DR. ADIL AGARWAL,CHENNAI vs. DCIT, CORPORATE CIRCLE-1(1), CHENNAI

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeal)/Delhi, (hereinafter referred to as ‘Ld.CIT(A)’), Delhi, dated 27.10.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2023-24.

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 2 :: the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’) amounting to Rs.23.97 crores while passing the assessment order on 20.03.2025 [the assessee filed a revised claim of proportionate deduction before the AO under section 54F of the Act of Rs. 25,45,67,927 on the basis of actual spending of Rs. 28,93,09,873 vide letter dated March 8, 2025, i.e., before the expiry of the 3-year period, i.e., May 3, 2025. Hence, the assessee has claimed the amount of the taxable LTCG be restricted to Rs. 4,06,99,650/- in place of Rs 5,55,78,891/-]

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 3 :: claim of exemption under section 54F of the Act. The AO noted that exemption was claimed by assessee in respect of the construction of a residential house in Chennai, after purchasing land measuring 17,100 sq. ft. for Rs 25.53 Crores [which accounted for the investment of a substantial portion of the sale consideration (i.e 86%)] during the relevant AY, which event was followed by (i) the architect submitting plan of the house & design; (ii) and simultaneous obtainment of approval for layout etc; (iii) and demolition of existing building; (iv) and commencement of construction of new house. During the assessment proceedings, the assessee also furnished a revised claim of Rs 25.46 Crores under Section 54F of the Act, considering the additional cost incurred towards construction, along with the supporting documents and furnished the relevant details, documents and explanations. However, the AO denied the claim of exemption on the sole ground that the construction of residential house was not completed within the specified period of three (3) years from the date of the sale of capital asset giving rise to the capital gains. The AO observed in the assessment order (while denying the claim on 20.03.2025) that if the assessee files completion certificate of the residential house within 3 years i.e. on 03.05.2025, the assessee may be allowed to deduction u/s 54F of the Act. The AO thus disallowed the claim of deduction u/s 54F of Rs 23,96,88,686/- and added inter-alia the total income at Rs 30,29,38,421/- in place of assessee’s

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 4 :: returned income of Rs 6,31,76,310/- and didn’t made any observation regarding the revised claim of Rs 25,45,57,927/-

1) Substantial investment/utilization is sufficient compliance for claiming exemption; hence completion of construction can’t be ground to deny claim exemption u/s 54F:

1.1. Section 54F of the Act is a beneficial provision intended to encourage and promote investments in residential house property and therefore must be construed liberally to give effect to its object based on the Memorandum to Section 54F which has been inserted vide Finance Bill, 1982. The law does not anywhere prescribe that a completion certificate must be obtained or that the building must be fully completed, habitable or mandate occupation as a condition precedent to claiming exemption. 1.2. Courts have repeatedly held that the date of investment/payment is relevant, not the date of formal possession or completion certificate, precisely because the focus is on utilization of the consideration rather than municipal formalities. Once section 54F(4) deems the amount “utilized” for construction within the prescribed period to be part of the “cost of the new asset”, there is no warrant for importing an additional, non-textual condition that a completion certificate must be obtained within that same period, especially when no such requirement is found in the statute. 1.3. The AO and CIT(A) have placed undue emphasis on the past participle “constructed” to infer that only a fully completed, habitable

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 5 :: house within three years qualifies, and have contrasted it with the word “constructs” as if the legislature consciously mandated completion rather than commencement.

2.1. Without prejudice to the above, the Appellant has demonstrated that substantial investment has been made in constructing the residential property, although it could not be completed within the statutory period of 3 years due to factors beyond the Appellant’s control. This was primarily due to substantial time taken for identification and acquisition of land, obtaining demolition approval which was granted in February 2023 and due to the prolonged approval process from the Chennai Metropolitan Development Authority (‘CMDA’) which was granted in May 2024 even though the house layout was ready in December 2023 and application was made in January 2024. (Refer Page 54 of the Paperbook for Demolition permission and Page 60 for CMDA planning approval)

2.2. The Appellant parallelly shortlisted and finalised the contractors for super structure and appointed M/s. Harinarayanan Structurals Pvt Ltd . The construction progress was reviewed regularly targeting the completion by May 2025. The Appellant evidenced the ongoing construction by providing photos of the construction (Refer Pages 122 to 125 of the Paperbook for the timeline of events)

2.3. As per section 54F(1) of the Act, if the assessee has constructed one residential house in India within three years from the date of transfer of a long-term capital asset (not being a residential house),the capital gain shall not be chargeable to tax to the extent provided therein, subject to section 54F(4) of the Act. Section 54F(4)

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 6 :: of the Act provides that the amount of net consideration which is not ‘utilized’ before the date of furnishing the return of income u/s 139 of the Act shall be deposited in the Capital Gains Account Scheme and that the amount utilized for the purchase or construction of the new asset together with the amount deposited, shall be deemed to be the cost of the new asset.

