Deduction u/s 54F despite assessee owning more than two house properties made order erroneous and prejudicial – ITAT
In a recent judgment, the Mumbai ITAT has upheld the revisionary order u/s 263 where Assessing Officer (AO) allowed deduction u/s 54F despite assessee owning more than two house properties.
ABCAUS Case Law Citation:
ABCAUS 4054 (2024) (05) ITAT
Important Case Laws relied upon:
Grasim Industries Ltd. V CIT (321 ITR 92)
Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83
CIT vs. Max India Ltd. [2007] 295 ITR 282
In the instant case, the assessee had challenged the validity of revision order passed U/S 263 of the Income Tax Act, 1961 (the Act) by PCIT.
The assessee was an individual and had declared income from salary, house property, income from partnership firm, long term capital gains on sale of property. The assessment was completed by the AO u/s 143(3) of the Act.
Upon examination of record of the assessment, the PCIT took the view that the assessment order was erroneous in so far as it is prejudicial to the interests of revenue, since the AO did not examine properly inter alia the capital gains.
The PCIT observed that the Schedule of Fixed assets filed by the assessee showed that the assessee owned four flats. However, deduction u/s 54F of the Act had been allowed without noticing this fact.
Accordingly, he initiated revision proceedings u/s 263 of the Act. After hearing the assessee, the PCIT held that the assessment order is erroneous and prejudicial to the interests of revenue inter alia due to wrong deduction allowed u/s 54F of the Act.
The Tribunal observed that the scope of revision proceedings initiated under section 263 of the Act was considered by Hon’ble Bombay High Court, in the case of by taking into account the law laid down by the Hon’ble Supreme Court which held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue” is of wide import and is not confined to a loss of tax.
The Tribunal observed that the PCIT noted that the AO had allowed deduction u/s 54F of the Act without noticing the fact that the assessee had already owned four flats. It is pertinent to note that the deduction u/s 54F of the Act could not be allowed if the assessee had already owned two residential houses, other than the new residential house purchased/constructed.
With regard to the four flats owned, the assessee submitted that out of four properties two were not inhabited and one was a commercial property. He submitted that a property can be considered as “house property” only if it is habitable. Accordingly, he submitted that two properties cannot be considered as “house properties”, since they were not habitable. The third one is jointly owned and the fourth one is a commercial premises. Accordingly, it was submitted that assessee had not violated any of the provisions of sec.54F of the Act.
It was further submitted that the AO had examined these factual aspects and accordingly did not make any addition towards “deemed rent”. Accordingly, he submitted that there was no error in the order passed by the AO in allowing deduction u/s 54F of the Act.
However, the Tribunal noticed that the AO did not verify above factual aspects during the current year while allowing deduction u/s 54F of the Act. Non-verification of vital details would render the assessment order erroneous and prejudicial as per clause (b) of Explanation 2 to sec.263 of the Act.
Accordingly, the Tribunal held that the PCIT was justified in invoking the revisional powers with regard to this issue.
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