JAYAVELBOSE,CHENNAI vs. DCIT, NCC-7(1), CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned appeal filed by the Assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, [CIT(A)] dated 16.09.2025 for Assessment Year 2017-18. 2. The assessee has raise the following grounds of appeal: 1. The order of the CIT(A) is wrong, illegal and opposed to facts, law and in violation of the Principles of Natural Justice. INDEXED COST OF ACQUISITION 2.1 The CIT(A) failed to note that the immovable property having been acquired by one of the modes covered u/s.49(1) of the Act, the period of holding of the previous owner is also to be considered.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 2 ::

2.2 The CIT(A) erred in not appreciating the fact that the benefit of indexation would be available right from the day the predecessor(s) in title acquired the Property, wherever, the acquisition is by a mode mentioned u/s.49 and as such a Long term Capital asset.

SALE CONSIDERATION

3.1 The CIT(A) erred in upholding the action of the AO in determining the sale consideration at Rs.4,72,50,386/- as against Rs.2,69,61,314/- without adverting to the facts in a proper perspective.

3.2 The CIT(A) ought t to have directed the AO to exclude cash compensation from the sale consideration.

BENEFIT OF SECTION 54F

4.1 The CIT(A) erred in restricting the deduction claimed u/s.54F to one residential unit without adverting to the facts of the case.

4.2 The CIT(A) ought to have allowed the cost of construction for all 3 units and erred in restricting the same to 1 unit alone which emanates from wrong appreciation of facts.

4.3 The CIT(A) ought to have allowed the deduction as claimed by the Appellant u/s.54F of the Act.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 3 :: residential flats, monetary consideration of Rs.1,07,50,000/- and rental compensation during the construction period. 3.1 In the return, the assessee declared capital gains and claimed deduction u/s. 54F amounting to Rs.3,98,76,429/- in respect of investment in the three flats together with further expenditure incurred for making the flats habitable. The Assessing Officer (AO) completed the assessment u/s. 143(3) by recomputing the sale consideration, restricting deduction u/s. 54F to one residential unit, and recomputing the indexed cost of acquisition. The Assessing Officer held as under:

• The indexed cost of acquisition was to be computed from the year in which the assessee first held the property and not from the date of acquisition by the previous owner. Accordingly, the indexed cost was recomputed at Rs.8,61,198/- (assessee's one-fourth share Rs.2,15,299/-). • The full value of consideration comprised: o value of three flats constructed by the developer, o cash consideration of Rs.1,07,50,000/- and o rental compensation of Rs.10,50,000/- aggregating to Rs.4,72,50,386/- o • Deduction u/s. 54F was allowable only in respect of one residential house in view of the amendment made by the Finance (No.2) Act, 2014 with effect from AY 2015-16. • Accordingly, deduction u/s. 54F was restricted to Rs.1,18,16,795/- and taxable long-term capital gains were computed at Rs.3,52,18,292/-.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 4 :: consideration. He also upheld restriction of deduction u/s. 54F to one residential unit and deleted rental compensation of Rs.10,50,000/- from the sale consideration holding that the same represented reimbursement for alternate accommodation. He also allowed additional expenditure incurred for making the flats habitable only proportionately in respect of one flat. Aggrieved, the assessee is in further appeal before the Tribunal.

o CIT v. Gumanmal Jain (Madras High Court), o PCIT v. Lata Goel (Delhi High Court), o N. Ravi Arumugavelan v. ITO (ITAT Chennai), o Shiv Narain Chaudhari v. CWT.

Consequently, the ld.AR pleaded that the exemption u/s. 54F ought to be allowed in respect of the entire investment including subsequent expenditure incurred for making all three flats habitable. Without prejudice, ld.AR submitted that if deduction is confined to one flat, the construction value adopted by the AO is excessive since it includes cash consideration separately received. The ground regarding indexed cost was specifically stated to be not pressed during hearing. The jurisdictional ground challenging notice u/s. 143(2) was also not pressed.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 5 :: 6. The ld. Departmental Representative (DR) supported the orders of the lower authorities and submitted: After amendment by Finance (No.2) Act, 2014, exemption u/s. • 54F is confined to investment in one residential house. • The assessee received three separate residential units and therefore exemption cannot extend beyond one unit. • The value of the constructed flats forms part of the full value of consideration under the JDA. Cash consideration of Rs.1,07,50,000/- represents • consideration under the development agreement and was rightly included. • The ld.CIT(A) has already granted appropriate relief by excluding rental compensation. • Since the assessee has not pressed the issue relating to indexed cost, the finding of the ld.CIT(A) deserves to be sustained.

(i) Indexed Cost of Acquisition At the time of hearing, the ld. AR fairly submitted that Grounds Nos. 2.1 and 2.2 relating to indexed cost of acquisition are not pressed. Accordingly, these grounds are dismissed as not pressed.

