2019 (12) TMI 762 - AT - Income Tax

Disallowance of deduction claimed u/s 54/54F - since the flat transferred by the assessee was a residential property, claim of deduction under section 54F is not allowable - HELD THAT - Merely because the assessee has claimed deduction under section 54F of the Act, by treating the flat as a commercial property, assessee s claim of deduction under section 54 of the Act cannot be disallowed if the assessee fulfills the conditions of section 54. In the facts of the present case, the Departmental Authorities have no doubt that the flat transferred by the assessee is a residential flat and on re development the assessee has also received a residential flat. That being the case, the assessee is certainly entitled for deduction under section 54 of the Act. Merely because the assessee claimed a deduction under the wrong provision, his claim cannot be disallowed if it is allowable under a different provision. While admitting the additional ground raised by the assessee being purely a legal ground which can be decided without requiring investigation into fresh facts, we direct the AO to allow assessee s claim of deduction under section 54 of the Act in respect of the second flat. Additional grounds are allowed. Consequently, the ground raised by the assessee claiming deduction under section 54F of the Act having become redundant is dismissed.

Summary

Issues: Disallowance of deduction claimed under section 54/54F of the Income Tax Act, 1961

Analysis:
1. The dispute in the appeal centered around the disallowance of deduction claimed under section 54/54F of the Income Tax Act, 1961. The appellant, an individual and a Chartered Accountant, owned two flats, one purchased and the other inherited. The inherited flat was part of a re-development agreement where two new flats were received in exchange for the old ones.

2. The Assessing Officer disallowed the deduction claimed under section 54F for the flat inherited from the father, stating it was not initially offered in the return of income. The appellant argued that since the flat was used as an office, it was not shown as a residential property, hence the delay in claiming the deduction. The appellant contended that the Assessing Officer allowed deduction for one flat, so it should be allowed for the other as well.

3. The Departmental Representative argued that the appellant suppressed information about owning another flat and receiving a new one in exchange. The main contention was that since the transferred flat was residential, deduction under section 54F was not permissible.

4. The Tribunal examined the facts and found that the appellant indeed transferred two flats and received two new ones. It disagreed with the lower authorities' reasoning that non-disclosure of ownership disentitles the deduction. The Tribunal held that if the appellant fulfilled the conditions, he should be entitled to the deduction, regardless of the initial non-disclosure.

5. The Tribunal clarified that even if the appellant mistakenly claimed deduction under section 54F instead of section 54, he should not be disallowed if eligible under a different provision. As both the transferred and received flats were residential, the appellant was entitled to deduction under section 54. The Tribunal allowed the additional ground raised by the appellant and directed the Assessing Officer to allow the deduction under section 54 for the second flat.

6. Consequently, the Tribunal allowed the appellant's appeal, dismissing the claim for deduction under section 54F as it became redundant. The decision was pronounced on 6th December 2019.