ITAT denied section 54F relief to an assessee with several houses because he was unable to establish that they were commercially rented.

Surendra Babu Sabbineni v. DCIT – [2023]

Assessee, a person, submitted a return of income for the appropriate assessment year. A search was done, and a revised return of income reporting capital gains was filed. The Assessing Officer (AO) concluded the assessment process by granting the claim under section 54F for such capital gains.

Thereafter, the Principal Commissioner of Income Tax (Pr. CIT) observed that the assessee owned multiple residential properties at the time of the transfer of the capital asset in question. The AO approved the deduction claim under section 54F without verifying the facts and instructed the AO to investigate.

Assessee argued that because these houses were rented for commercial purposes, they were not residential. The Assessing Officer, unsatisfied with the assessee’s response, denied the deduction sought under Section 54F and calculated the income accordingly.

The assessee filed an immediate appeal with the CIT (A) after receiving the order. The issue thereafter reached the Hyderabad Tribunal following the CIT (A) confirmations of the AO’s adjustments.

The Tribunal determined that the assessee’s claim that all of the premises were rented out for commercial purposes and, as such, did not qualify as residential units, lacked validity. According to the information provided on these properties, despite the fact that they are all rented, they are all located in residential communities. The assessee was unable to demonstrate with proof that these properties were actually utilized for commercial purposes.

Additionally, it was determined that the assessee was unable to demonstrate that the local authorities were paying the aforementioned assets in accordance with commercial property taxes. Furthermore, the assessee did not provide any proof to substantiate the assertion that the Electricity Department charged commercial rates for electricity to the aforementioned residences.

As there was insufficient evidence to support the claim, the CIT(A) correctly affirmed the AO’s judgement disallowing the claim under Section 54F for the assessee.