Section 54F Deduction Denied for Multiple Houses, Capital Gains Taxed on Gold Sale Proceeds

Deduction under section 54F was disallowed as the assessee owned more than one residential house at the time of purchasing the new asset, regardless of whether the additional houses were rented or self-occupied. Co-ownership of multiple houses also disqualifies the deduction. The AO's disallowance was upheld. The addition treating sale proceeds of gold bars as unexplained investment was deleted since evidence of purchase was furnished, despite non-response from the jeweller to notices. However, the capital gains from the gold bar sale must be taxed. The AO's limited scrutiny scope, including purchase of property, was affirmed, and the related grounds raised by the assessee were dismissed. The appeal was partly allowed on the unexplained investment issue but otherwise dismissed.

---

---

ISSUES:

Whether deduction under Section 54F of the Income Tax Act, 1961 is allowable when the assessee owns more than one residential house (including co-owned properties) on the date of acquisition of new residential property.Whether the sale proceeds of a gold bar can be treated as unexplained investment in the absence of satisfactory evidence of purchase, despite the assessee producing purchase bills and declaring capital gains.Whether additions made by the Assessing Officer during limited scrutiny can extend beyond the specific issues for which the case was selected.

RULINGS / HOLDINGS:

Deduction under Section 54F of the Act was rightly disallowed as the assessee was owner of three residential houses on the date of acquisition of the new property, and the provision requires that the assessee should not own more than one residential house other than the new asset; ownership as co-owner or rental status is immaterial.The addition of Rs. 27,77,700/- on account of unexplained investment relating to the sale proceeds of the gold bar is deleted because the assessee produced purchase evidence and declared capital gains; however, the capital gain arising from the sale of the gold bar must be taxed under the Act.The additions relating to long-term capital gains connected with the purchase of property fall within the scope of limited scrutiny, as purchase of property was one of the selected issues; therefore, the Assessing Officer was justified in making such additions.

RATIONALE:

The Court applied the statutory provisions of Section 54F of the Income Tax Act, 1961, emphasizing the Proviso which disallows deduction if the assessee owns more than one residential house other than the new asset on the date of transfer; the Court rejected the argument that co-ownership or rental status affects eligibility.Regarding unexplained investment, the Court considered the evidence submitted by the assessee, including purchase bills and bank receipts of sale proceeds, and found that rejection of such evidence solely because the jewellers did not respond to notices under Section 133(6) of the Act was not justified; however, the capital gain on sale remains taxable, consistent with the Act's provisions.The Court noted that the issue of purchase of property was explicitly selected for limited scrutiny, and the additions made were directly connected to this issue, thus no expansion of the scope of scrutiny occurred; this aligns with the procedural framework governing limited scrutiny assessments.

---