ITAT Hyderabad Allows Section 54F Deduction for 13 Residential Units

Mekala Sharath Reddy (HUF) Vs DCIT (ITAT Hyderabad)

Summary: The appeal concerns the allowability of deduction under Section 54F of the Income-tax Act, 1961 for investment in construction of multiple residential units for Assessment Year 2009-10. The assessee had filed the return on 27.07.2009 declaring total income of Rs.50,69,730/-. During the relevant year, an immovable property was sold for Rs.1,50,00,000/-. After claiming indexed cost of acquisition of Rs.1,73,704/-, long-term capital gain was computed at Rs.1,48,26,296/-. After claiming deduction under Section 54, the assessee offered net capital gain of Rs.50,26,296/- to tax.

This was the second round of appeal before the Tribunal. In the first round, the Assessing Officer had brought the entire receipt of Rs.1,50,00,000/- to tax. The Tribunal, by order dated 31.01.2020 in ITA No.860/Hyd/2013, restored the issue to the Assessing Officer with directions to examine the assessee’s claim under Section 54F as per law. During the set-aside proceedings, notices were issued but were not complied with. The Assessing Officer thereafter completed assessment under sections 143(3), 254 and 144B vide order dated 14.09.2021, assessing income at Rs.1,50,43,430/-. The CIT(A), after obtaining a remand report, dismissed the appeal and upheld the Assessing Officer’s action.

Before the Tribunal, the assessee challenged rejection of deduction of Rs.99,73,700/- under section 54F. Three principal objections had been raised by the CIT(A): investment in multiple residential units rather than one residential house; construction allegedly deviating from the approved plan; and failure to furnish complete bank statements evidencing utilisation of funds.