Eligibility for S.54F Deduction for Residential House Purchase: ITAT upholds AO’s decision Rejecting Claim [Read Order]

The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Assessing Officer(AO)'s decision rejecting the assessee's claim for a ₹2.51 crore deduction under Section 54F of Income Tax Act,1961 for the purchase of a residential house.

Prashant Chandulal Parikh,appellant-assessee, filed his income tax return for A.Y. 2017-18 declaring ₹20,89,430. The case was scrutinized for capital gains from agricultural land sales and cash deposits during demonetization.

The AO rejected the declared land valuation of ₹70 per square meter, recalculating it at ₹6.20, and partially disallowed a ₹2.51 crore deduction under Section 54F. Additionally, cash deposits of ₹24,48,000, explained as agricultural income, were treated as unexplained. The assessment concluded with a total income of ₹4,86,05,340. The assessee's appeal to the Commissioner of Income Tax ( Appeals )[CIT(A)] was dismissed, and he subsequently appealed to the tribunal.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The issue in concern was the restriction of the deduction under section 54F for the purchase of a residential house, claimed by the assessee for Rs. 2.51 crore. The claim was challenged on the grounds that the house was located on a small portion of land and the purchase was made after the two-year time limit.

However, the assessee argued that the payment was made in July 2017, before the deadline, and the delay in registration was due to the ill health of the seller's Power of Attorney holder. The assessee also referred to a Karnataka High Court ruling. The restriction was quashed as the payment was made within the time limit, despite the delay in registration.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The revenue counsel argued that the property purchased by the assessee was not a residential house but a large plot of land with a shed. He pointed out that the built-up area of 27 sq.mtr. was only 3.21% of the total land area and that the assessee had not provided proof of paying house tax for the property. He therefore supported the decisions of the AO and the CIT(A).

The two member bench comprising T.R Senthil Kumar ( Judicial Member ) and Narendra Prasad Sinha ( Accountant Member ) considered the submissions and found that the assessee and the seller were joint owners of Sub-plot No. 8, where the assessee had built a residential house on half the land. The seller built a 27 sq.mtr. structure on the other half, which was acquired by the assessee.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

However, the sale deed did not describe the purchase as a residential house, but rather as land with a small structure that was not fully enclosed. The tribunal found that this open structure could not be considered a residential house.
It was also noted that the assessee co-owned the 27 sq.mtr. construction, so it wasn’t fully acquired. The assessee’s reference to a Karnataka High Court ruling was dismissed, because the case involved multiple residential houses, whereas the present case only involved a small unenclosed structure.
The tribunal confirmed the denial of the deduction under section 54F, as no residential house was purchased. The disallowance of the deduction for 780 sq.mtr. of land was also upheld, as no house existed on that land.
In short,the appeal filed by the assessee was rejected.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates