S. 54F Claim on 50% Share of Sale of Co-owned Property Denied for No Proof: ITAT Remands for Examining ITR based Evidence [Read Order]

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has remanded a Section 54F deduction claim under Income Tax Act, 1961 arising from the sale of a co-owned property for fresh examination after noting that the assessee was prevented by sufficient cause from furnishing complete details during the assessment proceedings.

The assessee, Nalwad Prabhu HUF, filed the return for Assessment Year 2018-19 declaring total income of ₹3.21 lakh. The case was selected for limited scrutiny to verify the deduction claimed under Section 54F in respect of long-term capital gains.

During assessment, the Assessing Officer issued multiple notices under Section 142(1) requesting details regarding the deduction claim. Although the assessee submitted certain documents such as computation of income, sale deed, and ledger extracts, crucial particulars including bills, vouchers, and property details were not furnished.

Despite repeated notices, including a show cause notice, there was no compliance. Consequently, the AO disallowed the deduction claimed under Section 54F.

Aggrieved, the assessee carried the matter in appeal before the CIT(A), contending that the investment in construction of a residential house was duly made and that relevant documents existed. It was also argued that the property was jointly constructed with his brother and that a similar claim of the co-owner had been accepted.

Placing reliance on Yogesh & Patel v. ITO (Ahmedabad ITAT), wherein exemption under Section 54F was allowed to co-owners in respect of a jointly constructed property, it was submitted that his case stood on identical footing.

However, the CIT(A) dismissed the appeal on the ground that the claim remained unverifiable in the absence of supporting material on record.

Per contra, the Revenue submitted that the assessee failed to establish investment in the residential property, as mere bank statements and computations were insufficient and no primary records were furnished. Hence, the disallowance under Section 54F was justified.

Before the Tribunal, the assessee contended that he had invested his 50% share of the sale consideration in constructing an independent residential unit on jointly owned land, resulting in nil taxable capital gains. He also furnished construction-related records and explained that earlier non-submission was due to medical and technical issues.

Prashant Maharishi (Vice President) noted that the assessee had now placed complete material on record and had demonstrated reasonable cause for the earlier lapse. In these circumstances, it was held that the matter required fresh verification at the level of the AO.

Accordingly, the ITAT remanded the issue to the Assessing Officer with directions to examine the claim afresh and grant deduction under Section 54F if the conditions are satisfied, after providing adequate opportunity of hearing. The appeal was thus allowed for statistical purposes.

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