ITAT Sends Back Section 54F Dispute for Fresh Verification of Farmhouse Investment Claim

Ameetsingh Ajitsingh Rajpal filed his return for AY 2011-12 declaring no taxable income. In scrutiny assessment, the Assessing Officer computed income at Rs. 2.57 crore, which included disallowance of interest, addition of unsecured loans under section 68, and denial of exemption under section 54F amounting to Rs. 92,85,214. The AO held that the assessee had not invested in a “residential house” but had instead put the sale proceeds into a farmhouse property, which in his view did not qualify for the exemption.

On appeal, the CIT(A)/NFAC granted relief on interest disallowance and deleted the section 68 addition but upheld the denial of section 54F exemption.

Issue Before Tribunal: Whether the assessee’s investment in a farmhouse property could qualify as a “residential house” for purposes of exemption under section 54F, and whether the newly produced evidence warranted reconsideration by the AO.

ITAT Ruled: The Tribunal noted that the dispute was regarding the eligibility of the assessee’s claim under section 54F and that the authorities below had proceeded on an incomplete evidentiary record. The assessee had filed a Rule 29 application, along with an extensive set of documents, and relied on several judicial precedents, including cases in which farmhouse-type structures were accepted as residential houses for section 54F purposes. The Bench held that these fresh materials required proper verification at the assessment stage and could not be evaluated for the first time in appellate proceedings.

Thus, the Tribunal set aside the CIT(A)’s order to the limited extent of the section 54F issue and restored the matter to the Assessing Officer. The AO was directed to examine the additional evidence, consider the assessee’s submissions on law and precedent, and re-adjudicate the exemption claim after granting due opportunity. The appeal was thus allowed for statistical purposes.

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