2.4. Therefore, the focus and the legislative intent of Section 54F is on the utilization/investment of the net consideration within the permitted window deeming such utilized amount to be “cost of the new asset” thereby ensuring that the capital gain is channelled into a residential house (purchase/construction). This applies to the case of your Appellant particularly when substantial funds stand irreversibly invested in the project within the prescribed period. (>90% in the case of your Appellant).

The following judicial precedents are relied upon for the above- mentioned contentions of the Appellant.

i. CIT vs Smt. Sardarmal Kothari – Madras High Court affirmed by the Hon’ble Supreme court: (sSl. No. 1a& 1b of the Case Law Compilation (‘CLC’) – Pg 2 to 6)

“Para 4 -The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have also constructed residential houses.

Para 6 - The Tribunal has also taken note of its own earlier order in the case of Mrs.Seetha Subramanian vs. Asstt. CIT (1996) 59 ITD 94(Mad), wherein the Tribunal has held that, in order to get the benefit under s. 54F, the assessee need not complete the construction of the house and occupy the same. It is enough if the assessee establishes that the assessee had invested the entire net

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 7 :: consideration within the stipulated period. The said view taken consistently by the Tribunal has been applied in these cases also.”

(Emphasis supplied)

ii. CIT vs Smt. B.S. Shanthakumari – Karnataka High Court (Sl. No 3a & 3b of CLC – Pg 27 to 36)

Para 8 - Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable.The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F”

(Emphasis supplied)

iii. CIT vs Sambandam Udaykumar - Karnataka High Court(Sl. No 4 of CLC – Pg 37 to 41)

“Para 11 - …Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under section 54F of the Act. The essence of the said provision is whether the assessee who received capital gains has invested ina residential house. Once it is demonstrated that the consideration received on transfer has been invested either in purchasing a residential house or in construction of a residential house even though the transactions are not complete in all respects and as requited under the law, that would not disentitle the assessee from the said benefit.”

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 8 :: (Emphasis supplied)

The Appellant further relies upon the following judicial pronouncements in support of its contentions:

Sr Case law Jurisdictio Referenc No n e in CLC 1. PCIT vs Madras High Court Sl. No 2a Charumathi & 2b – Pg Seshadri 7 to 26 2. Smt. Shashi Madhya Pradesh Sl. No 5 – Varma High Court Pg 42 to 43

IV. SUMMARY

Based on the above contentions of the Appellant, it is humbly prayed that:

i. Completion of the construction of a residential house propertyis not a condition precedent to claiming exemption; Section 54F of the Act is a beneficial provision intended to encourage and promote investments and therefore must be construed liberally to give effect to its object.

ii. Substantial investment/utilization of the sale proceeds / Long term Capital gain in construction of a residential house property is sufficient compliance for claiming exemption under Section 54F of the Act.

iii. The exemption claimed under Section 54F of the Act amounting to INR 23.97 Crores be granted in toto based on the substantial investment made in constructing the residential property before the due date for filing the RoI for the captioned AY. 7. In light of the above submission, further, the Appellant/assessee submits that the issue under appeal is squarely covered in its favour by the decision of the Jurisdictional High Court ruling in the case of Sardarmal Kothari (TS-5636-HC-2008(Madras)-O) (Refer Pg. 4-6 of the Case Law Compendium). Further, that the Revenue's SLP against the said

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 9 :: decision was dismissed by the Hon'ble Supreme Court, reported in TS- 5014-SC-2009-0 (Refer Pg. 2-3 of the Case Law Compendium). Considering the above facts, the Ld AR asserts that AO/CIT(A) erred in not allowing deduction under section 54F of the Act of Rs. 23,96,88,686/- claimed by the Assessee in his return. Further, drawing our attention towards the enhanced claim of Rs 1,48,79,241/- claimed by the Assessee vide letter dated March 8, 2025 (i.e., Rs. 25,45,67,927 minus Rs. 23,96,88,686), he submitted that enhanced claim be allowed because assessee had actually spent an amount of Rs. 1,69,09,873/- before three years from date of transfer of capital asset, as claimed by the Assessee in his letter filed before AO. He pleaded for allowing the appeal.

