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ITAT Remands Tax Deduction Case for Verification of Flats as Single Unit
ECONOMY & POLICY

ITAT Remands Tax Deduction Case for Verification of Flats as Single Unit

The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has remanded a tax deduction case involving two adjoining flats back to the Income Tax (I-T) authorities for further verification. The taxpayer, P Shah, claimed a tax deduction of Rs.95 million under Section 54-F of the Income-Tax Act for her investment in the flats during the 2020-21 financial year.

Under Section 54-F, a taxpayer can sell long-term assets, such as equity shares, and invest the entire net sales consideration in one residential house within a specified period to receive a full tax exemption on the long-term capital gains from the sale. If only part of the net sale consideration is invested in a residential house, the exemption is allowed proportionately. Shah contended that her investment in both adjoining flats constituted a single residential unit, allowing her to claim the full deduction.

The issue of whether investments in two adjoining flats can be treated as a single unit has been contentious. During the tax assessment, the I-T official disputed this claim, citing an amendment effective from the 2014-15 financial year, which stated that a taxpayer can only invest in one residential flat. The official noted that the flats were registered separately and separated by an 'open to sky' space, thus disqualifying them as a single unit.

The commissioner (appeals) initially ruled in favor of Shah, referencing an affidavit from the builder and a revised building plan, indicating an agreement to convert the adjoining flats into one unit. However, the I-T department deemed these documents "self-serving" and filed an appeal with the ITAT.

The ITAT found that no physical verification had been conducted by the tax authorities regarding the flats' status as a single residential unit. Consequently, the case has been sent back to the I-T officer for physical verification. The tribunal noted that if the flats are indeed combined, Shah would qualify for the tax deduction.

The Mumbai bench of the Income-Tax Appellate Tribunal (ITAT) has remanded a tax deduction case involving two adjoining flats back to the Income Tax (I-T) authorities for further verification. The taxpayer, P Shah, claimed a tax deduction of Rs.95 million under Section 54-F of the Income-Tax Act for her investment in the flats during the 2020-21 financial year. Under Section 54-F, a taxpayer can sell long-term assets, such as equity shares, and invest the entire net sales consideration in one residential house within a specified period to receive a full tax exemption on the long-term capital gains from the sale. If only part of the net sale consideration is invested in a residential house, the exemption is allowed proportionately. Shah contended that her investment in both adjoining flats constituted a single residential unit, allowing her to claim the full deduction. The issue of whether investments in two adjoining flats can be treated as a single unit has been contentious. During the tax assessment, the I-T official disputed this claim, citing an amendment effective from the 2014-15 financial year, which stated that a taxpayer can only invest in one residential flat. The official noted that the flats were registered separately and separated by an 'open to sky' space, thus disqualifying them as a single unit. The commissioner (appeals) initially ruled in favor of Shah, referencing an affidavit from the builder and a revised building plan, indicating an agreement to convert the adjoining flats into one unit. However, the I-T department deemed these documents self-serving and filed an appeal with the ITAT. The ITAT found that no physical verification had been conducted by the tax authorities regarding the flats' status as a single residential unit. Consequently, the case has been sent back to the I-T officer for physical verification. The tribunal noted that if the flats are indeed combined, Shah would qualify for the tax deduction.

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