ITAT Allows Additional Claim u/s 54F on Depreciable Asset, Directs Matter Back for Verification [Read Order]

The Income Tax Appellate Tribunal (ITAT) Mumbai Bench held that the assessee is entitled to raise an additional claim for deduction under Section 54F of the Income Tax Act 1961 at the appellate stage even if the claim is not raised in the original return of income.

The Bench, consisting of Beena Pillai (Judicial Member) directed the Assessing Officer (AO) to verify the claim. The Tribunal held that the restriction as laid down in the decision in Goetze (India) Ltd. v. CIT is applicable only to the powers of the Assessing Officer and does not restrict the jurisdiction of the Appellate Authority to entertain new claims.

Therefore, the matter was restored to the file of the AO for de novo verification of the claim raised under Section 54F.

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The assessee Dollar Chunilal Modi being a Hindu Undivided Family (HUF) had sold a depreciable asset which is a shop for ₹35 lakh which resulted in a short term capital gains of ₹25.59 lakh. The assessee claimed to have reinvested the amount in a residential property and claimed exemption under Section 54F of the Income Tax Act. However, the claim was not made in the original return of income.

Moreover,the AO disallowed the deduction on the grounds that the claim was not made in the return of income and also treated the gains as taxable short-term capital gains. The CIT(A) followed the order of the AO observing that there was no valid claim, and the evidence was not admissible.

The assessee claimed that the appellate authorities have the power to allow additional claims and relied on judicial precedents such as the decisions in the cases of CIT v. V.S. Dempo Company Ltd. and CIT v. Ace Builders Pvt. Ltd. which held that the exemption under Section 54F can be granted even for depreciable assets.

On the other hand, the Revenue supported the decisions of the lower authorities and claimed that the claim was rightly not allowed by the lower authorities for not disclosing it in the return.

The Tribunal held that the AO is bound by the return filed by the assessee but the appellate authorities have the power to consider the legal claims based on the facts and circumstances of the case. The factual condition for Section 54F was not verified by the lower authorities.

Therefore,the ITAT directed that the issue be sent back to the AO for a fresh decision after giving the assessee a reasonable opportunity of being heard by the AO. The appeal was allowed for statistical purposes only.

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