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 10 :: 9. Heard both parties and after perusal of relevant records, notes that the assessee is a resident individual, who filed his return of income/ITR on 26.10.2023, declaring total income of Rs.6,31,76,310/-. The ITR of the assessee was later selected for scrutiny under CASS. The AO observed that the assessee has shown to have received sale consideration of Rs.29.70 crores on 4.05.2022 on transfer of unlisted equity shares of Dr. Agarwal’s Healthcare Limited, hence inter alia called for details and explanation regarding the capital gains arising from the said sale of shares and the claim of exemption under section 54F of the Act. From the details submitted, the AO found that the assessee earned net consideration of Rs. 29,70,37,500/- from sale of shares on May 4, 2022, and had shown long-term capital gain (LTCG) of Rs. 29,52,67,577/- from sale of such shares, which fact the AO agreed. The AO noted that exemption was claimed by assessee u/s 54F of the Act in respect of the construction of a new residential house in Chennai, after purchasing land measuring 17,100 sq. ft. for Rs 25.53 Crores [which accounted for the investment of a substantial portion of the sale consideration (i.e 86%)] during the relevant AY, which event was followed by the architect submitting plan of the house & design, approval for layout was obtained, and after demolition of existing building, commenced construction of house. During the assessment proceedings, the assessee is noted to have furnished a revised enhanced claim under Section 54F of the Act, of Rs

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 11 :: 1,48,79,241/- (i.e., Rs. 25,45,67,927 minus Rs. 23,96,88,686), on the plea that he had spent an amount of Rs. 1,69,09,873/- before three years viz the additional cost incurred towards construction, along with the supporting documents and furnished the relevant details, documents and explanations. However, the AO denied the claim of exemption on the ground that the construction of residential house was not completed within the specified period of three (3) years from the date of transfer of capital asset giving rise to the capital gains. However, the AO observed in the assessment order (while denying the claim while passing the assessment order on 20.03.2025) that if the assessee files completion certificate of the residential house within 3 years i.e. on 03.05.2025, the assessee may be allowed to deduction u/s 54F of the Act. The AO thus disallowed the claim of deduction u/s 54F of Rs 23,96,88,686/- and added inter-alia the total income at Rs 30,29,38,421/- in place of assessee’s returned income of Rs 6,31,76,310/-. On appeal, the Ld CIT(A) concurred with the action of AO denying the claim of deduction u/s 54F of the Act, since assessee couldn’t produce the completion certificate of the residential house. Before us, the assessee produced copy of the completion certificate of the house issued by the CMDA dated May 14, 2026 and brought to our notice that the Assessee has claimed only a proportionate deduction for the amount actually spent within the three-year period (from the date of transfer of

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 12 :: original asset) and pointed out that assessee has offered the balance gain to tax. Thus, according to Ld AR, the assessee having actually completed the construction of the house has fulfilled the condition of Section 54F of the Act by constructing a residential house and pleaded that assessee’s claim of proportionate amount actually spent before May 3, 2025, should be allowed. And pointed out that if the assessee were to claim the actual amounts spent after May 3, 2025, then the actual spending would exceed the net consideration received by the assessee and there would not be any taxable capital gains. However, the assessee has fairly only claimed the proportionate deduction spent within the 3-year period and pleaded for restricting taxable LTCG at Rs. 4,06,99,650/- in place of Rs 5,55,78,891/- claimed in the original ITR.

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 13 :: have spent a total amount of Rs. 27,24,00,000/- before filing of Return of Income on 26.10.2023. Hence, in the ITR/ROI the Assessee claimed a proportionate deduction under section 54F of the Act of Rs 23,96,88,686/- and offered an amount of Rs 5,55,78,891/- to tax as long-term capital gains (computation provided in the table below).

Detailed calculation of deduction claimed on account of investment made in new asset.

