INCOME TAX ACT, 1961

Section 263 Section 54F

Revision under section 263 - Erroneous and prejudicial order - AO having allowed assessee's claim of deduction under section 54F -

Assessee sold certain asset and entered into contract for construction of new residential house. Accordingly, assessee claimed deduction under section 54F. Pr. CIT held assessment order was erroneous and prejudicial to the interest of revenue on the ground of AO having allowed assessee's claim of deduction under section 54F without examining that how much deduction could be allowed. Another ground for exercising of power under section 263 was regarding adoption on cost of acquisition of new asset. Assessee argued that order could be rectified by AO under section 154. Also assessee submitted that cost of furniture, Air-Conditioners was allowable and same would form part of acquisition of new asset. Held: Assessee did not point out any action taken by AO under section 154, hence on this ground revision order was justified. However, expression used in statute is 'cost of the residential house so purchased' and it does not necessarily mean that cost of residential house must remain confined to cost of civil construction alone. A residential house may have many other things, other than civil construction and including things like furniture and fixtures, as its integral part and may also be on sale as an integral deal. If these things are integral part of house being purchased, the cost of house has to essentially include cost of these things as well. In such circumstances, what is to be treated as cost of residential house is entire cost of house and it cannot be open to AO to treat only cost of only civil construction as cost of house and segregate cost of other things as not eligible for deduction under section 54F. In the instant case, it was not a composite deal. However, it was not clear whether assessee had entered into with a contract with contractor that included cost of furniture and other fixtures. Under these facts, direction of Pr. CIT to the extent were modified and AO would allow expenses incurred for furniture and Air-Conditioners if it was part and parcel of the contract for construction of new house.

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