REENA JACOB,CHENNAI vs. ITO, NON CORP WARD 7(3),CHENNAI, CHENNAI

आयकर अपीलीय अधिकरण, ‘ए’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI श्री एबी टी वर्की, न्याययर्क सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No. 3410/Chny/2025 निर्धारण वर्ा / Assessment Year 2017-18 Reena Jacob The Income Tax Officer Z Block, Plot No.3004, vs. Non-Corporate Ward 7(3) 13th Main Road, Anna Nagar, Chennai. Chennai – 600 040. [PAN: AVNPR5696P] (अपीलधर्थी/Appellant) (प्रत्यर्थी/Respondent) अपीलधर्थी की ओर से/Appellant by : Shri. M.Karunakaran, Advocate प्रत्यर्थी की ओर से/Respondent by : Ms. Anshu Sharawat, Addl.CIT

सुिवधई की तधरीख/Date of Hearing : 31.07. 2026 घोर्णध की तधरीख/Date of Pronouncement : 09.09.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : The present appeal has been preferred by the Assessee against the order dated 03.10.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the Ld. CIT(A)”], arising from the assessment order dated 30.03.2025 passed by the Income Tax Officer, Non-Corporate Ward 7(3), Chennai [hereinafter referred to as “the AO”], u/s.147 r.w.s. 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the Assessment Year 2017-18.

:-2-: ITA. No:3410/Chny/2025 2. The brief facts of the case emanating from the records are that the assessee is an individual, filed her return of income for the A.Y. 2017-18 on 30.11.2017 declaring a total income of Rs.6,30,677/-. Subsequently, the assessment was re-opened u/s.147 to consider the sale consideration as per the provisions of section 50C of the Act. In response to the notice u/s.148 of the Act the assessee filed her return of income in response thereto admitting an income of Rs.6,07,070/- on 29.04.2021. In the said return, the assessee had admitted capital gains of Rs.3,08,663/- as originally offered. The capital gains were arrived at Rs.3,08,663/- as under:

Sale consideration as per 50C .. Rs. 1,34,40,000 Less: Indexed cost of acquisition .. Rs. 47,20,878 --------------- .. Rs. 87,19,122 Less: 54 Exemption .. Rs. 84,10,459 -------------- Long Term Capital gains .. Rs. 3,08,663 ====== 3. The AO has accepted the said return of income in the re-assessment proceedings and completed the assessment by passing an order u/s.143(3) r.w.s 147 of the Act dated 29/03/2022. This assessment became the subject matter of revision u/s.263 of the Act by the ld.PCIT, Chennai. The ld.PCIT Chennai set aside the assessment to reconsider the claim of exemption u/s.54 of the Act allowed in the re-assessment. Accordingly, the AO has reconsidered the issue and passed the assessment order on 30/03/2025 denying the assessee’s claim of exemption of Rs.84,10,549/- u/s.54 of the Act.

:-3-: ITA. No:3410/Chny/2025 measuring 1,728 sq.ft. built up area along with 1/3rd of undivided share of land to M/s.Waves Clothing P Ltd.. Accordingly, M/s.Waves Clothing P.Ltd. engaged the builder by name M/s.Red Brick Constructions for the construction of the building. M/s.Waves Clothing P Ltd. had paid a total sum of Rs.1,13,96,938/- to M/s.Red Brick Constructions on various dates and the CMDA had issued a completion certificate on 18.05.2016 (page No.28 of Paper Book). M/s.Red Brick Construction had incurred further expenditure after the said date and given the full-fledged habitable constructed residential house on 10.01.2017 (page No. 22 of Paper Book). The assessee had sold the building measuring 1,728 sft. in the first floor with1/3rd undivided share of land to M/s.Waves clothing P.Ltd. for Rs.1,13,96,938/- on 28.12.2016.

:-4-: ITA. No:3410/Chny/2025 is complaint with safety and municipal norms. It verifies structural safety, building code compliance, environmental regulations and approved land usage. The ld.AR stated that the building was handed over on 18.05.2016 was not in an habitable condition and only the superstructure of the building was over by the said date. After the said date, further work was carried out and the house property in an habitable condition was given only on 10.01.2017. The nature of work carried out by the builder after the May, 2016 was detailed in the letter dated 10.01.2017 given by M/s.Red Brick Constructions. The copy of the letter is attached in Paper book dated 19.06.2026 at p.7-9. The ld.AR further submitted that there were payments to the builder for the work done from time to time, as and when the work was completed even after the alleged completion date viz. 18.05.2016 which goes to prove that the building was not fully completed on 18.05.2016 at all. In fact, out of the total payments of Rs.1,13,96,938/- payments made upto 24.05.2016 amounted to Rs.55,70,053/- only and the balance payments were made only subsequently which was morethan 50% of the total cost of construction. In the assessment order itself, the date of payments were given by the AO which goes beyond 18.05.2016.

