2019 (4) TMI 1222 - AT - Income Tax

Rectification u/s 154 - deduction u/s. 54F denied - mistakes apparent from record - commercial building or residential building - AO has brought on record that the entire building was a commercial building - based on this finding CIT(A) rectified its order - HELD THAT - CIT(A) in the earlier proceedings had held that the property on the second floor to be residential property. AO in the second round of litigation had observed that the entire building is a commercial building and therefore, held that the assessee is not eligible for deduction u/s. 54F. CIT (A) therefore, rectified the earlier order u/s. 154 on the basis of the findings of Assessing Officer. No doubt, u/s. 154 of the Act, only mistakes apparent from record can be rectified and if an order u/s. 154 has to be passed after long drawn arguments, then, it cannot be said that there is a mistake apparent from record. However, except for relying on the earlier order of the CIT (A), the assessee has brought on record any evidence to demonstrate that the two units on second floor of the building were residential units. AO has brought on record that the entire building was a commercial building and the assessee was entitled to office space on second floor of the building. Thus, clearly, it was factually incorrect to hold that the assessee has received two residential units. An erroneous finding of fact is undisputedly an error apparent from record rectifiable u/s 154 of the Act. Therefore, according to me, the order u/s. 154 issue stain able. Thus, the assessee s appeal is allowed. In view of the appeal holding the order u/s. 154 of the Act as sustainable, the order against the assessment order u/s. 143(3) r.w.s. 254 of the Act is also held to be sustainable.

Summary

Issues:
Assessment order under section 143(3) r.w.s. 254 of the Income Tax Act for AY 2004-05, Order of CIT(A) under section 154 of the Act, Claim of deduction under section 54F of the Act, Residential vs. commercial property classification, Jurisdiction of CIT(A) under section 154, Rectification of mistakes apparent from record, Validity of order under section 154, Sustainable nature of orders.

Analysis:
The judgment pertains to the appeals filed by the assessee for the Assessment Year 2004-05 against the assessment order passed under section 143(3) r.w.s. 254 of the Income Tax Act and the order of the Commissioner of Income Tax (Appeals) [CIT(A)] under section 154 of the Act. The case involved the assessee's claim of deduction under section 54F of the Act concerning capital gains. Initially, the CIT(A) allowed partial relief by considering certain floors as residential for the purpose of deduction. However, the Income Tax Appellate Tribunal (ITAT) directed the Assessing Officer to calculate the capital gain based on the value of the land surrendered by the assessee in a development agreement. Subsequently, the Assessing Officer disallowed the deduction under section 54F, claiming the building was a commercial complex, not residential, and brought the capital gain to tax.

The assessee contended that the CIT(A) had already decided the nature of the property in the earlier proceedings, and the Assessing Officer could not revisit the issue. The CIT(A, in a subsequent order under section 154, modified the earlier decision, stating the building was commercial, thereby denying the deduction under section 54F. The assessee challenged this decision before the ITAT, arguing that the CIT(A) exceeded jurisdiction under section 154 by reviewing the order. The Department supported the CIT(A)'s decision, emphasizing the commercial nature of the building.

The ITAT analyzed the facts and contentions presented. It noted that the CIT(A) had initially considered the property on the second floor as residential, but the Assessing Officer later deemed the entire building commercial, leading to the denial of the deduction under section 54F. The ITAT acknowledged that rectification under section 154 is permissible only for mistakes apparent from the record. In this case, the absence of evidence supporting the residential nature of the units on the second floor led to a factual error in the earlier decision. As such, the ITAT upheld the order under section 154, concluding that the assessee's appeal was allowed.

Subsequently, the ITAT deemed the order under section 154 as sustainable, thereby affirming the dismissal of the appeal against the assessment order under section 143(3) r.w.s. 254 of the Act. Ultimately, both appeals were dismissed by the ITAT, and the orders were pronounced on 18th April 2019.