AO directed to allow exemption u/s 54 if assessee was entitled to it where assessee claimed deduction u/s 54F and was not entitled to it.
In a recent judgment, ITAT Jaipur directed Assessing Officer to allow alternative claim of exemption u/s 54 of the Act instead of section 54F as claimed which the assessee was not entitled to.
ABCAUS Case Law Citation:
4454 (2025) (03) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer in declining the benefit of section 54F of the Income Tax Act, 1961 (the Act).
The assessee for the relevant Assessment Year filed return of income claiming deduction / exemption u/s 54F of the Act. The case of the assessee was selected for scrutiny thereupon notices u/s. 143(2) and 142(1) of the Act and questionnaire were issued. In compliance to the notices, the assessee furnished requisite details.
In the assessment proceedings, the Assessing Officer (AO) noticed that during the year under consideration, the assessee had sold house property and had claimed exemption u/s 54F of the Act and declared long term capital gain.
The AO was of the view that the assessee was not entitled to claim exemptions u/s 54F of the Act, the assessee having sold a residential Unit. Therefore, Assessing Officer issued a notice to the assessee to explain in this regard. The assessee submitted that the said property was commercial in Nature.
However, the AO found that the response was not acceptable due to the reason that the subject property was got registered with the Registrar as a residential property and not as commercial property, and further that the assessee had not furnished any proof that the said property was converted from residential to commercial.
In addition thereto, the Assessing Officer observed that in the return of income the assessee had himself declared income from the said property under the head “income from house property”, and that giving on rent did not change the nature of the house property from residential to commercial.
Before the Tribunal, the assessee admitted execution of the sale deed, wherein the immovable property had been described as Residential. The only contention was that said property was being let out to Bank since last seven years and from its user, it could not be said that the property was residential in nature. However, the user of the property was never converted by any permission from the competent authority.
In the alternative, the assessee pleaded that in case the appellant was not entitled to benefit of provisions of section 54F of the Act, he may be allowed exemption or deduction under section 54 of the Act in view of purchase of a new asset i.e. residential house.
The Tribunal opined that having regard to the provisions of section 54F of the Act and the property sold by the assessee in the year under consideration being a residential property, the lower authorities were correct in arriving at the conclusion that provisions of section 54F of the Act do not come into application in this case.
The Tribunal observed that before the CIT(A), the assessee had contended that while passing the assessment order, the Assessing Officer had himself observed that the assessee should have claimed exemptions u/s 54 of the Act, and as such, Assessing Officer should have allowed the exemptions at least u/s. 54 of the Act.
The Tribunal further observed that a perusal of Form 35 submitted before CIT (A) revealed that the above said ground was specifically raised. It was required to be adjudicated in accordance with law.
The Tribunal noted that the conditions as prescribed in sections 54 and 54F of the Act are similar, except that in section 54 of the Act condition prescribed is w.r.t. investment of capital gain only and whereas in section 54F of the Act it is investment of net consideration, that way rather by choosing exemption u/s. 54F of the Act, the assessee had taken a higher burden of investment.
The Tribunal further observed that the fact that the assessee complied with the provisions of section 54F of the Act was nowhere under challenge, hence there was no need to refer the matter back to the file of the CIT (A). Moreover, the first appellate authority was under legal obligation to decide the alternate ground taken by the assessee (Who is fulfilling all the conditions otherwise).
In view of this, the AO was directed to allow the claim of the assessee u/s 54 of the Act, after appropriate working is done considering the relevant figures involved.
Accordingly, the ground raised by the assessee was allowed.
Download Full Judgment Click Here >>
- ITR-1 Sahaj and ITR-4 Sugam has been notified for AY 2025-26
- SC upheld constitutional validity to section 34, 47 & 58 of Consumer Protection Act 2019
- Appointment of internal auditor in GCE, Keonjhar for FYs 2009-10 to 2023-24
- Empanelment of Stock & Receivable Auditors in State Bank Of India, Thiruvananthapuram.
- If a contribution is not voluntary, it cannot be taxed as income u/s 11 r.w.s. 12(1) – ITAT
