2022 (9) TMI 297

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....n under section 54F of the Act of the entire capital gain, on the ground that he had used the sale proceeds for construction of house in Jayanagar. After claiming deduction as above, the LTCG on sale of vacant sites was declared as Nil by the assessee. 3. The return so filed by the assessee was taken for limited scrutiny under CASS for the reason to verify large deduction claimed under section 54F of the Income Tax Act, 1961 (hereinafter called 'the Act'). The AO issued a notice under section 143(2) of the Act dated 20.09.2019 to produce the evidence in support of the return of income. Another notice under section 142(1) dated 17.01.2017 was issued calling for the following details: 1) Bank Statement for the period from 01.04.2015 to 31.3.2016 2) Copy of Return of Income & Computation. 3) Financials for A.Y 2015-16 & Statement of Affairs. 4) Full details of TDS for A.Y 2015-16. 5) Large deduction claimed u/s 54B, 54C, 54D, 54G: 54GA 4. The assessee in reply dated 08.11.2017 submitted the following details: 1) Copy of the return for A.Y 2014-15 was filed. 2) Statement of Assessee's SB A/c no: 12982 with Vijaya Bank....

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....lli. Kanakapura Road. Bangalore-78 and the second one at no. 28, Kanakpura, Yelachenhalli Main Road, Bangalore-78. Therefore, the claim of deduction u/s 54F of Rs. 1.79.59,403/- allowed by the AO is not in order as the assessee is having more than one residential house at the time of transfer of property and not entitled for the same. 2) The failure of the Assessing Officer to conduct necessary enquiries and to assess the correct income to tax renders the assessment erroneous andyrejttdicial to revenue as contemplated by the provisions of section 263 of the 1.T. Act. 7. The show cause notice under section 263 of the Act dated 02.07.2019 was issued by the PCIT. To the aforesaid show cause notice, the assessee submitted a reply dated 21.07.2019 which is as follows: 1) Residential house property at No.3, Basaveshwara Nilaya, Yellachenahalli is my self acquired property, I am declaring the same in my individual tax return from the beginning. Copy of the return is enclosed. 2) Property No.28, Yelachenahalli, kanakapura main road is a commercial shop, I have declared the rental income in my return. Copy of rental agreement and tax paid receipt of commercial ....

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.... and the nature of the property owned by the assessee. (2) Whether the sale of the 7 residential plots by the assessee was in the nature of adventure, in the nature of trade and income from the sale of the plots has to be regarded as income from business. The following were the observations of the PCIT: "5. I have considered the material available on records ard the submissions made by the assessee. From the submissions made by the assessee, it is clear that while accepting the claim of the assessee regarding deduction u/s 54F of the IT Act,1961; the AO has not made any enquiries about the nature of two properties owned by it when the Act provides that deduction u/s 54F is not available to the assesse, if it is the owner of more than one residential house at the time of transfer of property. During the previous year under consideration, the assessee has sold 7 residential plots after getting the land converted for non-agricultural use. In view of the decision of Hon'ble Supreme Course in the case of Raja J. Rameshwar Rao vs CIT [1961] 42 ITR 179 and the decision of jurisdictional High Course in the case of R. Ramaiah and others [1984] 146 ITR 39 (Kar) there is a possibilit....

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....as mentioned that from the documents available on record, the assessee owned a second house property at No.3, Basaveshwara Nilaya Yelachenahalli. This observation is made purely on the basis that the notice to the assessee was addressed to No.3, Basaveshwara Nilaya, Yelachenahalli. In the reply to the SCN u/s.263 of the Act, the assessee has clarified that the property No.3, Basaveshwara Nilaya, is owned by Shivanna Individual and Not Shivanna (HUF). Thus the observations of the PCIT in his SCN that "from the documents obtained during the course of scrutiny proceedings, it is observed that the assessee holds two residential house properties", is itself an incorrect observation. The PCIT has in the impugned order further observed that from the submission made by the assessee it appears that the assessee owned two houses and the nature of the two properties owned by the assessee has not been examined by the AO. This observation is again incorrect because in the reply to the SCN u/s.263 of the Act, the assessee claims that the assessee is an HUF and it owned only one property i.e., property at No.28, Yelanchenahalli, Kanakapura Main Road and that property was a commercial shop. 13.....