Section 54 exemption disallow in the year of claim

Pls share your view 

n assessee who already owns more than one residential house (other than the new asset) is not eligible for exemption under Section 54F of the Income Tax Act. Here, the relevant issues involve:

• Disallowance of Section 54F exemption for AY 2023-24

• Treatment of fund routing (accommodation entry/colourable device) for AY 2024-25

• Section 54F exemption is available to an individual/HUF upon sale of a long-term capital asset other than a residential house, if net consideration is invested in a residential house, but the assessee should not own more than one residential house other than the new asset at the time of transfer.

• If, in AY 2023-24, the assessee owned two houses on the date of transfer, the exemption should be denied in AY 2023-24 itself (the year of claim).

• The assessment in AY 2024-25 may uncover the claim during CASS (Computer Assisted Scrutiny Selection), but the disallowance is applied for AY 2023-24, via revision or rectification or reopening if not already denied.

• If funds appear to have been routed from the seller to the buyer and returned prior to registration, it may suggest a non-genuine transaction or “accommodation entry” or “colourable device” if the source/explanation is not satisfactory.

• The Revenue may treat these funds as unexplained cash credit (section 68) or invoke section 69 for unexplained investment if not satisfactorily explained.

• The burden of proof is on the assessee to demonstrate the genuineness of the transaction and source of funds.

Steps for Revenue Authorities

• Disallow Section 54F claim for AY 2023-24 if assessee owns more than one house.

• Investigate the fund flow between seller and buyer; issue notices under section 68/69 asking assessee to explain the source.

• If explanation is not satisfactory, treat routed funds as unexplained income/accommodation entry in AY 2024-25 and levy tax accordingly.

Steps for Assessee

• Provide documentary evidence proving the source of funds and genuine nature of property transaction.

• Submit affidavits, bank statements, and replies to notices explaining fund flow.

• Compile details of residential house ownership as on the date of transaction to answer scrutiny.

• If exemption claim under 54F is denied, consider alternate legal remedies (appeal, revision, etc.).

@ Sajjan Tawde

Congratulations.

Your ASSESSEE is now fixed for life for playing badminton/tennis with the tax authorities.

He is becoming oversmart,