RAMESH CHANDRA SETHI,MUMBAI vs. INCOME TAX OFFICER 34(3)(2), MUMBAI

PER SHRI ANIKESH BANERJEE, JUDICIAL MEMBER: The instant appeal of the assessee filed against the order of the Ld. Commissioner of Income Tax-(appeals) ADDL/JCIT(A), Bhubaneshwar [for brevity ‘Ld. CIT(A)’], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’) for Assessment Year 2011-12, date of order 11.12.2025. The impugned order emanated from the order of the Ld. Income Tax Officer Ward 25(3)(3), Mumbai (for brevity ‘Ld. AO’) order passed under Section 143(3) r.w.s. 147 of the Act, date of order 29.12.2017.

“1. On the facts and circumstances of the case and law, the Ld. Additional Joint Commissioner of Income Tax (Appeals), Bhubaneshwar (hereinafter referred to as 'CIT(A)') erred in passing the order dated 11.12.2025 ('impugned order') under section 250 of the Income-tax Act, 1961 ('the Act') without appreciating the facts and circumstances of the case and law. Hence, the impugned order passed by the Ld. CIT(A) is invalid, arbitrary and unlawful. 2. On the facts and circumstances of the case and law, the Ld. CIT(A) failed to appreciate that the Appellant has fulfilled all the prescribed conditions for availment of deduction under section 54 of the Act. Hence, the Appellant is entitled to the claim of deduction amounting to Rs. 52,11,904/- under section 54 of the Act. 3. On the facts and circumstances of the case and law, the Ld. CIT(A) ought to have appreciated that as per the provisions of section 54 of the Act, the capital gains derived from sale of Flats in Shree Varun CHSL, Juhu were utilised by the Appellant for purchase of "a residential house property". Therefore, the claim of deduction made by the Appellant under section 54 of the Act amounting to Rs. 52,11,904/- ought to be allowed. 4. The Appellant seeks leave to add, alter, and amend the above grounds whenever required.” 3. The brief facts of the case are that the assessee during the impugned FY 2010-11 had sold the office unit on 3/05/2010. On the date of sale of the office unit he was owner of residential flat in ‘Varun Apartment’ located at Juhu. He had sold the flat at Juhu on 26/08/2010 and purchase flat on 31/07/2010 to comply with the provision of Section 54 of the Act for Rs.2,10,23,785/-. The capital gain is raised on sale of the residential flat of ‘Varun Apartment’ was of Rs 2,63,10,964/-. Accordingly, the investment was made in new residential unit amount to Rs 2,10,23,785/-. In order to avail the full benefit of the Section 54 of the Act the assessee had invested to of Rs. 52,87,179/-along with the sale proceeds of the office unit amount to Rs. 10,00,000/- in another residential property on 11/07/2011, before due date of filling the return of income for impugned AY 2011-12 l.e. 31/07/2011. Thus the net consideration on sale of the office premises of Rs 10,00,000/- was invested in another residential unit on 11/7/2011. The Ld. AO had rejected the benefit u/s 54F of the Act for invest the sales proceed in more than one flats. So, the addition was confirmed amount to Rs. 52,11,904/- & Rs. 10,00,000/-. The aggrieved assessee filed an appeal before the Ld. CIT(A) by challenging the disallowance of Rs. 52,11,904/-. The Ld. CIT(A) uphold the addition made by the Ld. AO. Being aggrieved the assessee filed an appeal before us. 4. The Ld. AR argued and filed a paper book comprising pages 1 to 355 which has been place on record. The Ld. AR filed the “Additional Grounds” by challenging the jurisdiction of the Ld. AO for completion of assessment u/sec. 148 of the Act without disposing the objection filed by the assessee. The Ld. AR invited our attention in APB page 30 to 31 related to the objection filed by the assessee after due receiving of the recorded reason from the Ld.AO. The Ld. AR contended that without disposing the objection filed by the assessee relate to recorded reason is gross violation of the ruling of Hon'ble Supreme Court in case of GKN Driveshaft (India) Ltd. vs ITO reported in 259 ITR 19(SC). 5. The Ld. DR argued and opposed the Ld. AR’s submission. 6. On perusal of the material available on record, we find that the assessee had not filed any specific or substantive objections challenging the reasons recorded by the Ld. AO for reopening the assessment. The letter relied upon by the assessee merely contains a statement of facts and cannot, in our considered view, be regarded as objections to the reopening of the assessment in the manner contemplated by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra). In the absence of any specific objections having been raised against the reasons recorded for reopening, there was no occasion for the Ld. AO to dispose of such objections by passing a separate speaking order. Accordingly, the contention sought to be raised by the assessee through the Additional Grounds on this issue is devoid of merit. Therefore, the Additional Grounds raised by the assessee is rejected. 7. The Ld. AR contended that the assessee had sold the residential flat amount to Rs.2,96,00,000/- after indexation of said flat the index cost of purchase derives to Rs.32,89,036/-. Hence, the assessee on sale of residential flat incurred total capital gain Rs.2,63,10,964/-. The assessee also sold an office with a value of Rs.10,00,000/- and the capital is arising out from the said office premises amount to Rs.8,93,350/-. Considering the sale of flat and the office the total capital gain is arising out Rs.2,72,04,314/-. On the other hand, the assessee invested of Rs.2,87,51,724/- in two residential flats. The Ld. AO during the assessment proceedings has considered this office premises not as a capital asset but as an investment. So, Rs.10,00,000/- which was added back as income from other sources. On the other hand, the Ld. AO had rejected the assessee’s claim for deduction u/sec. 54F for purchase of more than one flat which comes amount to Rs.52,11,904/-. The Ld. AO had specifically observed that the assessee had invested in more than one flat. So, the deduction u/sec. 54F is not applied for the assessee. 8. The Ld. AR contended that by plain reading of section 54F, it reveals that the Act is specifically mentioned the investment in ‘a’ Flat which denotes the word ‘the’. By implementing the Finance (No.2) Act, 2014, w.e.f. 1.04.2025 the revenue has restricted the benefit of section 54F only for investment in one flat not more than one. The Ld. AR respectfully relied on the order of Hon'ble Madras High Court in the case of Tilokchand & Sons vs ITO reported in (2019)