Amount (Rs.) Amount (Rs.) Particulars LTCG of sales of shares under 112A 29,52,67,577

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 14 ::

Less: Carried forward of Long Term Capital loss 3,39,00,000 26,13,67,577 Capital Gains (A) Cost of New Property: Cost of land 23,00,00,000 Registration fees 2,53,00,000 Cost of construction of house 75,00,000 Other Expenses 96,00,000 Cost of New Property (B) 27,24,00,000 Sale Consideration (C) 29,70,37,500 Eligible Exemption (D) = (A)*(B)/(C ) 23,96,88,686

Calculation of Long-term capital gain u/s 112

Particulars Workings as per ROI (Rs.) Claim as per letter dated March 8, 2025, before AO (Rs.) Sale Consideration Full value of Consideration (Fvoc) (Rs.) 29,70,37,500 29,70,37,500 No Shares Sold 93,242 93,242 Value Per Share 3,186 3,186

Cost of Acquisition No of Shares 93,242 93,242 Cost of Acquisition (Rs.) 9,32,420 9,32,420 Cost of Acquisition - Per Share Rs.10 Rs.10

Indexed Cost of Acquisition Year of Acquisition 2010-11 2010-11 Year of Transfer 2022-23 2022-23 CII of Year of Acquisition 167 167 CII of Year of Sale 317 317 Indexed Cost of Acquisition 17,69,923 17,69,923

Long Term Capital Gains 29,52,67,577 29,52,67,577 Less: Carried forward of Long-Term 3,39,00,000 3,39,00,000 Capital loss Capital Gains (A) 26,13,67,577 26,13,67,577

Less: Exemption u/s 54F Cost of New Property (B) (Note 1) 27,24,00,000 28,93,09,873 Capital Gains (A) 26,13,67,577 26,13,67,577 Sale Consideration (C) 29,70,37,500 29,70,37,500 Eligible Exemption (D) = (A)*(B)/(C) 23,96,88,686 25,45,67,927 Net Taxable LTCG 5,55,78,891 4,06,99,650 Difference in the Net taxable LTCG 1,48,79,241 29,75,848 Tax on the Capital gains u/s 112 (20%)

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 15 ::

Note: 1. The cost of the new property was increased to Rs. 28,93,09,373 including the additional cost of improvements of Rs. 1,69,09,873 12. As noted, assesse’s plea is that the revised proportionate claim of Rs. 25,45,67,927/- under section 54F of the Act be allowed and the taxable LTCG be restricted Rs. 4,06,99,650/- and the balance amount be refunded to the assessee. At this juncture, let us look at the relevant provisions for examining the claim of assessee. Section 54F of the Act, reads as under: -

"54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say. (a) If the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) If the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain, the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where- (a) the assessee- (1) owns more than one residential house, other than the new asset, on the date of transfer of the original asset: or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; and

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 16 :: (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.'

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 17 :: total Rs.28.93 crores to construct the house. The assessee has produced before us copy of the completion certificate of the residential house pursuant to transfer of the original asset. Assessee has claimed in his revised return proportionate deduction under section 54F of the Act of Rs 25.45 Crores as deduction 54F of the Act. In other words, the assessee has not claimed any expenditure for constructing the new asset after 03.05.2025 i.e. after the date of transfer of the original asset. In this factual background, according to us, since the assessee has placed before us the completion certificate of the new residential house (new asset) the requirement of law for claiming the deduction cannot be denied merely because the assessee could not complete the construction within 3 years from the date of transfer of the original asset. In this regard, it is noted that delay in completing the new asset cannot be attributed to any omission on part of the assessee, rather it has been shown to us that the assessee had promptly entrusted construction of the house to builder/contractor and the delay in completion of the house cannot be attributed on the part of the assessee. Hence, only because there was a delay in not completing the house in question cannot be a ground to deny the deduction u/s.54F of the Act. Moreover, the assessee has not claimed the expenditure incurred by him after the three years period i.e. after 03.05.2025; rather his claim is noted to be restricted to actual expenditure incurred for construction till 03.05.2025. Therefore, the

