ACIT-4(3)(1), MUMBAI, MUMBAI vs. AMIT MAHENSARIA, BANGALORE

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ITA 8684/MUM/2025Status: DisposedITAT Mumbai28 July 2026AY 2022-237 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, stating that the two flats acquired (F-1301 and F-1304) were adjoining and used as a single composite residential house. It was also held that the two existing flats (B-1403 and B-1404) were also adjoining and formed one composite dwelling, meaning the assessee did not own more than one residential house.

What were the facts?

The assessee claimed a deduction under Section 54F for investing in two flats, F-1301 and F-1304, which were acquired under separate sale deeds. The Assessing Officer disallowed the deduction, arguing that the assessee already owned two other flats, B-1403 and B-1404, thus violating the proviso to Section 54F(1).

What were the issues?

Whether adjoining flats acquired under separate sale deeds and owned along with other adjoining flats constitute 'one residential house' for the purpose of Section 54F deduction.

Which sections of the Income-tax Act were involved?

Section 54F

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH MUMBAI

Before: SHRI PAWAN SINGH & SHRI GIRISH AGRAWAL

Hearing: 30.04.2026Pronounced: 28.07.2026

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 8684/MUM/2025 Assessment Year: 2022-23

ACIT-4(3)(1), Mumbai Amit Mahensaria Room No.649, 6th Floor, 902, Interface Heights Bldg-A, Aayakar Bhavan, M.K.Road, 9th Floor, Bommanahalli S.O Vs. Mumbai - 400020 (Bangalore), Bangalore South,, Bangalore, Karnataka, 560068 (PAN: ALOPM0159M) (Appellant) (Respondent)

Present for: Assessee : Shri Dharan Gandhi, Advocate Revenue : Shri Surendra Mohan, Sr. DR Date of Hearing : 30.04.2026 Date of Pronouncement : 28.07.2026 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide order no. ITBA/NFAC/S/250/2025-26/1081975506(1), dated 24.10.2025, passed against the assessment order by Assessment Unit, Income Tax Department, u/s. 143(3) of the Income-tax Act (hereinafter referred to as the “Act”), dated 21.03.2024, for Assessment Year 2022-23.

2.

Grounds taken by the Revenue are reproduced as under: 1. On the facts and in the circumstances of the case and in law the Ld CIT Appeal erred in deleting the disallowance of deduction of Rs 56966808 claimed under section 54F without appreciating that the assessee failed to furnish any evidence of structural merger internal combination 0R

2 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23 municipal 0R builder approval to establish that flats F 1301 and F 1304 constituted a single residential house 2. The Ld CIT Appeal erred in holding that the assessee owned only one residential house on the date of transfer overlooking the documentary evidence on record namely registered documents AIS data and departmental records which clearly established that Rs. 0 the assessee owned two additional independent residential units B|403 and BI404 thereby violating the conditions under the proviso to Section 54F1 3. The Ld CIT Appeal erred in substituting his own findings without directing any independent verification under sections 131 1336 OR remanding the matter back to the AO for verification.

3.

Brief facts as culled out from the material on record are that assessee filed his return of income reporting the total income at Rs.6,55,51,320/-. Case was selected for scrutiny under CASS for verification of large deduction/exemption claimed under section 54F of the Act. During the year under consideration, assessee had transferred certain unquoted shares for a sale consideration of Rs.10,27,99,938/- and claimed deduction under section 54F of the Act amounting to Rs.5,69,66,808/- towards investment in residential properties bearing Flat Nos. F-1301 and F-1304 situated at Fern Block, Salarpuria Greenage, Bengaluru. During the course of assessment proceedings, ld. Assessing Officer observed that the aforesaid two flats had been acquired under separate sale deeds for consideration of Rs.2,58,27,750/- and Rs.2,52,10,000/-, respectively. Ld. Assessing Officer also noted that tax had been deducted at source separately in respect of the two properties and that the properties were reflected as separate units in the relevant records. Ld. Assessing Officer further noticed from the information available on record that the assessee was already owning two other flats bearing Nos. B-1403 and B-1404 in the same project. According to ld. Assessing Officer, assessee had therefore owned more than one residential house, other than the new asset, on the date of transfer of the original asset. Accordingly, ld. Assessing Officer held that the conditions prescribed in the proviso to section 54F(1) of the Act were not satisfied. The claim of deduction under

3 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23 section 54F amounting to Rs.5,69,66,808/- was accordingly disallowed and added to the total income of the assessee. Aggrieved, assessee went in appeal before the ld. CIT(A).

4.

Before the learned CIT(A), assessee submitted that Flat Nos. F- 1301 and F-1304 were adjacent flats situated on the same floor and had been acquired with a common intention of using them as a single composite residential house. It was contended that the mere fact that the two units were covered by separate sale deeds and bore separate flat numbers could not, by itself, lead to the conclusion that the assessee had purchased two independent residential houses. Assessee further submitted that the two existing flats bearing Nos. B-1403 and B-1404 were also adjacent units forming a single composite residential dwelling and, therefore, for the purposes of section 54F of the Act, assessee could not be regarded as owning more than one residential house. Ld. CIT(A), after considering the submissions of the assessee and the material available on record, accepted the contention of the assessee, observing that both the old properties as well as the newly acquired properties consisted of adjoining units which were acquired with a common intent and used as a single functional residential house. Ld. CIT(A) further observed that ld. Assessing Officer had not carried out any physical verification or independent enquiry to establish that the adjoining flats were actually being used as separate residential units. It was held that the mere existence of separate sale deeds or separate flat numbers could not, by itself, alter the essential character of the investment where the adjoining units were functionally used as one residential house. Accordingly, ld. CIT(A) held that the assessee satisfied the conditions prescribed under section 54F of the Act and deleted the addition of Rs.5,69,66,808/-. Aggrieved, Revenue is in appeal before the Tribunal.

