SITA RAM MEENA INCOME TAX OFFICER - 9(1)(1), MUMBAI, MUMBAI vs. SANDEEP RAMDAS DAGA, MUMBAI

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ITA 3163/MUM/2026Status: DisposedITAT Mumbai15 October 2026AY 2022-2311 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was correct in allowing the deduction under Section 54F. The Tribunal agreed with the CIT(A)'s finding that the two flats, though acquired under separate agreements and having separate municipal and electricity records, were internally combined and used as a single dwelling with a common entrance and integrated living space. The Tribunal noted that the amended Section 54F recognizes that adjoining flats, even if independently purchased, can constitute one residential house upon integration. The objection regarding the ownership of another residential property was dismissed as the assessee owned only one other residential house, and the office premises were commercial. The Tribunal also found no infirmity in allowing the indexed cost of improvement, noting that the CIT(A) considered ledger extracts, payment particulars, contemporaneous recording, and the explanation for the non-availability of old vouchers, and found the expenditure reasonable. The Revenue failed to demonstrate a specific defect in the CIT(A)'s findings. Therefore, the appeal filed by the Revenue was dismissed.

What were the facts?

The Revenue appealed the order of the CIT(A) for Assessment Year 2022-23. The assessee, Sandeep Ramdas Daga, sold agricultural land for Rs. 10,00,00,000 and claimed a deduction of Rs. 8,81,55,966 under Section 54F. This deduction was based on an investment of Rs. 13,32,05,622 in two flats, Nos. 4903 and 4904, in Mumbai. The assessee claimed these flats were internally combined and used as a single residence. The Assessing Officer treated them as two separate residential houses, restricting the qualifying investment and disallowing indexed cost of improvement of Rs. 15,22,844. The CIT(A) allowed the deduction for the entire investment and the cost of improvement.

What were the issues?

1. Whether the assessee is eligible for deduction under Section 54F of the Income Tax Act, 1961, in respect of investment in two independent residential flats, considering the proviso to Section 54F(1) which states the assessee shall not own more than one residential house on the date of transfer of the original asset. Assessee's contention: The two flats were acquired together, internally combined, and used as a single dwelling with a common entrance and living space, thus constituting one residential house for the purpose of Section 54F. Separate documentation does not negate this functional integration. Revenue's contention: The flats retained their separate identity in purchase and possession documents, and subsequent integration does not satisfy the requirement of 'one residential house'. The assessee already owned another residential property, making the purchase of two new flats disqualifying. Reliance on non-jurisdictional High Court decisions is inappropriate. 2. Whether the indexed cost of improvement of Rs. 15,22,844/- was rightly disallowed by the Assessing Officer for want of supporting documentary evidence. Assessee's contention: The CIT(A) rightly allowed the claim based on ledger extracts, bank statements, explanation of expenditure through labourers and local vendors, and contemporaneous recording in books of account, considering the expenditure as reasonable and a small fraction of the sale consideration. Revenue's contention: The expenditure was not supported by bills and vouchers, and the claim was based on self-made ledger entries, thus rightly disallowed by the Assessing Officer.

Which sections of the Income-tax Act were involved?

Section 54F,Section 250,Section 143(3),Section 144B

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

Before: SHRI SANDEEP GOSAIN & SHRI JAGADISH

For Appellant: Shri J.P. Bairagra & Ms. Rupa Nanda
Hearing: 21.07.2026Pronounced: 15.10.2026

Per: SHRI JAGADISH, A.M.:

1.

This appeal filed by the Revenue is directed against the order dated 08.01.2026 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as the ‘Ld. CIT(A)’], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as the ‘Act’], for the assessment year 2022-23. The impugned order arises from the assessment order dated 19.03.2024 passed under section 143(3) read with section 144B of the Act.

ITA No.3163/M/2026 Sandeep Ramdas Daga 2. The Revenue has raised the following grounds of appeal:

“1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee’s claim for deduc�on under sec�on 54F of the Income Tax Act 1961, in respect of two independent residen�al flats, ignoring the express statutory condi�on under the Proviso to sec�on 54F(1) of the Income Tax Act, 1961 that the assessee shall not own more than one residen�al house on the date of transfer of the original asset.”

“2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in trea�ng Flat No. 4903 and Flat No. 4904, situated at Oberoi Esquire, Goregaon (East), Mumbai, as a single residen�al unit, despite separate registered agreements for both flats, separate possession le�ers, separate sanc�oned plans, separate electricity meters, separate municipal tax bills, and separate parking allotments, all of which clearly demonstrate that the assessee acquired two dis�nct residen�al proper�es and not ‘one residen�al house’ as mandated under sec�on 54F of the Income Tax Act, 1961.”