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 18 :: impugned action of the AO/Ld.CIT(A) denying the claim of deduction u/s.54F in the facts and circumstances of the case cannot be countenanced. For taking such a view, we rely on the principles enunciated by Hon’ble Karnataka High Court in similar case while interpreting Section 54F of the Act in Sambandam Udaykumar's case [2012] 19 taxmann.com 17, wherein it was held that said provision has to be construed liberally for achieving the purpose for which it was incorporated. This principle was followed by Hon’ble Karnataka High Court in the case of CIT v. Smt. B.S. Shanthakumari [2015] 60 taxmann.com 74 wherein it was observed that “Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 19 :: has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respect "that by itself would not disentitle the assessee to the benefit flowing from Section 54F". In this regard, it is also gainful to refer the decision of the Hon’ble Madras High Court in the case of C. Aryama Sundaram v. CIT (2018) 97 taxmann.com 74/258 Taxman 10/407 ITR 1 in Tax Case Appeal No. 520 of 2017 dated 6-8-2018, wherein, the Hon’ble Madras High Court on similar issues has held as under: -

"14. Under Section 54(1) of the said Act, the capital gain arising from transfer of a residential house is not t before or two years after the date of transfer of that residential house purchased another residential house is be charged to income tax as income of the previous year, if the assessee has within a period of one yea India or has within a period of three years after the date of transfer constructed a residential house in Indi and if the amount of the cost of the residential house so purchased or constructed is equal to or less than th amount of capital gain. 15. It is a well settled principle of construction and interpretation of statutes that statutory provisions should to the extent feasible, be interpreted and/or construed in accordance with plain meaning of the language uses in those provisions. 16. On a plain reading of Section 54(1) of the said Act, the transfer of a long term asset, which woul include a residential house, would be chargeable to income tax as a capital gain, except in circumstance specified in the said section. 17. It is not necessary for this Court to go into the question of mode and method of computation of capital gain as there is no dispute in this regard, which requires adjudication in this appeal. 18. The question is, whether any part of the capital gain from transfer of the residential house is exempt from the capital gain tax and if so to what extent?

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 20 :: 19. The conditions precedent for exemption of capital gain from being charged to income tax are: (1) The assessee should have purchased a residential house in India either one year before or two years after the date of transfer of the residential house which resulted in capital gain on alternatively constructed a new residential house in India within a period of three years from the date of the transfer of the residential property which resulted in the capital gain. (ii) If the amount of capital gain is greater than the cost of the residential house so purchased on constructed, the difference between the amount of the capital gain and the cost of the new asset is to be charged under 0section 45 as the income of the previous year. (iii) If the amount of the capital gain is equal to or less than the cost of the new residential house the capital gain shall not be charged under section 45. 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that i purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted the cost of the new residential house would necessarily include the cost of the land, the cost of material used in the construction, the cost of labour and any other cost relatable to the acquisition and/or construction of the residential house. 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new residential house should have been purchased within one year before or two years after the transfer of the residential house, which results in the capital gain or alternatively, a new residential house has been constructed in India, within three year from the date of the transfer, which resulted in the capital gain. The said section does not exclude the cost o land from the cost of residential house. 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money receive from the sale of a residential house should be used in the acquisition of new residential house. Had it bee the intention of the Legislature that the very same money that had been received as consideration for transfer of a have allowed to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase to Justman and/or exemption in respect of property purchased one year prior to the transfer, which gave ris subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain. 23. At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within period of one year before or two years after the date of transfer or has been constructed within a period o three years after the date of transfer of the residential house. It is not in dispute that the new residential hous has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 21 :: capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under section 45 as the income o the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house including the land on which the residential house is constructed, the capital gain is not to be charged under section 45 of the said Act. 24. For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and the second question is answered in the negative. No costs. 14. We also refer to the decision of the Hon’ble Madras High Court in the case of CIT v. Sardarmal Kothari (TS-5636-HC-2008(Madras)-O), (2008) 217 CTR 0414, (2008) 302 ITR 0286, (2008) 9 DTR 0257 (Madras) wherein it was held as under : - “The relevant assessment year is 2001-02. The assessees Shri Sardarmal Kothari and Shri Shanthilal Kothari, filed their respective returns of income admitting a total income of Rs. 3,02,593 apart from the agricultural income of Rs. 25.000 each. The assessees have claimed exemption of capital gain tax under s. 54F of the IT Act. The AO rejected the same on the ground that the construction was not completed when he made a personal visit. Against that order, the assessees preferred appeals before the CIT(A) who allowed the appeal by holding that the assessees have invested the capital gains in the land and substantially completed the construction and directed the AO to grant the benefit to the assessees. Against that order, the Department preferred appeals before the Tribunal and the Tribunal has confirmed the order of the CIT(A) and dismissed the appeals. The correctness of the said orders is now canvassed in these appeals by formulating the following questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessees are entitled for exemption under s. 54F of the IT Act is valid ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding, when the conditions laid down in sub-cl. (1) of s. 54F and the Board Circular No. 667, dt. 18th Oct., 1993 clearly stated that the purchase/construction is to be completed within stipulated time is not mandatory for claiming exemption under the Act?" 2. We have heard the argument of the learned counsel for the appellant and perused the materials available on record. 3. There is no dispute about the fact that the assessees have invested the entire net consideration of sale of capital asset in the land itself