:-5-: ITA. No:3410/Chny/2025 House was one which could be used by assessee for his residence and putting up of tin sheds for being used by somebody to reside without there being basic living amenities like bathroom, kitchen, electricity etc., would not pass the definition/ test of "dwelling unit" or "house". ♦ Punjab & Haryana High Court, in case of Ashok Syal v. CIT [2012] 24 taxmann.com 274/209 Taxman 376 held : The term "house" has not been given any statutory definition and, thus, has to be assigned meaning as understood as common parlance. As per dictionary, it means abode, a dwelling place or building for human habitation. A building, in order to be habitable by human being, is ordinarily required to have minimum facilities of washroom, kitchen, electricity, sewerage etc. ♦ Mumbai Tribunal, in case of Saleem Fazuelbhoi v. Dy. CIT [2007] 106 ITD 167, held : An inhabitable premise, in our opinion, cannot be equated with a residential house. If one person cannot live in a premises, then such premises cannot be considered as residential house. ♦ Hyderabad Tribunal, in case of ITO v. Smt. Rohini Reddy [2010] 122 ITD 1 held that, a plot of land with temporary structure not put up with intent to use it as residential house either for self – occupation or letting out could not be treated as residential house.

:-6-: ITA. No:3410/Chny/2025 Mumbai Tribunal in the case of Saleem Fazelbhoy vs. DCIT in 106 ITD 167 (Mum) and Sonia Gulati (115 Taxman 231). The Hyderabad Tribunal in the case of Smt.Usharani Kalidindi Vs The Income Tax Officer has held that deduction U/s. 54F not allowable if constructed house are not habitable. 11. In the light of the above decisions, the ld.AR submitted that the habitable house was constructed and handed over to the appellant only on 10.01.2017 after the date of sale of the property on 18.12.2016 and therefore the assessee is entitled to exemption u/s.54 of the Act. The assessee further submitted that construction of the new residential house can be commenced even before the transfer of capital asset as the said section does not mandate the date of commencement of construction of new house and only condition is that the new house should be constructed within a period of three years from the date of transfer of the capital asset. The ld.AR relied on the decision of the Ahmedabad Tribunal in the case of Bhailalbhai D Patel Vs DY CIT 2017 Tax Pub(DT) 1 05(Ahd.Trib). Similar view was taken by the Visakhpatnam Tribunal in the case of Dy CIT Vs Chalasani Mallikarnuna Rao 2016 TaxPu b(DT) 4675), CIT vs Subramanya Bhatt (1987) 165 ITR 571(Karn) and Satish Chandra Gupta Vs AO (1995) 54 ITD 508(Del-Trib). 12. The ld.AR therefore submitted that since she has constructed an habitable new residential house property on 10.01.2017 after the date of sale of the old property in December, 2016, she is entitled to exemption u/s.54 of the Act as claimed and the disallowance made by the AO may be deleted. 13. Per contra, the ld.DR for the revenue submitted that the assessee has built many houses and hence not eligible for deduction u/s.54 of the Act. Further, the ld.DR also contended that the completion of house was earlier to the sale of the house property. Therefore, there is no error in the ld.CIT(A) and prayed for confirming the same. 14. We have heard the rival submissions and perused the material available on record, including the orders of the authorities below and the documents placed in the paper book along with the judicial precedents relied on. The

:-7-: ITA. No:3410/Chny/2025 controversy before us is with regard to the assessee's eligibility for exemption u/s.54 of the Act, in respect of investment made in construction of a new residential house. The AO denied the exemption of Rs.84,10,549/- principally on the ground that the completion certificate issued by the CMDA was dated 18.05.2016, whereas the transfer of the original asset took place subsequently in December 2016. The ld. CIT(A) affirmed the action of the AO. 15. The facts borne out from the record show that the assessee was the owner of land measuring 3,360 sq.ft. together with an existing building of 635 sq.ft. at Anna Nagar, Chennai. Pursuant to the MOU dated 10.05.2014 entered into with M/s.Waves Clothing Pvt. Ltd., the existing structure was demolished and a new building consisting of stilt plus three floors was constructed. In consideration thereof, the assessee agreed to transfer the first-floor premises measuring 1,728 sq.ft., together with 1/3rd undivided share in the land, to M/s.Waves Clothing Pvt. Ltd. The construction was undertaken through M/s.Red Brick Constructions. The first-floor premises along with the corresponding undivided share was ultimately transferred to M/s.Waves Clothing Pvt. Ltd. for a consideration of Rs.1,13,96,938/-. 16. The principal reason assigned by the AO for denying the exemption is that the CMDA completion certificate was issued on 18.05.2016 and, therefore, according to him, construction of the new residential house stood completed prior to the transfer of the original asset. The assessee, on the other hand, contends that the said completion certificate merely certified completion of the building in accordance with the sanctioned plan and municipal requirements and that the residential premises had not, as on that date, attained the stage of a fully completed and habitable residential house. It is the specific case of the assessee that substantial works were carried out thereafter and that the completed and habitable premises were ultimately handed over only on 10.01.2017. 17. In support of the above contention, the assessee has placed reliance upon the letter dated 10.01.2017 issued by M/s.Red Brick Constructions

