ITAT Allows Section 54F Deduction for Two Bungalows Clubbed as Single Residential Unit:

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has allowed the appeal of Dhruval Kirit Sukhadia and held that two bungalows purchased by the assessee could be treated as a single residential unit for claiming a deduction under Section 54F of the Income Tax Act, 1961.

During the Assessment Year 2022-23, Sukhadia had purchased two bungalows from a builder and combined them into one residential unit. Subsequently, he claimed deduction under Section 54F of the Income Tax Act while filing income tax return (ITR) for the year under consideration. During the course of assessment, the Assessing Officer (AO) restricted the deduction to Rs 3.33 crore, holding that Section 54F allowed the benefit for only one residential house. Sukhadia, being dissatisfied with the AO's decision, challenged the same before the first appellate authority, i.e., the Commissioner of Income Tax (Appeals) [CIT(A)]. After the hearing, the CIT(A) upheld the disallowance.

Before the ITAT, the assessee submitted a certificate from the builder confirming that Bungalows Nos. 14 and 15 had been constructed and clubbed as a single residential unit. The combined property had only one kitchen and one entrance, with no internal wall separating the two bungalows. The floor plan also supported the assessee’s claim that the property was being used as one residential unit.

The ITAT observed that although the property was recorded as two bungalows, it was constructed and used as a single residential unit. The Tribunal noted that Section 54F does not prescribe any specific area for a residential unit. Therefore, merely because the combined property had a larger area could not prevent the assessee from claiming the deduction. Accordingly, the tribunal held that "said property is to be treated as a single residential unit, and the assessee is entitled to claim deduction in respect of the said property under section 54F of the Act."

The tribunal set aside the CIT(A)’s order and deleted the disallowance. The assessee’s appeal was allowed.