Long-Term Capital Gain Can’t Be Claimed Without Owning Flats for At Least 3 years: ITAT

The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) has held that long-term capital gain cannot be claimed without owning flats for at least 3 years.

The bench of R.K. Panda (Vice President) and Laliet Kumar (Judicial Member) has observed that PCIT is fully justified in invoking the provisions of Section 263 of the Income Tax Act as the assessee without holding the seven flats for a period of 3 years from the date of acquisition claimed deduction under Section 54F after selling these flats. Therefore, there is complete non-application of mind by the assessing officer, for which the order is erroneous as well as prejudicial to the interests of the department.

The assessee is an individual deriving income from house property, business income, capital gains, and other sources. She filed her return of income for FY 2015-16 electronically, declaring an income after claiming a deduction under Chapter VIA at Rs. 1701. Subsequently, the case was selected for scrutiny under CASS, and the Assessing Officer completed the assessment under Section 143(3) on November 22, 2017, accepting the income returned.

The PCIT, on perusal of the assessment record, noted that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the department.

The PCIT held that the Assessing Officer had applied the provisions incorrectly, which constitutes an error, and as such, the assessment is erroneous and prejudicial to the interest of the Revenue. He, therefore, set aside the order of the assessing officer with a direction to redo the assessment after examining the issue and after allowing the assessee the opportunity to be heard.

The assessee contended that since the Assessing Officer in the instant case, after verifying various details given by the assessee, has passed the order, Therefore, it is neither erroneous nor prejudicial to the interest of the Revenue, and therefore, the learned PCIT was not justified in invoking the provisions of Section 263 of the Income Tax Act.

The department contended that the assessing officer, without examining the contents of the letter, had accepted the income returned, and therefore, the very purpose for which the case was selected for scrutiny remained unverified.

The tribunal held that the assessee has sold all the flats for a consideration of Rs. 1,66,23,000. When the assessee has not held the flats for a minimum period of 3 years, the provisions of Section 54F are not fulfilled, and therefore, by allowing the claim of deduction under Section 54F, the order of the Assessing Officer has become erroneous as well as prejudicial to the interest of the Revenue.

Counsel For Appellant: S. Rama Rao

Counsel For Respondent: K. Madhusudan

Case Title: Smt. Madhu Devi Versus ITO

Case No.: 565/Hyd/2020

Click Here To Read The Order