:-8-: ITA. No:3410/Chny/2025 detailing the works carried out subsequent to May 2016. It is also contended that payments to the builder continued substantially beyond 18.05.2016. Significantly, out of the total construction payments of Rs.1,13,96,938/-, only Rs.55,70,053/- had been paid up to 24.05.2016 and the balance, constituting more than 50% of the total construction cost, was paid subsequently. These aspects, in our considered view, are material for determining the actual date on which the residential premises became complete and habitable. 18. Section 54 is a beneficial provision intended to grant relief where capital gains arising from transfer of a residential house are reinvested in another residential house within the period prescribed therein. In the case of construction, what is material is whether the assessee has constructed the residential house within the prescribed period. The provision does not stipulate that commencement of construction must necessarily take place only after the date of transfer of the original asset. Therefore, merely because construction activity had commenced prior to the transfer of the original asset would not, by itself, be sufficient to deny the benefit, provided the statutory requirements relating to investment and completion of the new residential house are otherwise satisfied. 19. In this regard, the assessee has relied upon, inter alia, the decisions in CIT v. Subramanya Bhatt (1987) 165 ITR 571 (Karn), Bhailalbhai D. Patel v. Dy. CIT, Dy. CIT v. Chalasani Mallikarjuna Rao and Satish Chandra Gupta v. AO, for the proposition that section 54 does not prescribe any specific date for commencement of construction and what is relevant is completion of construction within the prescribed period. We find considerable force in this contention. The statutory requirement cannot be enlarged by importing a condition that construction itself should commence only after transfer of the original asset when no such restriction is expressly provided in the section. 20. We also find merit in the contention that for the purpose of determining completion of a "residential house", the factual habitability of the premises cannot altogether be ignored. A residential house, in its ordinary connotation, should be capable of being used as a dwelling and should possess the basic

:-9-: ITA. No:3410/Chny/2025 amenities ordinarily necessary for human habitation. The decisions relied upon by the assessee, including Dr.A.S.Atwal v. CIT, Ashok Syal v. CIT and Saleem Fazelbhoy v. Dy. CIT, support the proposition that mere existence of a structure without the basic attributes necessary for habitation may not, depending upon the facts, satisfy the character of a completed residential house. 21. In the present case, therefore, the date appearing in the municipal completion certificate cannot, in isolation, be treated as conclusive for determining the assessee's eligibility u/s.54 of the Act, particularly when the assessee has produced material to show that substantial construction and finishing works continued thereafter and that the premises became fully habitable only subsequently. We accept the undisputed factual position that construction commenced before the transfer of the original asset, that construction and finishing works continued thereafter, that the premises were completed and handed over as a habitable residential property on 10.01.2017, and that one of the flats was sold/transferred to M/s Waves Clothing Pvt. Ltd. in December 2016. These facts are not required to be remitted for fresh verification. 22. At the same time, we have taken note of the contention of the ld. DR that the assessee had constructed more than one residential unit/house and, therefore, according to the Revenue, the entire claim made u/s.54 of the Act cannot be allowed. The assessee cannot be denied the statutory benefit in respect of an eligible residential house merely because the overall development resulted in more than one residential unit, if the investment attributable to one residential house otherwise satisfies the conditions prescribed u/s.54 of the Act. 23. In the circumstances, we set aside the order of the ld. CIT(A) on this issue and restore the matter to the file of the Jurisdictional Assessing Officer (JAO) only for the limited purpose of verifying and quantifying the deduction allowable u/s.54 of the Act in respect of one residential house. The JAO shall identify, on the basis of the books of account, construction bills, payment

:-10-: ITA. No:3410/Chny/2025 details and other supporting documents, the investment/cost attributable to one residential house and allow deduction u/s.54 of the Act in respect thereof, subject to fulfilment of the other statutory conditions. 24. We make it clear that the JAO shall not reconsider the commencement date of construction, the date of completion and handing over of the habitable residential property on 10.01.2017, or the fact of sale/transfer of one of the flats in December 2016. Those factual aspects stand accepted for the purposes of deciding the present issue. The remand is confined strictly to verification and quantification of the investment attributable to one residential house and the corresponding deduction allowable u/s.54 of the Act. 25. Needless to say, the JAO shall afford reasonable opportunity of being heard to the assessee and shall consider the supporting evidence produced by her for determining the investment attributable to one residential house. The assessee shall furnish the necessary details and cooperate with the JAO in completing the limited verification. Accordingly, the ground raised by the assessee relating to exemption u/s.54 of the Act is allowed. 26. In the result the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 09th September, 2026 at Chennai. Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुिधर्थध) (ABY T VARKEY) (S. R. RAGHUNATHA) न्याययर्क सदस्य/Judicial Member लेखधसदस्य/Accountant Member चेन्िई/Chennai, ददिधंक/Dated, the 09th September, 2026. Devadas आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलधर्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभधगीय प्रनतनिधर्/DR 5. गधर्ा फधईल/GF Digitally signed by DEVADAS DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.09.11 11:02:13 +05'30'