Capital gain exemption cannot be denied for the reason that house property was not intended for personal use


Capital gain exemption cannot be denied for the reason that house property was not intended for personal use



ITAT bench of Delhi in the case of – Girish Mohan v. ACIT [ITA No. 8816/Del/2019] has held that the deduction under section 54F should not be denied on residential houses on the ground that it was not intended for their personal use and constructed on small areas of land.


The case involves a dispute over the eligibility of the Assessee for a deduction under section 54F of the Income Tax Act. The AO alleged that the Assessee was not entitled to the deduction as he only possessed a piece of land without any construction. The Assessee appealed before the CIT (A) and provided evidence of incurring expenses on constructing a residential house on the purchased land, supported by a report from a registered valuer.


The CIT(A) partially allowed the Assessee’s claim for deduction and held that the construction was very small compared to the size of the land, and based on the Assessee’s status, it was not believable that the residential unit was intended for their use. The CIT(A) also relied on certain decisions, which were not directly applicable to section 54F but rather to section 54 and the sale of property.


The Assessee disagreed with the CIT(A)’s findings and argued that the legislature did not require the new residential house to be intended for the Assessee’s use in section 54F. He cited decisions from various benches of the ITAT supporting their claim. The Assessee also contested the CIT(A)’s observation that the size of the constructed portion was small and that the exemption benefits could not be extended to the appurtenant land.


Upon careful consideration, the ITAT agreed with the Assessee’s contentions and the evidence presented. The ITAT referred to the orders of other benches and held that the exemption under section 54F could be claimed if the property was a residential house, regardless of its non-residential use. The ITAT also found that the Assessee provided sufficient documentary evidence to establish that they purchased the land and constructed a residential unit for their use. Consequently, the ITAT directed the AO to allow the deduction under section 54F to the Assessee.


The Jaipur Bench of the ITAT in the case of APM Industries Ltd. v. DCIT [ ITA. No. 203/JP/2023] has quashed the revision order under Section 263 of the Income Tax Act 1961. The ITAT’s gave rationale behind this decision was that not every loss of revenue as a consequence of the order of the AO could not be treated as prejudicial to the interest of revenue. They drew upon a precedent set by the Hon’ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC). In this landmark case, it was held that:


“The phrase ‘prejudicial to the interests of the Revenue’ in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression ‘erroneous’ order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law.”


Hence, this provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue’s interest, then the provision will be attracted.


The case detail is as under:

Girish Mohan



[ 8816/Del/2019]

1689328216-8816-Del-2019-Girish Mohan