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 22 :: and subsequently the assessees have invested large sums of money in the construction of the house. The cost of investment in land and the cost of expenditure towards the construction of the houses are not in dispute. The one and only ground on which the AO has non suited the assessees for the claim of exemption was that the houses have not been completed. There remains some more construction to be made. 4. The requirement of the provision is that the assessee, within a period of three years after the date of transfer, has to construct a residential house in order to become eligible for exemption. In the cases on hand, it is not in dispute that the assessees have purchased the lands by investing the capital gain and they have submitted before the CIT(A) several material evidences, viz.. invitation card printed for the house warming ceremony to be held on 12th July, 2003. The assessees have also produced the completion certificates from Jan., 2004. On the basis of the above documents, the CIT(A) concluded that the requirement of the statutory provision has been complied with by the assessees and that was reconfirmed by the Tribunal in the orders impugned rom the municipal authority on 30th 5. In the second question of law formulated, a reference is made to the Board Circular No. 667. dt. 18th Oct. 1993 [(1993) 115 CTR (St) 11. On a reading of the circular, we are of the view that the circular would not in any way advance the case of the Revenue to come to the conclusion that in order to have the benefit under s 54F of the IT Act the construction should have been completed 6. The Tribunal has also taken note of its own earlier order in the case of Mrs. Seetha Subramanian vs. Asstt. CIT (1996) 56 TTI (Mad) 417: (1996) 59 ITD 94 (Mad), wherein the Tribunal has held that, in order to get the benefit under s. 54F. of the house and occupy the same. It is enough if the assessee establishes that the assessee had invested the entire net consideration within the stipulated period. The said view taken consistently by the Tribunal has been applied in these cases also. The Tribunal has distinguished the Delhi High Court judgment in the case of D.P. Mehta vs. CIT (2001) 168 CTR (Del) 321: (2001) 251 ITR 529 (Del), relied on by the Revenue in their favour to non suit the assessees for exemption. In our view the Tribunal has distinguished the same rightly because in the cited case, there was a factual finding by the authorities that the assessee himself has admitted that the construction put up was only a garage and service quarters and it was not fit enough for occupation of the assessee. That factual finding is totally absent in these cases. There is no material to entertain these appeals. The appeals fail and the same are dismissed. Consequently, connected miscellaneous petition is also dismissed.[Emphasis given]

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 23 :: u/s.54F only on the ground that construction of the house couldn’t be completed within time period of three years from the date of transfer of old asset, which fact is discernible from Para 3 (supra). The Hon’ble High Court has upheld the action of the Tribunal allowing the claim by finding that the assessee had invested entire net consideration from sale of capital asset within the stipulated period. We also refer to the decision of the Hon’ble Karnataka High Court in the case of CIT v. Smt. B.S. Shanthakumari (supra), wherein also the deduction u/s.54F was denied due to non-completion of the construction of the house within three years period as per 54F of the Act. The Hon’ble High Court is noted to have upheld the action of the Tribunal allowing the deduction by observing as under: - 6. Having heard the learned Counsel appearing for the Inclined to admit this appeal for following reasons venue and on perusal of the records, It would emerge from perusal of records that immediately after sale of the property on 06.10.2005, assessee purchased another residential plot on 13.10.2008 and on 02.06.2010 she obtained approval of the building plan from the local authority namely Bruhat Bengaluru Mahanagara Palike and commenced the construction However, it was not completed within 3 years Le, on 05.10.2011. Hence, the assessing officer of the Act to the assessee to during the course of assessment proceedings issued summons under Section 131 of the Act to th verify as to whether the assessee had invested the capital gains in the construction of the residential house. Pursuant to the same, the husband of the assessee appeare peared and answered the query raised by the assessing officer. To a pointed question No.3 put to the husband of the the assessee by the Assessing Officer as to whether he has constructed the residential house within a period of three years, he has stated as under: "1 got the construction plan approved by the BBMP on 02.06.2010. But, due to certain financial constraints, could not complete the construction within the stipulated period",