105 taxmann.com 151 (Madras) the relevant observations of the Hon'ble Court in paragraph no.20 and 21 are reproduced as below:

“20. We have discussed about the two decisions from the Karnataka High Court, which, in our opinion, dealt with similar controversy as is raised before us herein. The only difference which we find is that the purchase of the residential houses in the present case is at different address in the same city of Madurai. In D. Ananda Basappa case stated (supra), two flats in question were admittedly adjacent to each other and which were joined to become one residential house. In the case of Khoobchand M.Makhija (supra), two door nos. are given viz., 623 and 729, but the complete addresses and even the name of the city is not clear in the facts narrated in the said Judgment. But in our considered opinion, the difference of location of the newly purchased residential house(s) will not alter the position for interpretation of the word 'a residential house' to the effect that it may include more than one or plural residential houses, as held by Karnataka High Court, with which we respectfully agree. The location of the newly purchased houses by the same assessee viz., HUF out of sale consideration received on the sale of original capital Asset or a residential house in the given circumstances of availability of such residential houses as per the requirement of the HUF will not alter the position of interpretation.

“11. We further find that the Hon'ble High Court of Madras in the case of CIT Vs. Smt. V. R. Kampagm had further clearly held in context of a similar amendment that was made available to Sec.54F. that the same was effective from 01.04.2015, which thus made it clear that prior to the said amendment the assessee was entitled the claim deduction in respect of investments made in more than one residential house. We find that a similar view had also been taken by the Hon'ble High Court of Andhra Pradesh in the case of CIT Vs. Syed Ali Adil (2013) 352 ITR 418 (AP). 12. We have given a thoughtful consideration to the facts of the case in context of the issue under consideration. We are of the considered view that in the backdrop of our aforesaid observations and the judgment of the Hon'ble High Courts as had been deliberated upon by us hereinabove, it can safely be concluded that prior to A.Y 2015-16 no restriction was placed by the legislature in respect of investments in the residential houses that an assessee could make for claiming deduction under Sec. 54 of the Act. We thus are of the view that the claim of deduction raised by the assessee under Sec. 54 in respect of investment made towards purchase of residential house at Mumbai and Pune was well in order. We thus in context of the issue under consideration set aside the order of the CIT and uphold the claim of deduction as was raised by the assessee. The Grounds of appeal Nos.1 to 3 are allowed in terms of our aforesaid observations. The Ground of appeal No. 4 being general in nature is dismissed as not pressed.” 10. The Ld. DR argued and contended that the assessee had invested in more than one flats. So the benefit of the section 54F is not applicable. The Ld. DR stands in favor of the orders of revenue authorities. The Ld. DR invited our attention in the observations of the Ld. CIT(A) in para 5.3 which is reproduced as below:

