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Facts
The assessee claimed a deduction under Section 54F on sale of a capital asset (Artwork/Painting). The Assessing Officer disallowed the claim, stating the assessee owned more than one residential property at the time of sale. The CIT(A) allowed the assessee's appeal.
Held
The Tribunal held that the assessee was not owning more than one residential property at the time of sale of the capital asset. Villas 13 & 14 were under construction and considered business assets, with advances received and TDS deducted before the sale of the Artwork/Painting. The deduction under Section 54F was rightly claimed and allowed.
Key Issues
Whether the assessee owned more than one residential property at the time of selling the capital asset, thereby disentitling them from the deduction under Section 54F.
Sections Cited
143(3), 54F, 143(3)
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SHRI NARENDRA PRASAD SINHA, AM:
This appeal is filed by the Revenue against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 23.12.2024 for the Assessment Year (A.Y.) 2022-23 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The brief facts of the case are that the assessee had filed his return of income for the A.Y. 2022-23 on 15.10.2022 declaring total income of Rs.3,85,83,230/-. The case was selected for scrutiny under CASS to examine the deduction claimed under Section 54F of the Act. The (Assessment Year: 2022-23) Padmini Solanki, DCIT vs. Aditya Harshvadan Mangaldas Page 2 of 7 assessee had sold a capital asset (Artwork/Painting) on 16.10.2021 for a consideration of Rs.17,74,75,000/- against which deduction under Section 54F of the Act was claimed in respect of purchase of a residential property for Rs.22,50,00,000/- on 31.03.2022. The Assessing Officer had disallowed the claim of deduction under Section 54F of the Act for the reason that the assessee was owner of one residential house at the time of sale of capital asset and had constructed two more residential properties within a period of one year from the date of sale of the original capital asset. The assessment was completed under Section 143(3) of the Act on 27.03.2024 at total income of Rs.21,60,58,230/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the first appellate authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was allowed.
Now the Revenue is in second appeal before us. The following grounds have been taken in this appeal: -
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the addition on Rs.17,74,75,000/- on account of disallowance of deduction u/s.54F, without appreciating the facts that the assessee failed to fulfill the conditions for claiming such deductions?
2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary."
3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the assessing officer be restored?”
Shri Ashesh Rajesh Rewar, Ld. CIT-DR, submitted that the assessee was hit by the mischief of proviso to Section 54F of the Act as he was owner of more than one residential house, other than the new (Assessment Year: 2022-23) Padmini Solanki, DCIT vs. Aditya Harshvadan Mangaldas Page 3 of 7 asset, on the date of transfer of the original asset. He submitted that the clause that the assessee should own only one residential house was not satisfied in this case and, therefore, the Assessing Officer had rightly disallowed the claim for deduction under Section 54F of the Act. The Ld. CIT-DR submitted that the assessee had constructed two villas within one year of the sale of original asset and the fact these two villas were under construction on the date of sale of original asset, on which capital gain was derived, was not under dispute. He, therefore, strongly supported the order of the Assessing Officer rejecting the claim for deduction u/s 54F of the Act.
Per contra, Shri Vartik Chokshi, Ld. AR of the assessee, submitted that the assessee had one residential house (old villa) acquired in 2006, which was given on rent and the income from which was consistently offered as income from house property. In addition to this property, the assessee had constructed an another property villa No.2 which was sold prior to the sale of the Artwork/Painting and the income derived from sale of Villa No.12 was offered as Short Term Capital Gain (STCG). The Ld. AR submitted that the assessee was thus owner of the only one residential house on the date of sale of Artwork/Painting i.e. on 16.10.2021. The construction of Villa Nos.13 & 14, which were business assets, was still in progress and the assessee cannot be said to be owner of more than one residential house on the date of sale of Artwork/Painting. The capital gain derived on sale of Artwork/Painting was invested in purchase of residential house on 31.03.2022 for Rs.22,50,00,000/- and, therefore, the assessee had rightly claimed for deduction under Section 54F of the Act. He, therefore, strongly supported the order of the Ld. CIT(A), deleting the addition made by the Assessing Officer.
