Section 54F Deduction Allowed Where Property Was Reduced to Open Land — ITAT Ahmedabad Rules in Favour of Assessee
Background and Context
The eligibility for deduction under Section 54F of the Income Tax Act, 1961 hinges critically on how many residential properties the assessee owns at the time of claiming the benefit. One of the most contested questions that arises in practice is whether a piece of land with demolished or non-existent structures qualifies as a "residential house" for the purpose of this restriction. The ITAT Ahmedabad, in DCIT Vs Vijay Hathising Shah, addressed precisely this question and delivered a ruling that provides meaningful clarity on how physical condition and documentary evidence should guide such determinations.
Case Identity and Procedural History
Case: DCIT Vs Vijay Hathising Shah
Forum: Income Tax Appellate Tribunal, Ahmedabad
Assessment Year: 2015-16
The assessee, an individual, filed his return of income for Assessment Year 2015-16 on 31-10-2015, disclosing a total income of Rs. 16,43,52,760/-, which included Long Term Capital Gain of Rs. 15,85,25,949/-. The return was taken up for scrutiny, and a regular assessment under Section 143(3) was completed on 22-08-2017, with the declared income being accepted as filed.
The matter did not rest there. Revision proceedings under Section 263 of the Income Tax Act, 1961 were subsequently initiated by the Principal Commissioner of Income Tax (PCIT). During the relevant financial year, the assessee, along with co-owners, had sold two non-agricultural plots of land situated at Ambli village and had claimed a deduction under Section 54F amounting to Rs. 3,96,79,796/- on account of the purchase of a new residential property.
The PCIT denied this deduction on the basis that the assessee held more than one residential house at the relevant time. The two properties in question were:
- Ambli Gam Tal House — carried in the books at a value of Rs. 15,73,000/-
- Residential Bungalow — with a book value of Rs. 1,02,53,518/-
Giving effect to the revision order, the Assessing Officer passed a fresh order on 31-03-2022, recomputing the Long Term Capital Gain at Rs. 19,82,05,745/- and disallowing the deduction of Rs. 3,96,79,796/- under Section 54F, on the ground that the assessee owned more than one residential unit during the financial year in question.
Assessing Officer's Reasoning for Denial
The Assessing Officer, while giving effect to the revision order, recorded the following reasoning for rejecting the assessee's claim:
"The assesse has claimed that the said property was inhabitable at the time of purchase of the property. However, the assesse has included the asset in his balance sheet for a value of Rs.15,73,600/-"
"The assesse has produced photographic evidence in support of his claim, however it is not ascertainable whether the photographs were taken recently or the condition of the structure was dilapidated at the time of purchase of the property in 2013."
"It is unlikely that the property was inahabitable at the time of purchase, otherwise the assesse would not have valued the property at Rs.15,73,600/-and included in his class of assets. In view of the same, the worth of the property is determinable only from the valuation of Rs. 15,73,600/- assigned to it by the assesse himself. It is therefore established that the assesse was the owner of two residential properties at the time of sale of land in the relevant period and is therefore, not eligible to get deduction u/s 54F of the Act."