“5.3 Grounds 2 5.3.1. The appellant had claimed exemption u/s 54 for Rs.2,72,04,314/- on purchase of residential property. During the assessment proceedings, the AO had found out that out of the above amount two residential properties were purchased and had rightly disallowed the relief claimed on second property amounting to Rs.52,11,904/-. As per the principles of natural justice, the AO had also given the benefit u/s 54 for the larger investment among the two properties. The ratio decidendi recorded in the assessment order clearly mentions that relief u/s54 will be applicable to "a" property and not to both residential properties purchased during the year. Hence there arises no need to interfere with the impugned addition. Addition confirmed. Ground dismissed.” 11. We have heard the rival submissions and carefully considered the material available on record as well as the orders of the revenue authorities. The limited issue arising for our consideration is whether, under the provisions applicable to the impugned assessment year, the assessee is entitled to claim deduction in respect of investment made in more than one residential unit. The issue relating to the treatment of the consideration of Rs.10,00,000/- received on transfer of the office premises is not challenged before us and, therefore, does not call for adjudication in the present appeal. 12. On this issue, we find that the Hon’ble Madras High Court in Tilokchand & Sons (supra), while considering the expression “a residential house” as it stood prior to the amendment made by the Finance (No. 2) Act, 2014, held that the said expression was capable of including more than one residential house. The Hon’ble High Court further observed that the subsequent substitution restricting the benefit to “one residential house in India”, with effect from 01.04.2015, was prospective in operation. Thus, for the period prior to the said amendment, the benefit could not be denied merely because the investment was made in more than one residential unit, subject, of course, to fulfillment of the other statutory conditions. 13. We further find that the Coordinate Bench of the ITAT, Mumbai, in Mr. Ravi Shankar (supra), after considering the judicial precedents on the issue, adopted the same principle and held that, prior to A.Y. 2015–16, the statutory provision did not restrict the eligible investment to only one residential house. 14. Applying the aforesaid ratio to the facts of the present case, and there being no dispute before us that the investment in the two residential flats was made within the stipulated period, we find that the claim of the assessee could not have been restricted merely on the ground that the investment was made in more than one residential flat. The reasoning adopted by the Ld. AO and sustained by the Ld. CIT(A), restricting the deduction to one residential unit, is therefore not sustainable in view of the judicial precedents referred to above, insofar as the impugned assessment year falls prior to A.Y. 2015–16.

Accordingly, respectfully following the ratio laid down in Tilokchand & Sons (supra) and followed by the Coordinate Bench in Mr. Ravi Shankar (supra), we set aside the finding of the Ld. CIT(A) on this issue and direct deletion of the disallowance of deduction amounting to Rs.52,11,904/-. The ground raised by the assessee is accordingly allowed. 15. Accordingly, the Ground Nos. 1 to 3 of assessee’s appeal are allowed and the Additional Grounds of assesse’s appeal are dismissed. 16. In the result, the appeal of the assessee bearing ITA No.2144/Mum/2026 is allowed. Order pronounced in the open court on 12th day of August 2026 Sd/- Sd/- (OM PRAKASH KANT) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,िदनांक/Dated: 12/08/2026 SAUMYA Sr.PS Copy of the Order forwarded to: 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent. 3. आयकरआयु� CIT 4. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, Mumbai 5. गाड�फाइल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar), ITAT, MUMBAI