“3. On the facts and circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee already owned one residen�al property at C-1, Krishna Ganga Apartments on the date of transfer of the original asset, and therefore, purchase of two more new flats disqualified the assessee from claiming deduc�on under sec�on 54F of the Income Tax Act, 1961 for both newly purchased flats in terms of clause (i) of the first proviso to sec�on 54F(1) of the Income Tax Act, 1961.”

“4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in law in ignoring that the assessee’s acquisi�on of the second flat (Flat No. 4904) amounted to acquisi�on of a third residen�al house, squarely a�rac�ng the statutory bar under sec�on 54F of the Income Tax Act, 1961, thereby making the assessee ineligible for exemp�on to the extent of the second flat.”

“5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in placing reliance on non-jurisdic�onal High Court decisions, including the decision of the Hon’ble Madras High Court in Abhijit Bhandari vs. PCIT (396 ITR 499) and Hon’ble Andhra Pradesh High Court in CIT vs. Syed Ali Adil (33 taxmann.com 212), ignoring that these decisions are not binding on authori�es within the jurisdic�on of the Hon’ble Bombay High Court, the factual matrix in those cases differed materially, in those decisions the combina�on of flats existed at the �me of

ITA No.3163/M/2026 Sandeep Ramdas Daga purchase, whereas in the present case the assessee acquired fully independent flats, under separate agreements, and subsequently claimed to have unified them.”

“6. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in accep�ng the assessee’s claim of ‘merging’ or ‘combining’ the two flats merely based on photographs and without any structural altera�on approval, revised sanc�on plan from competent municipal authori�es, OC/CC modifica�on, thereby overlooking that post-purchase modifica�ons cannot alter the character of two separate residen�al units for purposes of eligibility under sec�on 54F of the Income Tax Act, 1961.”

“7. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief based on the alleged usage of the flats as a single residen�al unit, whereas sec�on 54F of the Income Tax Act, 1961 looks at the inten�on and existence of separate residen�al houses at the �me of purchase, not at post- purchase u�liza�on by the assessee.”

“8. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in dele�ng the disallowance of indexed cost of improvement of Rs. 15,22,844/-, ignoring the fact that the assessee did not produce any suppor�ng documentary evidence, the expenditure was claimed on the basis of self-made ledger entries, no bills, vouchers or credible proof of actual work such as fencing, levelling, labour payments were produced and therefore the claim was rightly disallowed by the Assessing Officer.”

“9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in law in admi�ng and relying upon unverified explana�ons and accep�ng reasonableness of cost of improvement merely because it cons�tuted a ‘small frac�on’ of sale considera�on, which is contrary to se�led principles of law that burden of proof lies en�rely on the assessee.”

“10. The appellant craves to leave to amend or alter any grounds or add new ground which may be necessary.”

3.

Grounds Nos.1 to 7 relate to deduction under section 54F in respect of the investment in two adjoining flats claimed to constitute one residential house. Grounds Nos.8 and 9 relate to allowance of indexed cost of improvement of Rs.15,22,844. The grounds concerning each issue are taken up together.

ITA No.3163/M/2026 Sandeep Ramdas Daga 4. Briefly stated, the assessee is an individual who filed his return of income on 04.08.2022 declaring total income of Rs.3,46,86,800. During the year under consideration, the assessee disclosed sale consideration of Rs.10,00,00,000 in respect of agricultural land situated at Village Gangavarhe, Taluka and District Nashik. After claiming selling expenses, indexed cost of acquisition and indexed cost of improvement, he computed long-term capital gain of Rs.8,81,55,966 and claimed deduction of the entire amount under section 54F. The claim was based on investment of Rs.13,32,05,622 in Flat Nos.4903 and 4904 on the 49th floor of Tower A, Oberoi Esquire, Goregaon (East), Mumbai.

5.

Both flats were acquired under separate agreements dated 23.08.2021. The assessee explained that the flats were adjoining, the intervening wall between their halls had been removed, and the premises were occupied by his family as one residence with a common entrance and a common living room. The Assessing Officer, however, relied upon the separate agreements, sanctioned plans, possession letters, electricity connections, municipal tax bills and parking allotments to treat them as two residential houses. The Assessing Officer restricted the qualifying investment to Rs.6,66,02,811 and allowed deduction of Rs.6,03,31,927 under section 54F. He also disallowed indexed cost of improvement of Rs.15,22,844 for want of supporting evidence. The total income was assessed at Rs.6,40,33,683.

