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Facts
The assessee claimed deduction under Section 54F for purchasing a new residential property, but the AO disallowed it, stating the assessee owned three residential properties. The AO also treated the sale proceeds of a gold bar used for investment as unexplained.
Held
The Tribunal held that the assessee was not eligible for Section 54F deduction as he owned more than one residential house. However, the Tribunal deleted the addition on account of unexplained investment in the gold bar, directing that the capital gain on the sale of the gold bar should be taxed.
Key Issues
1. Whether the assessee is entitled to deduction under Section 54F when owning multiple residential properties. 2. Whether sale proceeds of a gold bar, with evidence of purchase, can be treated as unexplained investment.
Sections Cited
54F, 143(3), 133(6)
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: SHRI T.R. SENTHIL KUMAR & SHRI NARENDRA PRASAD SINHA
PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the Assessee against order of National Faceless Appeal Centre (NFAC) [hereinafter referred as ‘CIT(A)’] dated 28.02.2025 for the Assessment Year (A.Y.) 2015-16 in the proceedings under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 2 of 9 2. The brief facts of the case are that the assessee had filed his return of income for the A.Y. 2015-16 on 12.10.2015 declaring income of Rs.4,17,160/-. The case was selected for limited scrutiny. In the course of assessment, the Assessing Officer found that the assessee had shown Long Term Capital Gain (LTCG) of Rs.41,55,131/- on sale of one flat, one godown & a gold-bar. The assessee had also claimed deduction under Section 54F of the Act in respect of purchase of new residential property at “Noble Antrix”. The Assessing Officer found that the assessee had disclosed two house properties under the head “income from house property”. Apart from these two houses, the property at Murtidham Flat was also owned by the assessee when the new residential property at Noble Antrix was purchased on 31.07.2014 for a consideration of Rs.1,35,00,000/-. The property at Murtidham Flat was sold by the assessee on 19.08.2014 i.e. after purchase of new property. Thus, the assessee was having three residential properties on the date when new property at Noble Antrix was acquired by him. The Assessing Officer noticed that a deduction under Section 54F of the Act was available only in the case where the assessee owns only one residential house other than new asset acquired by the assessee. Since this condition was not fulfilled, the Assessing Officer disallowed the deduction claimed under Section 54A of the Act and the capital gain arising on sale of Murtidham flat and godown totaling to Rs.25,81,731/- was brought to tax. The Assessing Officer also noticed that the assessee had introduced fresh capital of Rs.27,77,700/- by way of sale of gold bar. It was explained that this gold bar purchased in the year 2001-02 at a cost of Rs.4,26,000/-. However, the Assessing Officer was not satisfied about the acquisition of the gold bar and the entire sale proceeds of gold bar of Rs.27,77,700/- was treated as unexplained. The assessment was completed under
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 dismissed.
Now, the assessee is in second appeal before us. The following grounds have been taken by the assessee in this appeal: -
“(1) The learned CIT (A) has erred in law and on facts in upholding addition of Rs.25,81,731/- on account of LTCG without properly appreciating the facts of the assessee and without providing the remand report and without properly considering the vital factual and legal aspects submitted to the A.O in-response to remand report requested by the A.O. vide letter dated 30/12/2024. (2) He has erred in law and on facts in not considering and appreciating the written submission dated 16/01/2025 sent to the A.O. in connection with remand report letters received from him even though reference to remand report dated 10/02/2025 has been made in para 6.1.1 of appeal order without providing and seeking comment of the assessee with regard to remand report thereby the additions upheld are submitted to be erroneous legally as well as factually. (3) The Ld. CIT(A) has erred in law and on facts in upholding addition of Rs.27,77,700/- on account of unexplained investment as per para 6.2 of the appeal order without properly appreciating the facts and submission made in-response to remand report called by him from A.O. thereby the additions upheld is submitted to be bad in law as well as on facts. (4) The Ld. CIT(A) in dismissing the appeal has simply reproduced the findings of the AO. and without considering the written submission dated 16/01/2025 made to the A.O. in-response to remand report called by the CIT(A). (5) He has erred in law and on facts in not appreciating and considering the fact that the case of the assessee was under limited scrutiny and the circular issued by the board in connection with the limited scrutiny has not been followed thereby making the additions as erroneous factually as well as legally.
Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 4 of 9 (6) On the facts of assessee, the return income of Rs.4,17,163/- ought to have been accepted without any variation/addition. (7) The appellant craves leave to add, to alter and to modify any ground of appeal.”
5. Ground Nos. 1, 2 and 4 pertain to computation of LTCG derived by the assessee. On the issue of claim of deduction under Section 54F of the Act disallowed by the Assessing Officer, the Ld. AR submitted that the assessee did not own more than one residential house property on the date of transfer of the asset. He explained that other two properties were rented properties and the rental income was offered to tax. Further, that the assessee was not the exclusive owner of two rented properties but was only a co-owner. Therefore, the Assessing Officer was not correct in disallowing the deduction under Section 54F of the Act. In this regard, he has placed reliance on certain case laws filed in the paper-book.
Per contra, Shri B.P. Srivastava, the Ld. Sr. DR strongly supported the orders of the lower authorities. He submitted that the assessee had not fulfilled the condition in the Proviso to Section 54F of the Act and, therefore, was not entitled to the deduction. The Ld. Sr. DR submitted that the assessee was owner of three residential houses on the date when the new asset was purchased by the assessee. Merely because two of the residential houses were let out and the assessee has derived rental income therefrom, it does not entitle the assessee to claim deduction under Section 54F of the Act. He further submitted that the law does not require that the assessee should be exclusive owner of the residential properties. Even if the assessee was a co-owner of more than one residential house, he will not be entitled to deduction under Section 54F of the Act.
Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 5 of 9 7. We have carefully considered the rival submissions. There is no dispute to the fact that the date on which the new property was acquired by the assessee i.e. on 31.07.2014, the assessee was owner of three residential houses. One of the residential properties at Murtidham Flat was subsequently sold on 19.08.2014. However, the assessee remained the owner of the other two properties which were given on rent and the rental income was disclosed in the income tax return of the assessee. The provisions of Section 54F of the Act does not require that the assessee should own only one residential house as an exclusive owner of the property other than the new asset, on the date of transferring of original asset. The law on this issue is specific. If the assessee owns more than one residential house, he will not be entitled to claim the benefit of deduction under Section 54F of the Act. The manner in which the residential house is utilised, i.e. whether it is given on rent or is self- occupied, is immaterial. Further, there is no requirement that the assessee should be exclusive owner of the residential house. Even if the assessee is co-owner of more than one residential house, he will not be entitled to deduction under Section 54F of the Act. Therefore, the deduction under Section 54F of the Act as claimed by the assessee was rightly disallowed by the Assessing Officer. The facts of the cases relied upon by the assessee are found to be totally different from the facts of the present case and, therefore, those decisions are not found material to adjudicate the issue in the present case. Further, the remand report of the Assessing Officer on this issue was in respect of the legal provisions of Section 54F of the Act. Therefore, no prejudice was caused to the assessee if the remand report of the Assessing Officer was not confronted to the assessee. The assessee has not controverted the facts as discussed by the ld. CIT(A) in his order based on which the ground of the assessee was Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 6 of 9 rejected and the deduction under Section 54F of the Act was denied. We, therefore, do not find any merit in the grounds as raised by the assessee. Accordingly, the addition of Rs.25,81,731/- on account of LTCG as upheld by the Ld. CIT(A), is confirmed. Ground nos.1, 2 &4 as raised by the assessee are dismissed.