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 24 :: The assessing officer has rejected the claim of the assessee only on the ground that the construction has not been complete. Hence, Assessing Officer disallowed the benefit of Long Term capital gain as claimed by assessee. 7. In fact, the assessee during the appellate proceedings had produced the photographs of the residential building which was under construction to demonstrate and establish that the consideration received on transfer has been invested by her in purchasing the residential plot and it is under construction. Appellate Commissioner taking note of principles enunciated by this Court while interpreting Section 54F of the Act in Sambandam Udaykumar's case (supra), whereunder it came to be held that said provision has to be construed liberally for achieving the purpose for which it was incorporated, allowed the appeal of assessee. 8. Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respect "that by itself would not disentitle the assessee to the benefit flowing from Section 54F". In fact, appellate Commissioner has not only taken note of the judgment of the co- ordinate bench of this Court in Sambandam's Udaykumar case (supra), but had also taken note of the judgment of High Court of Madras in the case of CIT v. Sardarmal Kothari[2008] 302 ITR 286, which was on similar facts as obtained in Sambandam Udaykumar's case (supra) and as such in the instant case, Appellate Commissioner allowed assessee's appeal noting that the appeal filed by the revenue against the order of High Court of Madras before Apex Court in CC Nos.3953- 3954/2009 had been dismissed on 06.04.2009. 30 9. That apart, co-ordinate bench of this Court in Sambandam Udaykumar's case (supra) referred to supra has examined similar issue and has held that the words used in Section 54F are 'purchased' or 'constructed and held that the condition precedent for claiming benefit under such provision is the capital gain realized from sale of a

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 25 :: Long-Term capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. It has also been held that if the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respects or such building is yet to be completed fully or the building not being in a fit condition for being occupied, would by itself not be a ground for the assessee to be denied the benefit under Section 54F of the Act. It has been held by the co-ordinate bench as under: "The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are 'purchased' or 'constructed. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said provision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of Section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under Section 54F of the Act". 10. We are in complete agreement with the ratio laid down by the co- ordinate bench of this Court. It has also been noticed by this Court that on the facts of the present case, assessee had produced material evidence before the First Appellate Authority to demonstrate that the construction was on the verge of completion by producing photographs and this aspect, though not noticed in detail, same came to be noticed by the Tribunal to reject the appeal of Revenue. It was also noticed by the Tribunal that construction of the building having been completed and same having been occupied by the assessee, is also a factor to dismiss the appeal of the revenue. In the circumstances narrated hereinabove, we are of the considered view that no substantial questions of law arises for being formulated and adjudicated. 11. In the result, we proceed to pass the following: ORDER (1) Appeal is hereby dismissed. (ii) Order passed in ITA No.63/Bang/201 dated 13.11.2013 by Income Tax Appellate Tribunal, Bengaluru is hereby affirmed.

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 26 :: 16. In the light of the aforesaid judicial precedents and hosts of other case laws cited supra, we having found that assessee have completed the new residential house, and has proved that he had invested Rs 27,24,00,000/- for construction of new asset, is thus found to be eligible for the claim of exemption u/s.54F of the Act as claimed in the original return of income of Rs. 23,96,88,686/, which needs to be allowed and we order accordingly. Coming to the additional expenses claimed vide letter dated 8th March 2025 of Rs. 1,69,09,873/-, we direct the Jurisdictional Assessing Officer (JAO) to verify the same, and if it is found that the ibid expenses claimed to the tune of Rs. 1,69,09,873/- has been spent by the assessee before 03.05.2025, then it be allowed.

Order pronounced on the 14th day of July, 2026, in Chennai.

Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai, �दनांक/Dated: 14th July, 2026. YS

Digitally signed YASHVI by YASHVIR SINGH R SINGH Date: 2026.07.15 15:51:02 +05'30'

ITA No.3732/Chny/2025 (AY 2023-24) Dr. Adil Agarwal :: 27 :: आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF