2024 (5) TMI 1231 - AT - Income Tax

Assessee cannot claim Section 54 deduction for reinvestment in multiple residential properties, only one house allowed

ITAT Chennai held that an assessee cannot claim deduction under Section 54 for reinvestment in multiple residential properties, as the amended law ... LTCG - deduction u/s 54 - reinvestment of capital gains derived from transfer of original asset in more than one property - AO disallowed deduction on the ground that the assessee has invested in two distinct properties in the name of his wife contrary to provisions of Section 54 where it has been specified a residential house means one residential house - HELD THAT:- The law has been amended to clarify the meaning of ‘a house’ and as per said amendment ‘a house’ referred u/s. 54 of the Act means one residential house. Even the assessee purchased more than one residential house then deduction u/s. 54 of the Act cannot be claimed. In the present case, the assessee has purchased two residential houses, which are distinct and separate properties and further, said property has been purchased in the name of his wife. Therefore, we are of the considered opinion that the assessee is not entitled to claim deduction u/s. 54 of the Act and thus, we are inclined to uphold the findings of the Ld. CIT(A) and reject the ground taken by the assessee. Disallowance of further investment claimed while computing LTCG derived from transfer of property - AO has not considered additional payment made by the assessee to the builder for construction of building and further improvement in the property on the ground that the assessee could not furnish any evidences including payment details and bills for improvement to the building - HELD THAT:- The assessee claimed that cost of new house includes a sum of Rs. 40,00,000/- paid to KK Builders for further improvement to the property. In this regard, the assessee has filed a copy of bill issued by KK Builders and the bank statement to prove that the said payment has been made through banking channel. These evidences were not before the A.O. Therefore, matter needs to go back to the file of A.O to give one more opportunity to the assessee to substantiate his claim of cost of new house including sum paid to Builder for construction of building including improvements to the property. Appeal filed by the assessee is partly allowed for statistical purposes. Issues:1. Disallowance of deduction under Section 54 of the Income Tax Act.2. Disallowance of further investment claimed by the assessee while computing Long Term Capital Gains.Issue 1: Disallowance of deduction under Section 54 of the Income Tax Act:The appeal was against an order passed by the Commissioner of Income Tax, National Faceless Appeal Centre, regarding the assessment framed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961. The assessee contested the disallowance of deduction under Section 54 of the Act in relation to Long Term Capital Gains. The assessee had invested in two properties, one in his name and another in his wife's name, claiming deductions. The dispute arose as to whether the investment in two distinct properties could qualify for the deduction under Section 54. The law was amended to clarify that 'a house' refers to one residential house only. The Tribunal upheld the CIT(A)'s decision, stating that the assessee, who purchased two separate residential houses in his wife's name, was not entitled to claim the deduction under Section 54 of the Act.Issue 2: Disallowance of further investment claimed by the assessee:The second issue revolved around the disallowance of an additional investment of Rs. 40,00,000 claimed by the assessee while computing Long Term Capital Gains from the sale of property. The Assessing Officer did not consider this additional payment made by the assessee to the builder for property improvement due to lack of evidence. The assessee argued that they had submitted evidence, including a bill from the builder and bank statements showing the payment. The Tribunal found that the assessee had not provided these pieces of evidence to the Assessing Officer initially. Consequently, the Tribunal decided to remand the matter back to the Assessing Officer to allow the assessee an opportunity to substantiate the claim of the cost of the new house, including the additional payment to the builder. If the assessee could establish this claim with necessary evidence, the Assessing Officer was directed to verify and allow the additional amount of Rs. 40,00,000 claimed by the assessee in the computation of Long Term Capital Gains.In conclusion, the Tribunal partially allowed the appeal for statistical purposes and directed a reassessment regarding the disallowance of the additional investment claimed by the assessee.