(Assessment Year: 2022-23) Padmini Solanki, DCIT vs. Aditya Harshvadan Mangaldas Page 4 of 7 7. We have considered the rival submissions. The assessee had purchased 5 acres of land on 09.09.2019 on which three Villas viz. Villa No. 12, Villa No.13 and Villa No.14 were under construction. Villa No.12 was for residential purpose, the construction of which was completed on 12.01.2020. The other two Villa Nos.13 & 14 were business assets of the assessee, the construction of which was ongoing. The assessee had sold Villa No.12 on 18.08.2021 and STCG derived on sale of this property was duly offered for tax. Thereafter, the assessee had sold the Artwork/Painting on 16.09.2020 and the capital gain derived thereon was invested in purchase of residential house on 31.03.2022 for a consideration of Rs.22,50,00,000/-, against which the deduction under Section 54F of the Act was claimed. The Assessing Officer had disallowed the claim of deduction u/s 54F of the Act for the reason that the Villa Nos.13 & 14 were in construction on the date of sale of Artwork/painting and the construction of which was completed on 15.05.2022. Further, the Assessing Officer had also rejected the claim of the assessee that Villa Nos.13 & 14 were the business assets of the assessee, for which no cogent reason has been given. As per own admission of the Assessing Officer, the Villa Nos.13 & 14 were still under construction on the date of sale of Artwork/Painting. Therefore, the assessee was not in possession of these assets for occupation. The assessee was thus holding only one residential property on the date of sale of capital asset i.e. Artwork/Painting. We, therefore, find that the assessee was not hit by the mischief of proviso to Section 54F of the Act and the deduction claimed under Section 54F could not have been denied for the reason that the assessee was owing more than one residential house on the date of sale of Artwork/Painting. As regarding Villa Nos.13 & 14, these two assets were also subsequently sold and the income derived therefrom was (Assessment Year: 2022-23) Padmini Solanki, DCIT vs. Aditya Harshvadan Mangaldas Page 5 of 7 offered to tax under the head “business and profession”. In view of this fact, the Assessing Officer was not in holding that the Villa Nos.13 & 14 were not business assets of the assessee.
It is found that the Ld. CIT(A) had correctly appreciated the facts of the case and given the following finding in this regard: -
“5.1.5 In view of the submissions made by the appellant it becomes clear that assessing officer had made the additions because he drew the conclusion that appellant was owner of one residential property at the time of sale of Capital Asset (being Artwork) and constructed two more residential properties within a period of one year from the date of sale of Capital Asset. The assessee has shown his personal properties as business asset just to claim deduction u/s 54F of the Act. which was otherwise not allowable to the assessee.
“5.1.6 However in his reply the appellant has shown (along with various documentary proofs) that he had inherited a painting jointly with his sister from their father. During the year under consideration, the said painting was sold on 16 Sept 2021 and the Appellant received Rs.17,74,75,000/- as his share and earned capital gain of Rs. 17,43,05,000/- The Appellant claimed the deduction under section 54F of the Income-tax Act, 1961 ('the Act') the Act for capital gain earned on said painting of Rs.17,43,05,000/- by investing in a residential house before filing the return for the year. The assessing officer has alleged that the Appellant was not involved in business activity and the purchase of plots of land were for construction of own residential properties and that the Appellant has constructed two Villas within period of one year from date of sale of Artwork and that the Appellant has violated provisions of section 54F and for this reason the AO has disallowed claim for deduction under section 54F of the Act to the Appellant. However the appellant has shown that the intent from day one was to develop, market and sell these villas, 13 and 14, as a commercial activity. Furthermore the appellant has also submitted that villa 13 and 14 were sold during A Y 2023-24 and profit arising on the sale of said villas was offered as business income.
5.1.7 In view of the above foregoing it is clear that the appellant had developed two properties i.e. villa number 13 and 14 as business venture and only claimed benefit of section 54F from one of the property i.e. villa number 12 only. The other two properties have been sold and the business income has already been offered for taxation.
(Assessment Year: 2022-23) Padmini Solanki, DCIT vs. Aditya Harshvadan Mangaldas Page 6 of 7 5.1.8 Moreover the important fact that an advance against sale of villa no. 13 & 14 was also received on 12th January 2021 and 13th January 2021 respectively much before sale of the capital asset (Artwork) on 16 Sept 2021, Copy of bank statement highlighting the same was filed. This was also disclosed in the Schedule AL while filing the ITR. Also, the buyers did deduct TDS of Rs.4,42,500/- and Rs.4,00,000/- in AY 2021-22 & AY 2022-23 on the advances.
5.1.9 Thus in view of the above the addition of Rs.17,74,75,000/- by denying deduction U/s 54F is deleted.”
The Revenue has been unable to controvert the findings of the Ld. CIT(A). As already discussed earlier, the assessee had rightly claimed the deduction under Section 54F of the Act by investing the LTCG derived on the sale of Artwork/Painting in the purchase of residential property on 31.03.2022. The assessee was not owning more than one residential house on the date of sale of Artwork/Painting. Therefore, the deduction under Section 54F of the Act was rightly claimed by the assessee. Accordingly, we uphold the order of the Ld. CIT(A). The grounds taken by the Revenue are dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 11th December, 2025.