Ground no.3 pertains to addition of Rs.27,77,700/- on account of unexplained investment in the property. The assessee had shown introduction of fresh capital of Rs.27,77,700/- by way of sale of gold bar on which LTCG was disclosed and the sale proceeds was stated to be utilised for acquisition of the new property. In the course of assessment, the Assessing Officer had required the assessee to produce supporting evidence for purchase of gold bar. In the absence of any evidence in this regard, the Assessing Officer had treated the sales proceeds of gold bar of Rs.27,77,700/-, which was invested in the residential property, as unexplained. The Ld. AR submitted that the evidence for purchase of gold bar was filed before the Ld. CIT(A) in the course of appeal proceedings. The matter was referred to the Assessing Officer for the remand report and on the basis of the remand report of the Assessing Officer, the Ld. CIT(A) has confirmed the addition. The Ld. AR explained that the assessee has brought on record sale bill dated 04.11.2002 for purchase of gold bar at a cost of Rs.4,67,500/- from one Goldfinch Jewellery Limited. The Assessing Officer in the course of remand proceedings had issued notice under Section 133(6) of the Act to the Jewellers from whom the jewellery was purchased and also to the Jewellers to whom the gold bar was sold. Since no compliance was made by the Jewellers in response to the notices under Section 133(6) of the Act, the Assessing Officer had held that that the purchase of gold bar was not proved. On Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 7 of 9 this basis, the Ld. CIT(A) had confirmed the addition. The Ld. AR submitted that the revenue was not correct in ignoring the evidences brought on record for purchase as well as sale of gold bar, particularly when LTCG on sale of gold bar was duly disclosed in the income tax return. He submitted that the assessee had no control over the Jewellers and merely because they had not responded to the notice issued by the Assessing Officer, the transactions cannot be held as bogus.
Per contra, the Ld. Sr. DR supported the order of the lowers authorities on this issue.
We have considered the rival submissions and the material brought on record on this issue in the paper-book. In the course of assessment, the Assessing Officer had treated the sale proceeds of gold bar as unexplained for the reason that the assessee was unable to produce any evidence for purchase of gold bar. Before the Ld. CIT(A), the assessee had filed copy of bill for purchase of gold bar. The Assessing Officer was not correct to reject the evidence brought on record by the assessee for purchase of gold bar merely for the reason that no response was made to the notices under Section 133(6) of the Act by the concerned Jeweller in the course of remand proceedings. Sale of gold bar was not under dispute as the sale proceeds was received by the assessee in his bank account through cheques. Considering the fact that the assessee had brought on record the evidence for purchase of gold bar, the sale proceeds of Rs.27,77,700/- in respect of gold bar could not have been treated as unexplained. Therefore, the addition of Rs.27,77,700/- made by the Assessing Officer on account of unexplained investment is deleted. However, the capital gain derived by the assessee on sale of this gold bar is required to be taxed in accordance with the provisions of Assessment Year: 2015-16 Vinit Bipinchandra Shah vs. ITO Page 8 of 9 the Act. The Assessing Officer had taxed the capital gain derived on sale of Motidham Flat and sale of godown only in the assessment order and the entire sale proceeds of gold bar was separately taxed as unexplained investment. Therefore, while deleting the addition of Rs.27,77,700/- on account of unexplained investment in respect of sale of gold bar, we direct that the capital gain derived on sale of gold bar should be brought to tax. The ground taken by the assessee is partly allowed.
Ground no.5 pertains to extending the scope of limited scrutiny. Shri P.F. Jain, Ld. AR of the assessee, submitted that the case was selected for limited scrutiny and the additions made by the Assessing Officer were not in respect of issues for which the case was selected for scrutiny.
On the other hand, the ld. Sr. DR submitted that the Assessing Officer was correct in making addition in respect of LTCG as the case was selected for limited scrutiny to examine the issue of purchase of property.
We have considered the rival submissions. It is found that the case was selected for limited scrutiny on the following issues :-
(i) From income from heads of income other than business and professional mismatch, and (ii) Purchase of property 14. Thus, one of the issues selected for limited scrutiny was purchase of property. The investment in the property was explained to be out of sale proceeds of other capital assets. Therefore, the addition made by the Assessing Officer in respect of LTCG derived on sale of assets is found to be connected with the issue of purchase of property for which the case was selected for scrutiny. We do not find any merit in the ground taken by the assessee. Therefore, the ground is dismissed.
Order pronounced in the open Court on this 5th August, 2025.