KAILASH GUL RAJANI ,MUMBAI vs. DCIT, 23(1), MUMBAI

आयकरअपीलीयअिधकरण�ायपीठमुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JM & SHRI ARUN KHODPIA, AM I.T.A. No.8273/Mum/2025 (Assessment Year: 2020-21) Kailash Gul Rajani DCIT-23(1), Mumbai 1601, A-Wing, 16th Floor, Sky Piramal Chambers, Aayakar Bhawan Flama Dosti, Flamingo Complex, Vs. Mumbai-400020 Sewri, Mumbai-400015 PAN: AAAPR5427Q Assessee- अपीलाथ� / Appellant Revenue-��थ�/ Respondent :

Assesseeby : Shri S.M. Bandi : Shri Hemanshu Joshi, Sr. DR Revenueby : 19.02.2026 Date of Hearing : 20.05.2026 Date of Pronouncement

O R D E R Per Arun Khodpia, AM: The captioned appeal of the assessee is directed against the order of the Commissioner of Income Tax Appeals, NFAC Delhi [in short, “the Ld. CIT(A)”], dated 28-10-2025 for the assessment year 2020-21, resulted from the assessment order under section 143(3) of the Income Tax Act [in short, “the Act”] dated 28-09-2022, passed byAssessment Unit, Income Tax Department [in short, “the Ld.AO”]. The grounds of appeal raised by the Assessee, are as under: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in confirming the deduction not granted by the Ld. AO u/s 54F of the I.T act of Rs. 1,34,08,015/-.

ITA No. 8273/Mum/2025 Kailash Gul Rajani 2. Without prejudice to Ground no. 1, the Ld. CIT(A) grossly erred in not granting deduction u/s 54 of the I.T act of Rs. 1,34,08,015/-.”

ITA No. 8273/Mum/2025 Kailash Gul Rajani Shantiniketan flat was held to be ineligible for exemption under either section 54F or section 54. The exemption of Rs. 1,34,08,015/- claimed under section 54F was disallowed and added to the total income. The assessee's total income was thus assessed at Rs. 2,19,79,731/- under section 143(3) read with section 144B. Aggrieved with the assessment order the assessee is in present appeal.”

ITA No. 8273/Mum/2025 Kailash Gul Rajani Mere user for commercial purpose without change of user permission does not convert the nature of property. In Smt. Radha Devi v. ITO (2011) 44 SOT 91 (Del) and in ITO v. Smt. Sushila M. Jhaveri (107 ITD 327, Mum. SB) the Tribunal held that a property will not lose its residential character simply because it was used for business purposes. Therefore, exemption under section 54F is not available on the sale of a residential house. On this primary contention, the ground no. 1 of appeal fails. 5.5. As to the alternative claim under section 54, the appellant has already availed section 54 benefit on the Aspen Mahindra flat. Claiming a second section 54 exemption for the Shanti Niketan property would amount to double deduction on the same investment. Section 54, after the Finance (No. 2) Act 2014, allows exemption in respect of one residential house property purchased or constructed in India. The proviso inserted by the Finance Act 2019 permitting investment in two houses up to Rs. 2 crore applies only from A.Y. 2020-21 but at the option of the assessee and subject to conditions. However, there is no evidence that the assessee exercised the option under the 2019 proviso to invest in two houses or that the investment qualified under that provision. In the absence of a specific claim before the AO at the time of filing return, a fresh claim cannot ordinarily be entertained at the appellate stage except as a legal claim based on facts already on record as held in Goetze (India) Ltd. v. CIT (284 ITR 323, SC). While an appellate authority can entertain a legal claim, the factual preconditions for section 54 here are not fulfilled because exemption has already been exhausted for one property. Hence, even the alternative claim under section 54 cannot be allowed in this case. The Special Bench decision in Smt. Sushila M. Jhaveri (supra) squarely applies and restricts exemption under section 54 to one house only. 5.6. The case law relied upon by the appellant is distinguishable. In ACIT v. Sabir Mazhar Ali the Tribunal allowed exemption because the assessee had sold two residential flats and invested the combined capital gains into one residential house before the amendment restricting such exemption. In the present case, the assessee has already claimed section 54 once and is seeking an additional section 54 benefit effectively for the same house which is impermissible post-amendment. Similarly, Venkata Ramana Umereddy v. Dy. CIT dealt with simultaneous claims under sections 54 and 54F on different assets but subject to their respective conditions. Since the Shanti Niketan property is a residential house, section 54F cannot apply. Therefore, the ratio of that decision does not assist the appellant. 5.7. In view of the above discussion and the material on record, I hold that the property at Shanti Niketan, though used partly for commercial or office purpose, retained its residential character in law. Exemption under section 54F is not applicable on transfer of a residential house. The appellant has already availed exemption under section 54 on the Aspen Mahindra flat. A second claim under section 54 for the Shanti Niketan property is not permissible under the prevailing law. The Assessing Officer's action in disallowing the exemption of Rs. 1,34,08,015/-under section 54F and adding it to the total income is therefore upheld.”