(ii) Full Value of Consideration The assessee has also challenged the adoption of construction cost while computing the sale consideration. However, the principal grievance of the assessee is that exemption u/s. 54F should be allowed in respect of all the three residential units. If the assessee succeeds on the claim u/s. 54F, the dispute regarding valuation of construction cost would become largely academic since the entire investment in the residential units would qualify for exemption, subject to verification. Accordingly, we first proceed to examine the issue relating to section 54F.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 6 :: (iii) Deduction u/s. 54F The undisputed facts are that the assessee entered into a single Joint Development Agreement and the three flats were allotted under the same agreement. All the flats are situated in the same residential complex bearing the same address. The assessee acquired undivided share in the same parcel of land in respect of all the flats. The sole reason assigned by the Assessing Officer (AO) for denying exemption is that after amendment by Finance (No.2) Act, 2014, deduction is available only in respect of "one residential house". In our considered opinion, the expression "one residential house" cannot be interpreted in a purely numerical sense so as to deny exemption merely because the residential accommodation comprises more than one apartment. The Hon'ble jurisdictional Madras High Court in CIT v. Gumanmal Jain (394 ITR 666) has categorically held that where multiple flats are received under the same development agreement in the same residential complex, they constitute one residential house for the purpose of section 54F. The Hon'ble High Court observed that ownership continues to relate to the same parcel of land through proportionate undivided share and, therefore, receipt of multiple flats would not deprive the assessee of exemption. The Hon’ble High Court held as under: 7. CONCLUSION: (i) We therefore have no hesitation in holding that in the instant case the assessee having got 15 flats along with his two sons will not disentitle him from getting the benefit under Section 54-F of the IT Act only on the ground that all the 15 flats are not in the same Block, particularly in the light of the admitted factual position that all the 15 flats are located at the same address namely, 'Rain Forest' No.57, New No.36, Taylor's Road, Rem Street, Kilpauk, Chennai 600 010.

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 7 :: (ii) As a sequitur, we are unable to persuade ourselves that the 15 flats, even if they are located in different blocks would not disentitle the assessee from getting the benefit of Section 54-F of IT Act. (iii) We have no hesitation in holding that the order of ITAT which has been called in question before us is correct, there is no infirmity in the said order, does not call for any interference and we are of the view that the said order deserves to be confirmed. (iv) We also noticed that in all the judgements, irrespective of whether it is under Section 54 or 54-F of IT Act, which we have discussed supra, the judgements have proceeded only on the basis that the flats [being more than one flat] are in the same location/address. Therefore, once it is in the same location/address, the question of whether it is in the same block or in different blocks does not arise for consideration. To our mind, as long as all the flats are in the same address/location even if they are located in separate blocks or towers it does not alter the position. In the instant case, after all, all the flats are a product of one development agreement of the same piece of land being said land. Therefore, we make it abundantly clear that even if flats/apartments are in different blocks and different towers as long as they are in same address/location it does not disentitle the assessee from getting the benefit of Section 54-F of IT Act. (v) Therefore, the sole and sheet anchor submission of counsel for Revenue that the 15 flats in the instant case are located in the different blocks does not impress us. We are unable to persuade ourselves that this will disentitle the assessee from getting the benefit of Section 54-F as all the flats are in the same location/address and all flats are by products of one development agreement with the same builder. (vi) The logic behind our view is that the assessee, irrespective of whether it is one flat or many flats, gets proportionate undivided share in land only for the same piece of land. Therefore, assessee does not buy more than one property in that sense of the matter. Flats, apartments are completely based on co-ownership. (vii) Owing to all that have been stated supra, we conclude that the assessee is entitled to the benefit of Section 54-F of IT Act.

The aforesaid principle has also been followed by the Delhi High Court in PCIT v. Lata Goel [2025] 174 taxmann.com 535 (Delhi) and by the Chennai Bench of the Tribunal in N. Ravi Arumugavelan v. ITO [ITA No.2888/CHNY2018] wherein multiple residential units forming part of one residential building were held to constitute one residential house. The Revenue has relied upon the amendment made by Finance (No.2) Act, 2014. However, the amendment merely substituted the

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 8 :: expression "a residential house" by "one residential house in India". It does not lay down that where a single residential project or a single residential building comprises more than one apartment constituting one residential dwelling, exemption must necessarily be denied. Being bound by the decision of the jurisdictional High Court, we respectfully follow the ratio laid down therein. Accordingly, we hold that the assessee is entitled to deduction u/s. 54F in respect of all the three residential flats received under the Joint Development Agreement, subject to verification of the quantum of eligible investment. Consequently, the expenditure incurred by the assessee for making all the three flats habitable, if otherwise supported by evidence and incurred towards completion of the residential house, shall also form part of the cost of the new asset for the purpose of section 54F.

(iv) Computation of Capital Gains Since we have held that deduction u/s. 54F is allowable in respect of all the three flats, the dispute regarding the exact valuation of construction cost adopted as part of the full value of consideration becomes only relevant for the purpose of computation. The AO shall recompute the capital gains after giving effect to this order. While doing so: • the exclusion of rental compensation of Rs.10,50,000/- as directed by the ld.CIT(A), shall remain undisturbed; • deduction u/s. 54F shall be allowed in respect of the entire eligible investment relatable to all the three residential units together with eligible expenditure incurred for completing the residential units, after due verification;

ITA No 2712/Chny/2025 (AY 2017-18) Jayavelbose Vs DCIT NCC-7(1) :: 9 :: • the computation shall thereafter be made in accordance with law. Grounds relating to indexed cost of acquisition are dismissed as not pressed. Grounds relating to deduction u/s. 54F are allowed. The consequential grounds relating to computation of capital gains are restored to the file of the AO for the limited purpose of recomputation in accordance with the above findings. 8. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on the 20th day of July 2026

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद)या/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER Digitally signed चे�नई/Chennai, SANDEE by SANDEEP *दनांक/Dated: 20th July, 2026. SNDP, Sr. PS KUMAR P KUMAR आदेश क ��त+ल,प अ-े,षत/Copy to: Date: 2026.07.22 1. अपीलाथ�/Appellant 13:52:52 +05'30' 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF