Section 54F deduction for construction of additional floor in existing building allowed by ITAT

Section 54F deduction for construction of additional floor in existing building allowed by ITAT as it was an independent dwelling unit with separate kitchen and electric connection

ABCAUS Case Law Citation:
ABCAUS 2397 (2018) 07 ITAT

The appellant assessee had challeneged the order passed by the CIT(A) in upholding the action of the Assessing Officer (AO) in disallowing deduction claimed u/s 54F of the Income Tax Act, 1961 (the Act).

During the course of assessment proceedings, The AO noted that assessee had claimed deduction u/s.54F of the Act on capital gains arising out of the sale of a property. The Assessing Officer, required the assessee to furnish details regarding the reinvestment on which deduction u/s 54F of the Act was claimed.

The assessee mentioned that such claim was made on an additional construction done to an existing building. Assessee also filed a corporation tax receipt as proof for the additional construction. Additional construction was done in premises owned by the assessee. However, the AO was of the opinion that what assessee constructed was only an extension of an existing building and by virtue of the judgment of Hon’ble Jurisdictional High Court, extension of an old existing house would not be equivalent to construction of a new residential house. Accordingly, he denied the claim made by the assessee u/s 54F of the Act.

In the remand report submitted to the Commissioner of Income Tax (Appeals) the Assessing Officer stated as under:-

(i) Providing kitchen on a floor would not mean that the existing asset is converted into more than one dwelling unit.

(ii) Construction of first floor was only an extension of existing residential property.

(iii) Property tax receipt clearly indicated that there was only an increase in area and no new separate unit came into existence.

(iv) Inspection report of Chennai Metropolitan Water Supply & Sewage Board produced by the assessee did not have a signature or official seal.

The Commissioner of Income Tax (Appeals) after going through the remand report held that assessee had done only an extension of existing residential house and this did not tantamount to purchase of a new asset as required u/s 54F(1) of the Act. He thus confirmed the order of the Assessing Officer.

Before the Tribunal, the assessee submitted that there was a separate staircase and separate kitchen in the first floor which was constructed by the assessee. Ur was claimed that the construction done was a self contained dwelling unit, eligible for deduction u/s 54F of the Act. Relying on a letter issued by Area Engineer of Water Supply and Sewerage Board, it was submitted that existence of two dwelling units stood substantiated. Further, it was submitted that the Municipal Corporation had revised its property tax assessment indicating the new building unit put up by the assessee.

The Tribunal observed that as per the letter of Water Supply and Sewerage Board, the number of dwelling units were mentioned as two, both for sewage connection as well as for water connection. The ITAT opined that the authenticity of the above letter could not have been disbelieved merely  for want of seal and signature since the letter was issued on a standardized format and carried specific reference number with factum of a site inspection done by the Depot Engineer. In any case it is not disputed by the lower authorities that the construction in the first floor had a separate kitchen in it.

The Tribunal opined that the separate water connection, separate sewage connection and existence of a kitchen clearly indicated that what was constructed by the assessee in the first floor was an independent dwelling unit. It was also noted that there were separate EB meters for the two units and EB cards.

The Tribunal distinguished the facts of the case relied by the Revenue as entirely different and opined that assessee had a strong case regarding construction of new residential house in the upper floor of its existing residence.

Accordingly, Assessing Officer was directed to give the deduction sought by the assessee u/s 54F of the Act.

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