2017 (11) TMI 667 - AT - Income Tax

Assessee wins deduction for residential house construction on commercial land, additional evidence rejected, reassessment upheld.

The Income Tax Officer, Ward-1 (2), Jaipur Versus Smt. Saroj Devi Agarwal And Vice-Versa

The Income Tax Officer, Ward-1 (2), Jaipur Versus Smt. Saroj Devi Agarwal And Vice-Versa - Tmi Issues Involved:1. Allowing deduction under Section 54F of Rs. 54,12,140/-.2. Admitting additional evidence in violation of Rule 46A of IT Rules, 1962.3. Issuing notice under Section 148/147 and reopening of the assessment.Detailed Analysis:1. Allowing Deduction under Section 54F of Rs. 54,12,140/-:The primary issue was whether the assessee was entitled to a deduction under Section 54F of the Income Tax Act, 1961, for the construction of a residential house on a commercial plot. The Assessing Officer (AO) disallowed the deduction on the grounds that the land was commercial, the assessee only had 1/8th ownership, and the construction began before the sale of the original asset. The CIT (A) allowed the deduction, citing various judicial pronouncements and the fact that the essential requirement under Section 54F is the construction of a residential house, irrespective of the land's commercial status. The Tribunal upheld the CIT (A)'s decision, emphasizing that the law does not prohibit constructing a residential house on commercial land and that starting construction before the sale of the original asset does not invalidate the deduction if completed within three years. However, the Tribunal directed the AO to verify the claim of absolute ownership by the assessee through a settlement with co-owners.2. Admitting Additional Evidence in Violation of Rule 46A of IT Rules, 1962:The Revenue argued that the CIT (A) erred in admitting additional evidence in violation of Rule 46A. However, the Tribunal found no merit in this ground as the Departmental Representative could not point out any specific violation of Rule 46A by the CIT (A). Consequently, this ground of the Revenue's appeal was dismissed.3. Issuing Notice under Section 148/147 and Reopening of the Assessment:The assessee challenged the reopening of the assessment under Section 147, arguing that the AO did not have valid reasons for doing so. The CIT (A) upheld the AO's decision, stating that the AO had dealt with all objections raised by the assessee in a speaking order dated 01.10.2014. The Tribunal affirmed the CIT (A)'s order, agreeing that the AO had rightly initiated reassessment proceedings under Section 147.Conclusion:The Tribunal partly allowed the Revenue's appeal for statistical purposes, directing the AO to verify the assessee's claim of absolute ownership of the new asset. The Tribunal dismissed the Revenue's ground regarding the violation of Rule 46A and the assessee's cross-objection challenging the reopening of the assessment. The order was pronounced in the open court on 05.10.2017.