ITAT allows Section 54F deduction for two floors purchased from same seller as single residential house

The ITAT Delhi ruled in favor of the assessee on multiple grounds. Regarding section 54F deduction, the tribunal held that "a residential house" includes two floors of the same building purchased from the same seller, allowing capital gains exemption for both properties. The AO's interpretation limiting relief to only one floor was rejected. On business activity allegations, the tribunal found the AO lacked evidence to establish business operations, noting the assessee's affidavit denying business involvement. The AO incorrectly treated legitimate receipts including property sale proceeds, compensation from land acquisition, and loan repayments as business income without proper inquiry. The appeal was allowed entirely.

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Issues:
1. Reopening of assessment under section 147 to investigate source of investment for property purchase.
2. Disallowance of deduction under section 54F for excess claim.
3. Addition of income based on cash/credit entries in the bank account.
4. Dispute regarding interpretation of "a residential house" under section 54F.
5. Allegation of concealment of income and imposition of penalty.

Analysis:

1. The appeal was against the order of the National Faceless Appeal Centre regarding the assessment year 2012-13, initiated under section 147 to examine the source of investment for property purchase. The Assessee claimed deduction under section 54F, but the AO disallowed it, resulting in an addition of Rs. 21,36,483. This disallowance was upheld by the CIT(A), leading to the first ground of appeal.

2. The AO also analyzed cash/credit entries in the bank account, inferring business activities based on the transactions. An addition of Rs. 14,19,960 was made, which was sustained by the CIT(A) and formed the second ground of appeal. The AO's decision was based on an estimation of income at 12% of the cash/credit entries, leading to the dispute.

3. The Tribunal examined the investments made by the Assessee in two floors of the same building, arguing that the expression "a residential house" in section 54F should not be interpreted restrictively. Citing various judicial precedents, the Tribunal favored the Assessee's interpretation, allowing the appeal on this ground.

4. Regarding the allegation of concealment of income and penalty imposition, the Tribunal found that the AO had not provided substantial evidence to support the inference of the Assessee's engagement in business activities. The Assessee's affidavit denying business activities was not adequately considered, leading to the conclusion that the AO overstepped in treating cash deposits as business receipts.

5. The Tribunal allowed the Assessee's appeal, concluding that the AO's assessment was unjustified and lacked proper inquiry. The grounds raised by the Assessee were upheld, leading to the allowance of the appeal and setting aside the additions made by the AO.

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