2012 (6) TMI 576 - AT - Income Tax

Validity of revisionary proceedings u/s 263 - denial of deduction u/s 54F on ground that assessee is not eligible to claim exemption as the assessee had offered income from two house properties at Trichy and Bangalore respectively u/s 64(1)(iv) for which the assessee was considered to be the deemed owner of the said properties - Held that - If the house properties situated at Trichy and Bangalore are owned by the assessee s wife then the same cannot be considered as owned by the assessee for disallowing exemption u/s 54F. We find that the assessee has brought no material before us to show that either the house property situated at Trichy or Bangalore is not owned by him. CIT also has brought no relevant material on record to show that both the house properties were owned by the assessee. The circumstances in which the income from both the house properties were shown in the return of income by the assessee is also not clear from materials available before us. We, therefore, set aside the order of the CIT and restore the issue back to the file of the CIT for proper enquiry and verification.

Summary

Issues:
Challenge to jurisdiction of CIT under section 263 of the Act and denial of deduction under section 54F.

Analysis:
1. The appeal was filed against the order of the CIT initiating proceedings under section 263 of the Act and denying deduction under section 54F. The assessee declared Long Term Capital Gains and claimed exemption under section 54F. An audit objection was raised regarding the exemption claim due to ownership of two house properties, leading to a notice under section 263. The CIT set aside the assessment order to re-examine the exemption claim. The assessee contended that clubbing income under section 64 does not affect the eligibility for deduction under section 54F.

2. The Tribunal referred to a previous case where it was held that a minor child can be treated as an assessee for section 54F purposes, and denial of benefits based on the father's ownership was not justified. The DR supported the CIT's order, which was based on the assessee being deemed owner of two house properties. The Tribunal analyzed the ownership issue and the application of section 64(1)(iv) regarding income inclusion from spouse's assets.

3. The Tribunal examined the assessee's explanations regarding ownership of the properties and the loan arrangements with the wife. It was noted that the CIT did not adequately assess whether the assessee was the owner of both properties or if income was shown due to section 64 provisions. The Tribunal differentiated the current case from the precedent, emphasizing the need for proper verification of ownership. The Tribunal concluded that without clear evidence of ownership, the CIT's order was set aside for further investigation and a revised decision after due process.

4. Ultimately, the Tribunal allowed the appeal for statistical purposes, emphasizing the importance of establishing ownership conclusively before denying deduction under section 54F. The case was remanded to the CIT for a detailed examination and a reasoned decision based on verified facts. The Tribunal's decision highlighted the necessity of a thorough review of ownership status and income sources before disallowing statutory deductions.