ITA No. 8273/Mum/2025 Kailash Gul Rajani situated at Shanti-Niketan Co-operative Housing Society Limited, copies of the same are furnished in the assessee’s paper book. Accordingly, the assessee qualifies for claiming of exemption u/s 54F, still if the same is not satisfactory, then alternatively exemption u/s 54 shall be allowed, which though was not claimed by the assessee in his return or during the assessment proceedings but have proposed to claim it before the First Appellant Authority. Reliance was placed on the decision of Goetz India Ltd. V. CIT (284 ITR 323, SC).

ITA No. 8273/Mum/2025 Kailash Gul Rajani was used as a dental clinic, as confirmed by the secretary of the Shanti-Niketan Co-operative Housing Society Limited, thus as per usage it has the character of commercial property. Photographs are also submitted before the authorities, showing that the property is used for commercial purposes.To substantiate the aforesaid contention further, the assessee submitted documents such as collector's fee paid for the said property beingused for commercial purpose, Municipal Assessment Bill for the said property treating the same as commercial premises.Since, the property was taxed by the government as commercial property, the assessee claimed exemption under section 54F and not under section 54 of the Act.The ld. AO was not convincedwith the aforesaid contention of the assessee. He interpreted that asset was a residential house.Accordingly, the exemption claimed under Section 54F was denied. Ld. CIT(A) also found no merits in the contentions of the assessee; he approved the view of Ld. AO. It is held by ld. CIT(A) that the character of property transferred can be determined by its legal status and not merely by its user. It is also observed by the Ld. CIT(A) that thestamp duty and registration charges on sale of the said property are charged at residential rates and the penalties charged by the BMC are for use of residential property in commercial purposes. He thus denies to allow the claim u/s 54F. On this aspect, we concur the observations of the Ld.CIT(A), which need no interference by us.

ITA No. 8273/Mum/2025 Kailash Gul Rajani 8. However, the second and alternative contention of the assessee that, in case the property sold is considered a residential property, the assessee is entitled to claim exemption under Section 54 of the Act, instead of exemption under section 54F. It is also contended that the assessee had sold two residential properties and purchased one residential dwelling, so would be entitle for exemption u/s 54 of the Act. This aspect was raised before the Ld. CIT(A), but the plea of assessee has been rejected, stating that the assessee has not made this claim while filing of the return and a fresh claim cannot ordinarily be entertained at the appellate stage, except as a legal claim based on facts already on record. We really are not having any concurrence with the findings of the Ld. CIT(A)quathe second contention of the assessee, as the claim, as it stands, was emerged only after denial of the assessee’s claim under Section 54F. Under such circumstances, following the principles laid down in the case of Goetz India Ltd. V. CIT (2006) 284 ITR 323 (SC) by Hon’ble Apex Court, that the power of the assessing authority is limited, but does not impinge on the power of the Income Tax Appellate Tribunal under section 254 of the Income Tax Act, 1961. We find it appropriate to set aside this matter back to the file of ld. AO for the limited purpose, toexamine the claim of assessee for exemption u/s 54 of the Act and compute the taxable capital gain, accordingly. 9. Needless to say, that the assessee shall be provided with reasonable opportunity of being heardduring the set-aside proceedings. The assessee would

ITA No. 8273/Mum/2025 Kailash Gul Rajani be at liberty to furnish necessary explanations, contentions, evidence and jurisprudence to support his contentions before the ld. AO. 10. In result the appeal of assessee stands allowed for statistical purposes, in terms of ouraforesaid observations. Order pronounced in the open court on 20-05-2026.

Sd/- Sd/- (AMIT SHUKLA) (ARUN KHODPIA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated : 20-05-2026. Ankit K., Sr. PS

Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai