The Hyderabad bench of the Income Tax Appellate Tribunal (ITAT) held that the capital gain deduction under Section 54F of the Income Tax Act, 1961 cannot be allowed without holding flats for a minimum period of 3 years.
The assessee is an individual deriving income from house property, business income, capital gains, and other sources. She filed her return of income electronically declaring an income of Rs.3,49,568/- after claiming a deduction under Chapter VIA at Rs.1701/-. The case was selected for scrutiny under Computer-Assisted Scrutiny Selection (CASS) and the Assessing Officer completed the assessment under Section 143(3) of the Income Tax Act accepting the income returned.
The PCIT observed that the assessee in the instant case has not fulfilled the conditions prescribed under Section 54F of the Income Tax Act. The developer, M/s. Ace Venture of India Pvt Ltd entered into a development agreement with the assessee along with three others and allotted seven flats at ACE RATNA PEARL APARTMENT. He verified that the assessee had sold all the flats without holding them for a minimum period of three years from the date of acquisition. According to him, the assessee’s act of such sale within three years requires the capital gains of Rs.1,57,08,220/- to be taxed at 30% along with her net taxable income.
Therefore, he held that the Assessing Officer has applied the provisions incorrectly which constitutes an error, and as such the assessment is erroneous and prejudicial to the interest of the Revenue. Thus, set aside the order of the Assessing Officer with a direction to redo the assessment after examining the issue and after allowing an opportunity to be heard by the assessee.
The counsel submitted that the assessee in the computation of total income has declared the estimated market value of flats constructed at Rs.1,66,23,000/- and after claiming the indexed cost of land surrendered and investment under Section 54F of the Income Tax Act computed the tax at Nil.
It was further submitted that since the Assessing Officer in the instant case after verifying various details given by the assessee has passed the order under Section 143(3) of the Income Tax Act, therefore, the same is neither erroneous nor prejudicial to the interest of the Revenue and therefore, the PCIT was not justified in invoking the provisions of Section 263 of the Income Tax Act.
The Departmental Representative submitted that the Assessing Officer without examining the contents of the letter has accepted the income returned and therefore, the very purpose for which the case was selected for scrutiny remained unverified. The assessee without holding the seven flats for a period of 3 years from the date of acquisition claimed a deduction under Section 54F of the Income Tax Act after selling these flats.
Therefore, there is complete nonapplication of mind by the Assessing Officer for which the order is erroneous as well as prejudicial to the interest of the Revenue, and therefore, the PCIT is fully justified in invoking the provisions of Section 263 of the Income Tax Act.
The Two-member bench comprising of R.K. Panda (Vice-President) and Laliet Kumar (Judicial member) held that the assessee has not held the flats for a minimum period of 3 years, the provisions of Section 54F of the Income Tax Act are not fulfilled and therefore, by allowing the claim of deduction under Section 54F of the Income Tax Act, the order of the Assessing Officer has become erroneous as well as prejudicial to the interest of the Revenue.
Therefore, the bench does not find any infirmity in the order of the PCIT invoking the jurisdiction under Section 263 of the Income Tax Act. Accordingly, the order of the PCIT was upheld and the appeal of the assessee was dismissed.
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