with the ld. PCIT for finding the property at Vastu Luxuria qualifying as residential house for the purpose of Section 54F of the Act. As for the agricultural land purchased by the assessee, the assessee s contention was that the houses constructed thereon were of very small sizes and for the purpose of carrying out agricultural activities alone and not for residential purposes. The basis with the ld. PCIT for finding the houses on the agricultural land to qualify as residential houses is that the local authorities have assessed the same to tax and they are equipped with electricity supply. How the fulfilment of these two conditions qualifies a house on agricultural land to be in the nature of residential house has not been elaborated by the ld. PCIT, nor clarified with reference to any law in this regard. It appears to have been found so by the ld. PCIT only on the basis of surmises, conjectures, whims and fancies, and without any basis at all. Therefore, we hold, that the PCIT s findings of the assessee being the owner of more than one residential house as on the date of sale of original asset is without any basis at all. His direction, therefore, to the AO to deny the assessee the claim of deduction u/s 54F is clearly not sustainable in law and the order passed by the ld. PCIT on this count is, therefore, directed to be set aside. As a corollary his direction to the AO to assess income from these properties under the Income from house Property is also not sustainable. PCIT has also directed the AO to deny the assessee any claim of deduction under Chapter VI A of the Act. In this regard, assessee drew our attention to the computation of income for the impugned year and pointed out therefrom that the assessee in first place had not claimed any deduction under Chapter VI A of the Act. He stated, therefore, that there was no occasion for denying any deduction to the assessee under Chapter VI A of the Act. DR was unable to controvert the above contention of the ld. Counsel for the assessee. In view of the same this direction of the ld. PCIT to the Assessing Officer to deny the assessee the benefit of deduction under Chapter VI A is also found to be without any substance and merit, and is set aside. The order of the PCIT passed u/s 263 of the Act is held to be not sustainable in the absence of a concrete finding of error in the order passed by the AO on all issues raised by the Ld. PCIT. The grounds raised by the assessee are allowed.

Summary

Issues Involved:

1. Delay in filing the appeal.
2. Denial of exemption under Section 54F of the Income-tax Act, 1961.
3. Taxability of income from house property.
4. Denial of deduction under Chapter VI A of the Act.

Detailed Analysis:

1. Delay in Filing the Appeal:

The Registry noted the appeal to be barred by limitation by 1355 days. The counsel for the assessee explained that there was no delay as the appeal was initially filed in the wrong jurisdiction (Surat Bench of ITAT), which dismissed it, allowing liberty to file afresh in the correct jurisdiction (Ahmedabad Bench). The Tribunal accepted this explanation, holding that there was no delay in filing the present appeal.

2. Denial of Exemption under Section 54F:

The Principal Commissioner of Income-Tax (PCIT) directed the Assessing Officer (AO) to substitute the long-term capital gain at Rs. 5,74,66,137/- instead of Rs. 1,79,41,770/- by disallowing the deduction under Section 54F of Rs. 3,86,86,482/-. The PCIT found that the assessee owned more than one residential house on the date of sale of the original asset, thus contravening Section 54F. The Tribunal, however, found that the PCIT failed to conclusively establish that the properties in question were residential houses. The property at Vastu Luxuria was shown as stock-in-trade, and agricultural lands were used for agricultural purposes with small houses for operational needs. The Tribunal held that the PCIT's order lacked a valid basis and was not sustainable in law.

3. Taxability of Income from House Property:

The PCIT directed the AO to assess the annual letting value of the residential properties under "Income from house property" as per Section 23 of the Act. The Tribunal found that the PCIT failed to provide a valid basis for treating the properties as residential houses. The Tribunal noted that residential houses held as stock-in-trade were not liable to tax under "Income from house property" in the relevant assessment year (AY 2015-16). Hence, the direction to tax these properties under "Income from house property" was also set aside.

4. Denial of Deduction under Chapter VI A:

The PCIT directed the AO to deny any deduction under Chapter VI A of the Act. The assessee's counsel pointed out that no such deduction was claimed in the first place. The Tribunal found this direction to be without substance and merit, as the PCIT's order lacked any concrete finding of error in the AO's order regarding this issue.

Conclusion:

The Tribunal concluded that the PCIT's order under Section 263 was not sustainable due to the absence of concrete findings of error in the AO's order. The appeal of the assessee was allowed, and the directions of the PCIT were set aside. The order was pronounced in the open Court on 24/09/2024 at Ahmedabad.