4 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23

5.

We have heard the rival submissions and perused the material available on record. We have also carefully gone through the orders by the authorities below. It is not in dispute that the assessee had invested the consideration arising from transfer of the original capital asset in the aforesaid two flats. Ld. Assessing Officer denied the benefit under section 54F primarily on the ground that the two flats were covered by separate sale deeds, had separate flat numbers and were separately reflected in the relevant records. Ld. Assessing Officer further proceeded on the basis that the assessee was already owning two residential flats bearing Nos. B-1403 and B-1404 and, therefore, assessee was hit by the proviso to section 54F(1) of the Act. In our considered view, while examining the eligibility of an assessee for deduction under section 54F of the Act, the expression “one residential house” has to be examined in a practical and purposive manner, having regard to the actual nature and use of the property. The fact that more than one flat is covered by separate documents or bears separate municipal/registration numbers cannot, by itself, be conclusive of the fact that the assessee owns or has acquired more than one residential house.

6.

In the present case, ld. CIT(A) has recorded in his order, a categorical finding that Flat Nos. F-1301 and F-1304 are adjoining units and were acquired and used as one functional residential house. Ld. CIT(A) has also recorded that the Assessing Officer did not undertake any physical verification or bring any material on record to establish that the two flats were being used as separate independent residential houses. Nothing cogent was brought on record by the Revenue to controvert the aforesaid factual findings of the ld. CIT(A). No evidence has been placed before us to establish that the two adjoining flats were actually used as two independent residential houses or that the

5 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23 assessee had maintained them as separate dwelling units. The mere fact that assessee entered into separate sale deeds for the two adjoining flats, or that separate tax deduction at source entries were made in respect thereof, cannot be determinative of the issue. The requirement under section 54F is to ascertain whether the assessee has invested in “one residential house” and whether the statutory conditions are fulfilled. The substance and functional use of the property cannot be completely disregarded merely because of the form of documentation.

6.1. The decision of the Hon’ble High Court of Delhi in the case of CIT vs. Gita Duggal [2013] 357 ITR 153 (Del) also recognizes the need to adopt a purposive interpretation of the expression “a residential house” in the context of the beneficial provisions relating to investment in residential property. Observations made by the Hon’ble Court while arriving at its conclusion in para 9 of the said judgment are extracted below for ready reference which elaborately describes on the plans and requirements on the basis of which a person constructs a house. Para 9 reads as under:

“9. There could also be another angle. Section 54/54F uses the expression "a residential house". The expression used is not "a residential unit". This is a new concept introduced by the assessing officer into the section. Section 54/54F requires the assessee to acquire a "residential house" and so long as the assessee acquires a building, which may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently used as an independent residence, the requirement of the Section should be taken to have been satisfied. There is nothing in these sections which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in the section which requires that the residential house should be built in a particular manner, it seems to us that the income tax authorities cannot insist upon that requirement. A person may construct a house according to his plans and requirements. Most of the houses are constructed according to the needs and requirements and even compulsions. For instance, a person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post-retirement. One may build a house consisting of four bedrooms (all in the

6 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23 same or different floors) in such a manner that an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part thereof as an independent house. There may be several such considerations for a person while constructing a residential house. We are therefore, unable to see how or why the physical structuring of the new residential house, whether it is lateral or vertical, should come in the way of considering the building as a residential house. We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under Section 54/54F. It is neither expressly nor by necessary implication prohibited.” 7. We also find merit in the observation of ld. CIT(A) that ld. Assessing Officer, having proceeded to deny the claim on the basis of separate ownership records, did not undertake any further factual examination to ascertain the actual nature and use of the properties. As regards the two existing flats bearing Nos. B-1403 and B-1404, we note that the ld. CIT(A) has recorded a finding that these were also adjoining units forming part of one composite residential dwelling. Ld. Assessing Officer has not brought any positive evidence on record to demonstrate that these two adjoining units were being used as separate residential houses. Therefore, merely because the two units were separately reflected in the departmental database or in the return of income, the same cannot conclusively establish that the assessee owned more than one residential house within the meaning of the proviso to section 54F(1) of the Act.

8.

We therefore find no infirmity in the order of the ld. CIT(A) in holding that the assessee’s investment in the two adjoining flats, which were used as one composite residential house, qualified for deduction under section 54F of the Act. Accordingly, we uphold the order of the ld. CIT(A) deleting the addition of Rs.5,69,66,808/- made by ld. Assessing Officer on account of disallowance of deduction claimed

7 ITA No. 8684/Mum/2025 Amit Mahensaria AY 2022-23 under section 54F of the Act. Grounds raised by the Revenue are dismissed.

9.

In the result, appeal of the Revenue is dismissed.

Order is pronounced in the open court on 28 July, 2026

Sd/- Sd/- (Pawan Singh) (Girish Agrawal) Judicial Member Accountant Member Dated: 28 July, 2026 MP, Sr.P.S. Copy to: 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai

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