2012 (9) TMI 360 - AT - Income Tax

Long Term capital gain - exemption u/s 54F - dis-allowance on ground that investment made by assessee in purchase of a residential house may not be fit for habitation, because the house was too small to exists on half acre of land - Held that - This is hardly the basis on which one can conclude that the assessee did not purchase a residential house. Evidence filed by the assessee viz description of property in sale deed, payment of house tax, electricity connection, sufficiently justifies the existence of a house. The claim of the assessee is that it was habitable and there is no material on record to disbelieve the claim of the assessee. At this point of time, it is not possible to verify the condition of the building and or to whether it was habitable at the time of its purchase. In the circumstances, the benefit of doubt should go in favour of the assessee. On the material available on record, we are satisfied that the assessee has fulfilled the conditions for grant of exemption u/s 54F. We therefore, direct that the exemption claimed be allowed - Decided in favor of assessee

Summary

Issues:
1. Disallowance of exemption claimed by the assessee u/s 54F of the IT Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT, Bangalore was against the order of CIT(A)-II, Bangalore related to the assessment year 2006-07. The sole issue in consideration was whether the revenue authorities were justified in disallowing the claim for exemption under section 54F of the IT Act by the assessee. The assessee had derived long term capital gains and invested in REC Bonds, claiming exemption under section 54EC of the Act. Additionally, the assessee invested in a residential house and sought exemption from tax on capital gain based on this investment.

The Assessing Officer (AO) raised concerns regarding the residential property claimed by the assessee, questioning its habitability. The AO required the assessee to prove that the residential house mentioned in the sale deed was fit for habitation. The AO's stance was that a 4 square building on half an acre of land may not be habitable. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.

Upon reviewing the evidence presented, the Tribunal found that the property purchased by the assessee included a 4 square built-up residential house along with the land. The property was assessed for house tax by the Bangalore Zilla Parishad and had an electrical connection provided by BESCOM. The Tribunal noted that the property was described as a house in the assessment records and was located in a residential zone. The Tribunal emphasized that the question at hand was whether the assessee had indeed purchased a residential house to claim exemption under section 54F.

The Tribunal disagreed with the AO and CIT(A)'s reasoning that a 4 square building on half an acre of land could not be habitable. It distinguished previous court decisions cited by the CIT(A) as not applicable to the current case. The Tribunal highlighted that the evidence provided by the assessee supported the existence of a habitable house, and in the absence of contradictory evidence, the benefit of doubt should favor the assessee. Consequently, the Tribunal directed that the exemption claimed by the assessee under section 54F be allowed, thereby allowing the appeal filed by the assessee.

In conclusion, the Tribunal's decision favored the assessee, emphasizing the sufficiency of evidence supporting the purchase of a residential house and granting the exemption claimed under section 54F of the IT Act, 1961.