2018 (12) TMI 1458 - AT - Income Tax

Incorrect claim of deduction u/s 54F - assessee had received the equal amount of consideration in the form of land in exchange and the entire land was used for the purpose of construction - Held that - The assessee had received 1089 sq. yds of vacant site at an agreed cost of ₹ 88,08,000/- for which the market value was ₹ 10,000/- per sq. yd and the aggregated deemed consideration was ₹ 1,08,90,000/- from Sri Dandamudi Suman Babu. From the recitals of the above exchange document dated 03. 08. 2009, it is evident that the deemed consideration for the property transferred by the assessee was ₹ 57,49,200/- against which the property was valued at ₹ 88,08,000/-. The assessee had received the vacant site valued at ₹ 1,08,90,000/- against the agreed consideration of ₹ 88,08,000/- which is less that the fair market value as per section 50C. It is established that the assessee had received the equal amount of consideration in the form of land in exchange and the entire land was used for the purpose of construction thus there is no case for capital gains and the assessee is entitled for the benefit of deduction u/s 54F. Reopening of assessment - Held that - In the instant case, the assessee had received the land in exchange of land which is a kind component but not in cash and the entire land received by the assessee was applied for the purpose of construction of new residential house. There was no cash component received by the assessee for depositing in specified account and there was no investment. There was no finding either from the AO or by the Pr. CIT that the land was not fully utilized for the construction of the house. As per sub section 1 of Section 54, in case the assessee applied the entire net consideration for acquiring new asset, the entire net consideration is eligible for deduction u/s 54F of the Act. In the instant case, there is no dispute that the entire land received in exchange was used for the purpose of acquiring the new house and the assessee had completed the construction of the new house within the stipulated period u/s 54F. Therefore, we are of the considered opinion, that the assessee would be entitled for deduction u/s 54F as claimed. There is no error which causes prejudice to the interest of the revenue, accordingly, we set aside the order of the Ld. Pr. CIT and allow the appeal of the assessee. Non-admission of rental income - Held that - During the reassessment proceedings AO has satisfied that there is no case for taxing the rental income due to non-receipt of the same from the tenant. Though the notional rent is taxable in the hands of the assessee as per section 23(1)(a), having examined the issue in detail during the reassessment proceedings and accepted the contention of the assessee regarding non receipt of rent there is no error in the assessment order. CIT is permitted to invoke the jurisdiction only if the assessment is erroneous and prejudicial to the interest of revenue. The twin conditions should be satisfied cumulatively for taking up the revision. In the instant case though the assessment is prejudicial but it is not erroneous thus there is no case for invoking the jurisdiction u/s 263. The order passed by the Ld. Pr,CIT u/s 263 is unsustainable and the same is quashed. - Appeal of the assessee is allowed.

Summary

Issues involved:
1. Incorrect claim of deduction u/s 54F
2. Non-admission of rental income

Incorrect claim of deduction u/s 54F:
The appeal was filed against the order of the Principal Commissioner of Income Tax for the Assessment Year 2010-11. The case involved the reassessment u/s 147 and revision u/s 263 regarding the deduction u/s 54F. The Principal Commissioner found errors in the assessment made by the Assessing Officer, stating that the assessee did not qualify for the deduction as per the provisions of section 54F. The assessee contended that the land transferred was used to acquire a new residential property and thus qualified for the deduction. The Tribunal analyzed the exchange deed and the values involved, concluding that the assessee had indeed utilized the land for constructing a new residential house, making them eligible for the deduction u/s 54F. The Tribunal distinguished a case law cited by the Principal Commissioner, emphasizing that the facts of the present case were different. It was held that the assessee was entitled to the deduction u/s 54F as claimed.

Non-admission of rental income:
The issue of non-admission of rental income was also examined during the proceedings. The Principal Commissioner directed the Assessing Officer to make the assessment as per the revision order u/s 263, citing non-admission of rental income as prejudicial to the revenue. However, the Tribunal found that the Assessing Officer had already examined the issue during the reassessment proceedings and accepted the reasons provided by the assessee for non-admission of rental income. The Tribunal held that there was no error in the assessment order regarding the non-admission of rental income. It was emphasized that for invoking jurisdiction u/s 263, the assessment must be both erroneous and prejudicial to the revenue. As the assessment was found to be prejudicial but not erroneous, the Tribunal quashed the order passed by the Principal Commissioner u/s 263. The appeal of the assessee was allowed, and the order was pronounced in open court on 20th December 2018.