ITAT Hyderabad: Flat Ownership for at Least Three Years is Needed to Claim LTCG

Without owning flats for at least three years the long-term capital gain could not be claimed, the Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) ruled.

PCIT is been justified in invoking the provisions of Section 263 of the IT (Income Tax) Act. as the taxpayer without holding the 7 flats for three years from the acquisition date claimed deduction under section 54F post selling of such flats.

Hence there is a complete non-application of mind via the assessing officer for which the order is wrong, the bench of R.K. Panda (Vice President) and Laliet Kumar (Judicial Member) witnessed.

The individual, earning income from various sources such as house property, business, capital gains, and others, filed her FY 2015-16 income tax return electronically. In the return, she declared an income of Rs. 1701 after claiming deductions under Chapter VIA.

The case underwent scrutiny under the Computer-Assisted Scrutiny System (CASS), and the Assessing Officer concluded the assessment under Section 143(3) on November 22, 2017, accepting the reported income.

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Upon review of the assessment records, the Principal Commissioner of Income Tax (PCIT) found that the Assessing Officer’s decision was faulty, being detrimental to the interests of the revenue department.

The PCIT determined that the Assessing Officer had incorrectly applied certain provisions, constituting an error. Consequently, the assessment was deemed both erroneous and prejudicial to the Revenue’s interests.

Hence, the PCIT nullified the assessing officer’s decision, instructing a re-assessment after a thorough examination of the matter and providing the assessees with the opportunity to present her case.

The assessee argued that since the Assessing Officer had examined the details provided and then issued the order, it couldn’t be considered erroneous or prejudicial to the Revenue’s interests. Thus, the PCIT’s decision to invoke Section 263 of the Income Tax Act. was unwarranted.

However, the department countered by stating that the assessing officer had accepted the reported income without scrutinizing the contents of the documents, leaving the primary purpose of the scrutiny unfulfilled.

The tribunal determined that the taxpayer sold all the flats for a total amount of Rs. 1,66,23,000. Given that the taxpayer did not retain ownership of the flats for at least three years, the requirements outlined in Section 54F were not met.

Consequently, granting the deduction under Section 54F rendered the Assessing Officer’s decision both incorrect and detrimental to the Revenue’s interests.