2021 (12) TMI 299 - AT - Income Tax

Denial of the exemption u/s 54 - Nature of property sold - assessee has not shown any income from house property which has been sold and in respect of which the deduction u/s 54 has been claimed by the assessee - HELD THAT - As assessee has sold an immovable property situated at plot no. C-219, Siddharth Nagar, Jaipur consisting of shops, basement, a room (kotari) surrounded by a boundary wall. The same is evident from the perusal of the sale deed duly executed by the assessee as well as from the photographs annexed with the sale deed - as far as shops are concerned, even where they are built on a residential plot of land (land use not being changed in local municipality records), the nature of property for tax purposes cannot by any stretch of imagination be treated as property used for residential houses and are thus commercial in nature. Regarding the claim of basement and a kotari being used by one of the staff members for residential purposes, there is nothing on record to demonstrate the existence of the basic facilities of a residential house in terms of washroom, kitchen, electricity and sewerage connection and therefore, an affidavit so filed without any corroborative evidence on record which demonstrate the physical attributes of a residential/dwelling unit cannot come to the aid and assistance of the assessee and thus, the alternate contention so raised that atleast a part of the property being used for residential purposes cannot be accepted and is hereby dismissed. Therefore, we find that the instant case, the property which was sold was clearly not a residential house and thus, the basic condition for claiming exemption u/s 54 has not been satisfied in the instant case. Whether the property is actually let out or not, barring exceptions, the annual value of the property has to be determined and the income to be offered to tax under the head Income from house property . There could be actual usage of the house for residential purposes either in terms of let out or being self-occupied and there could be potential usage of house for residential house, thus bringing in complete flexibility for the purposes of section 54 of the Act. The basic nature, attributes and character of the property being a residential house however need to be satisfied to qualify for claim of deduction u/s 54 which, as we have noted above, has not been satisfied in the instant case and thus, the claim of deduction has been rightly denied by the AO and confirmed by the ld CIT(A) and we are thus not inclined to interfere with the said findings. The ground no. 1 is thus dismissed. Claim of cost of construction - as submitted that the construction was carried out in year 1992 and the cost of construction has been duly disclosed in the audited financial statements of the relevant year so furnished by the assessee before the revenue authorities - HELD THAT - Where the audited accounts have been furnished by the assessee, the same are thus part of the records and the cost of construction can be verified therefrom. The matter is accordingly set-aside to the file of the AO to verify the same and where found in order, allow the same to the assessee after due verification and examination. In the result, the ground of appeal is allowed for statistical purposes.

Summary

Issues Involved:
1. Denial of exemption under Section 54 of the Income Tax Act, 1961.
2. Disallowance of construction cost incurred by the assessee.
3. Entitlement to exemption based on actual sale consideration versus deemed sale consideration under Section 50C.

Detailed Analysis:

1. Denial of Exemption under Section 54 of the Income Tax Act, 1961:

The primary issue was whether the assessee was entitled to an exemption under Section 54 for ?12 lakhs invested in a new residential flat. The Revenue authorities denied the exemption on the grounds that the property sold was not chargeable to tax under the head "Income from House Property." The assessee contended that the basement and a room (kotari) were used for residential purposes by staff members, supported by an affidavit. The Tribunal noted that Section 54 requires the property sold to be a "residential house," which includes buildings or lands appurtenant thereto. The term "residential house" lacks a statutory definition and is understood in common parlance as a dwelling place with basic facilities like washroom, kitchen, electricity, and sewerage. The Tribunal found that the property sold consisted of shops, a basement, and a room, none of which qualified as a residential house. The affidavit provided by the assessee was insufficient without corroborative evidence. Consequently, the Tribunal upheld the denial of exemption under Section 54, dismissing the assessee's claim.

2. Disallowance of Construction Cost Incurred by the Assessee:

The second issue revolved around the disallowance of ?5,24,602 claimed by the assessee as construction cost. The Revenue authorities allowed only ?2,00,000 due to a lack of supporting vouchers. The assessee argued that the construction took place in 1992 and was reflected in audited financial statements from previous years. The Tribunal acknowledged that the audited accounts are part of the records and can verify the cost of construction. The matter was remanded to the Assessing Officer (AO) for verification of the construction cost from the audited financial statements. The Tribunal allowed this ground of appeal for statistical purposes, directing the AO to allow the verified cost of construction.

3. Entitlement to Exemption Based on Actual Sale Consideration versus Deemed Sale Consideration under Section 50C:

The third issue concerned the assessee's entitlement to exemption based on the actual sale consideration of ?35 lakhs instead of the deemed sale consideration of ?43,08,360 as per Section 50C. No arguments were advanced by the assessee on this ground, and it was deemed consequential to the first issue. Since the Tribunal upheld the denial of exemption under Section 54, this ground was also dismissed.

Conclusion:

In summary, the Tribunal upheld the denial of exemption under Section 54, finding that the property sold did not qualify as a residential house. The Tribunal remanded the issue of construction cost to the AO for verification from audited financial statements, allowing this ground for statistical purposes. The third ground, being consequential to the first, was dismissed. The appeal was partly allowed for statistical purposes.