2020 (8) TMI 355 - AT - Income Tax

Denial of exemption u/s 54F - investment of capital gains in the Ansal property and invested in the capital gains bonds - HELD THAT - In the instant case, the issue is different from what has been examined in the case laws cited by the ld. Counsel of the assessee. In all the situations, the Courts upheld the deduction in the situations where the multiple units were either adjacent or on the same floor or on the different floors or multiple units in the same residential complex owing to division of property. Whereas in the instant case, there was no such division of property among the members and the investments are at different locations one being the investment in residential property at Jungpura of ₹ 24,20,000/- and the other being at Ansal properties in NCR. No case law has been brought to our notice wherein two distinctly placed properties have been allowed for claim of deduction u/s 54F. Keeping in view, the geographical distances, the investment in two differently placed properties cannot be termed to be a residential house even after resorting to liberal interpretation of a residential unit . All the case laws relied by the counsel are found to be factually different from the instant case. Keeping in view, the provisions of Section 54F, the amendments, the ratio of judgments wherein two residential units are considered as a residential house and keeping view the facts of the instant case wherein the assessee has invested in two distinctly identifiable properties at separate locations, we hereby hold that the assessee is eligible to claim deduction on the investment of capital gains in the Ansal property invested in the capital gains bonds. The investment in the residential property at Jungpura is liable to be taxed under the head capital gains . Business Loss - The assessee was in the trading business of car seat covers. During the year, the loss computed at ₹ 3,13,826/- has been set off against the other income. AO observed that as against receipt of ₹ 10,522/-, the assessee has claimed expenses on account of depreciation on car, salary of employee, petrol and other expenses. The AO disallowed 50% of the salary expenses of the employees. We hold that the salary paid by the assessee to the employees cannot be disallowed without bringing anything on record to prove that such payments were bogus in nature. Hence, the disallowance made by the AO is hereby directed to be deleted.

Summary

Issues Involved:
1. Addition of ?17,29,976/- on account of capital gains.
2. Disallowance of ?50,000/- on account of business loss.
3. Enhancement of income from capital gains by ?73,18,424/-.

Detailed Analysis:

1. Addition of ?17,29,976/- on account of capital gains:

The assessee sold inherited land for ?78.75 lakh, while the circle rate valued it at ?118.55 lakh. The assessee claimed exemptions under Section 54F for investments in two assets: a flat with Ansal Housing and construction of additional residential space at Jungpura. The Assessing Officer (AO) allowed exemption for the flat but denied it for the additional construction, leading to the addition of ?17,29,976/- to the assessee's income. The Tribunal examined the claim under Section 54F and referenced case laws such as Gita Duggal and Syed Ali Adil, which interpret "a residential house" to include multiple units. However, the Tribunal noted that the investments were in distinctly separate locations, thus not qualifying as "a residential house" under Section 54F. Consequently, the addition was upheld for the investment in the Jungpura property.

2. Disallowance of ?50,000/- on account of business loss:

The assessee's trading business in car seat covers reported a loss of ?3,13,826/-, set off against other income. The AO disallowed 50% of the salary expenses, amounting to ?50,000/-, citing insufficient receipts against claimed expenses. The Tribunal held that salary payments could not be disallowed without evidence proving them bogus. Hence, the disallowance of ?50,000/- was deleted, allowing the business loss claim.

3. Enhancement of income from capital gains by ?73,18,424/-:

The CIT(A) enhanced the capital gains by ?73,18,424/- by denying the entire deduction under Section 54F, citing a violation of conditions in clause (a)(ii). The Tribunal reviewed the provisions and case laws, emphasizing that the term "a residential house" should not be restricted to a singular unit. Despite this, the Tribunal concluded that investments in geographically separate properties do not qualify as a single residential house. Therefore, the enhancement was justified for the Jungpura investment, but the exemption was allowed for the Ansal property investment.

Conclusion:

The Tribunal ruled that the assessee is entitled to claim deductions for the investment in the Ansal property and the capital gains bonds but not for the Jungpura property. The business loss disallowance was deleted due to lack of evidence supporting the AO's claim. The appeal was partly allowed, upholding the capital gains addition and enhancement but deleting the business loss disallowance.