DCIT, CIRCLE-1(3), SURAT, ADAJAN vs. MAHENDRAKUMAR VARJANGBHAI JILARIA, AMBIKA NAGAR SOCITY

ITA 777/SRT/2023Status: DisposedITAT Surat09 October 2026AY 2017-1811 pages
AI SummaryDismissed

What were the facts?

The Revenue appealed the CIT(A)'s order for AY 2017-18, which allowed the assessee a deduction of Rs. 4,94,38,949/- under Section 54F of the Income Tax Act, 1961. The assessee, an individual, had declared a total income of Rs. 11,23,20,190/-, including long-term capital gains (LTCG) of Rs. 11,04,35,185/- from the sale of land at Vesu, Surat, on December 3, 2016. The Assessing Officer (AO) disallowed the Section 54F deduction, holding that the assessee owned more than one residential property at the time of the original asset's transfer, having sold two other properties at Adajan on March 20, 2017. The AO also contended that the new asset purchased was agricultural land, not a residential house, violating Section 54F conditions. The CIT(A) allowed the appeal, finding the AO's grounds untenable.

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision. Regarding the first and third issues, the Tribunal found that the properties sold by the assessee were open plots and not residential houses, thus the AO's finding that the assessee was in possession of more than one residential house was incorrect. The assessee was not in possession of more than one residential house at the time of sale of the original assets, and therefore, the deduction u/s 54F could not be disallowed on this basis. Concerning the second issue, the Tribunal noted that the assessee had purchased open land and deposited Rs. 25,00,000/- in the capital gains account, which was utilized for the construction of a new residential house within the specified time. The AO had failed to consider the deposit and its utilization, as well as the construction agreement and photographs of the new house. The Tribunal held that the AO wrongly concluded that the deduction was claimed only for the purchase of land and not for a residential house. The fact that the land purchased was agricultural land was not material, as an agriculturist can construct a residential house on agricultural land without restriction under Section 54F. Therefore, the CIT(A) rightly allowed the deduction. The Tribunal found no need to interfere with the CIT(A)'s findings. The issue regarding the violation of principles of natural justice was not explicitly decided but implicitly addressed by the Tribunal's re-examination of the facts and evidence.

What were the issues?

1. Whether the CIT(A) erred in allowing deduction u/s 54F by not appreciating that the assessee had not fulfilled the conditions laid down in the IT Act, 1961, specifically regarding the ownership of more than one residential property on the date of transfer of the original asset (Section 54F)? 2. Whether the CIT(A) violated principles of natural justice by admitting additional evidence and not providing an opportunity for the AO to be heard, as per Section 250(2) and Rule 46A(3)? 3. Whether the CIT(A) erred in allowing deduction u/s 54F by ignoring that the assessee possessed more than one residential property on the date of transfer of the original asset, thereby disentitling them to the benefit of Section 54F? Assessee's Contentions (as understood from the CIT(A)'s reasoning and the judgment): The two properties sold by the assessee were open plots and not residential houses. The new asset purchased was an open land at Saroli, Surat, on which the assessee deposited Rs. 25,00,000/- in the capital gains account and utilized it for constructing a new residential house within the specified time. The assessee also submitted sale deeds and construction agreements as evidence. The nature of the land (agricultural or non-agricultural) is not material for constructing a residential house. Revenue's Contentions: The assessee was in possession of more than one residential property on the date of transfer of the original asset, violating Section 54F. The new asset purchased was agricultural land, failing the condition of acquiring a residential house. The CIT(A) admitted additional evidence without giving the AO an opportunity to be heard.

Which sections of the Income-tax Act were involved?

Section 54F,Section 250(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, SURAT BENCH, SURAT

Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI

Pronounced: 09.10.2026

PER : SUCHITRA KAMBLE, J M:

The appeal filed by the Revenue is against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short “CIT(A)”] dated 12.09.2023 for the Assessment Year (in short “AY”) 2017-18. 2. The Revenue has raised the following grounds of appeal: “) On the facts and in the circumstances of the case and in law, the ld CIT(A) erred in directing the AO to allow deduction u/s 54F of the I.T. Act, 1961 for Rs.4,94,38,949/- wit

The order continues below.

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