Disallowance of exemption u/s 54F of the Income Tax Act

The Income Tax Appellate Tribunal considered an appeal regarding the disallowance of a Rs. 61,44,440 exemption claimed under Section 54F of the Income Tax Act. The exemption was denied by the Assessing Officer and confirmed by the CIT(A) because the assessee allegedly failed to provide sufficient evidence for constructing a single residential unit and instead built multiple units that were let out. The assessee argued that the relevant tax amendment disallowing more than one residential house was prospective and did not apply to her case.

IN THE INCOME TAX APPELLATE TRIBUNAL
BANGALORE BENCHES “B”, BANGALORE

Before Shri Chandra Poojari, AM & Shri George George K, JM
ITA No.1105/Bang/2019 : Asst.Year 2013-2014

Smt.Kempanna Shylaja
No.617, Neeru Bhavikempanna
Layout, Guddadahalli Main Road
Hebbal
Bengaluru – 560 024.
PAN : DGVPS6700R.
(Appellant) 

vs.

The Income Tax Officer
Ward 6(3)(1)
Bengaluru.
(Respondent) 

Appellant by : Shri L.Maheshkumar, Advocate
Respondent by :Shri Priyadarshi Mishtra, Addl.CIT-DR

Date of Hearing : 06.07.2021
Date of Pronouncement : 12.07.2021

O R D E R

Per George George K, JM

This appeal at the instance of the assessee is directed against CIT(A)’s order dated 12.03.2019. The relevant assessment year is 2013-2014.

2. Fifteen grounds are raised in this appeal, however, only two issues were argued, namely, (i) whether the CIT(A) was justified in confirming the disallowance of exemption u/s 54F of the I.T.Act, amounting to Rs.61,44,440; and (ii) whether the CIT(A) was justified in confirming the addition of Rs.17,00,000 u/s 68 of the I.T.Act. We shall adjudicate the above issues as under: Whether the CIT(A) was justified in confirming the disallowance of exemption u/s 54F of the I.T.Act, amounting to Rs.61,44,440

3. The assessee along with her two children had sold a vacant land situated in Bangalore North during the relevant assessment year. The above mentioned vacant land was sold vide two separate sale deed dated 24.05.2012. The sale proceedings of the vacant land was declared by the assessee in her return of income filed for the relevant assessment year, namely, A.Y.2013-2014 and exemption u/s 54F of the I.T.Act was claimed in respect of the house property constructed at No.617, Hebbal, Bangalore. The assessment was completed by disallowing the exemption u/s 54F of the I.T.Act on the premises that the assessee had failed to discharge the burden placed on her with respect to the construction of residential house and has not filed any documentary evidences in support of the claim of deduction u/s 54F of the I.T.Act.

4. Aggrieved, the assessee preferred an appeal to the first appellate authority. During the course of appellate proceedings, the CIT(A) sought for a remand report and on receipt of the same, the appeal was disposed of by confirming the denial of exemption u/s 54F of the I.T.Act. The CIT(A) was of the view that the assessee had built multiple residential units instead of one residential unit. The CIT(A) further held that the units were let out and were not being used by assessee and her family, thereby rejecting the claim of exemption u/s 54F of the I.T.Act.

5. Aggrieved by the order of the CIT(A), the assessee preferred an appeal to the Tribunal. Before the ITAT, it was contended that the legislature has amended the provisions of section 54F of the I.T.Act vide Finance (No.2) Act, 2014 with effect from 01.04.2015 and has withdrawn the deduction for more than one residential house with effect from 01.04.2015  onwards. It was submitted that the amendment was prospective and the assessee’s case being prior to the amendment, the Income Tax Authorities were not justified in denying the benefit of deduction u/s 54F of the I.T.Act. In this context, the learned Counsel relied on the judgment of the Hon’ble Karnataka High Court in the case of Arun K Thiagarajan v. CIT reported in 427 ITR 190.

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