6.

The Ld. CIT(A) accepted that the two flats had been booked together, purchased and registered on the same date, internally combined and used as one dwelling with one functional main entrance. He held that separate agreements and separate municipal and electricity records did not, in these circumstances, establish acquisition of two residential houses for section 54F. He accordingly allowed deduction in respect of the entire investment. On the second issue, he considered the ledger extracts, payment particulars and the explanation regarding expenditure on levelling and fencing incurred in earlier years, and allowed the indexed cost of improvement.

ITA No.3163/M/2026 Sandeep Ramdas Daga 7. The Ld. Departmental Representative, appearing for the appellant- Revenue, relied upon the assessment order. He submitted that the flats retained their separate identity in the purchase and possession documents and that their subsequent connection did not satisfy the requirement of one residential house under the amended section 54F. He further submitted that the cost of improvement had not been supported by bills and vouchers and that the relief granted by the Ld. CIT(A) deserved to be reversed.

8.

The Ld. Authorised Representatives supported the order of the Ld. CIT(A) and relied upon their written submissions. They submitted that both flats were booked together, purchased and registered on 23.08.2021 and paid for as part of one residential investment. The assumption of the Assessing Officer that one flat was purchased first and the other thereafter was, therefore, incorrect. They referred to the site plan and photographs stated to be at pages 417–418 and 428–432 of the paper book, and the reply to the show-cause notice stated to be at pages 421–423, to explain that the intervening wall had been removed and the premises were used as one residence with a single main entrance and a large common hall. They contended that separate agreements, flat numbers and service connections did not determine the number of residential houses. The assessee owned only one other residential house at C- 1, Krishna Ganga Apartments. The other property referred to by the Assessing Officer was a commercial office and could not be counted as a residential house.

9.

The Ld. Authorised Representatives relied upon CIT v. Raman Kumar Suri, 212 Taxman 411 (Bom.); Abhijit Bhandari v. PCIT, 396 ITR 499 (Mad.); CIT v. Syed Ali Adil, 352 ITR 418 (AP); and Nakul Aggarwal v. ACIT, 167 taxmann.com 540 (Mumbai–Trib.). They also referred to Mrs. Ratan Mahendra Jain v. ITO, 213 ITD 58; Siddharth Bhasker Shah v. PCIT, 179 taxmann.com 136; Seeta Nayyar v. ACIT, ITA No.6714/Mum/2025; Mrs. Chanda Runwal v. ACIT, 175 taxmann.com 141; Mohammadanif Sultanali Pradhan v. DCIT, 114 taxmann.com 508; Mrs. Kamal Murlidhar Mokashi v. ITO, 110 taxmann.com 120; and Bhatkal Ramarao Prakash v. ITO, 102 taxmann.com 145. They

ITA No.3163/M/2026 Sandeep Ramdas Daga submitted that reliance on decisions of other High Courts was permissible and that the principle concerning adjoining flats forming one residence was also recognised by the Hon’ble Bombay High Court. Further reliance was placed upon Ranjan Sen Jain v. ITO, ITA No.8561/Del/2025; CIT v. Gita Duggal, 357 ITR 153 (Del.); CIT v. Lata Goel, 174 taxmann.com 535 (Del.); and Siddharth Bhaskar Shah v. PCIT, 184 taxmann.com 92 (Mumbai–Trib.). The submission was that the physical arrangement of a house into more than one constituent unit or floor did not necessarily make it more than one residential house. They accordingly prayed that the factual finding of the Ld. CIT(A) regarding the combined residence be sustained.

10.

On the second issue, the Ld. Authorised Representatives submitted that expenditure of Rs.9,91,000 had been incurred on levelling and fencing of the land in earlier years and its indexed value was Rs.15,22,844. The ledger records and available payment particulars had been submitted, while complete old bills and vouchers were no longer available. According to them, the expenditure was incurred for protecting and improving the open land, and the Ld. CIT(A) had accepted the claim after considering the contemporaneous accounts and surrounding circumstances. Reliance was also placed upon Dilip Mohandas Devani v. ITO, ITA No.272/Ahd/2025 dated 25.08.2025, in support of examining old expenditure on the basis of the evidence reasonably available.

11.

We have heard the rival submissions and perused the assessment order, the order of the Ld. CIT(A), the grounds of appeal. The dispute on the first issue is whether the investment in the two adjoining flats, internally combined and used as one residence, satisfies the requirement of investment in one residential house in India under section 54F. The number of purchase agreements, original flat numbers and service connections is relevant, but the character of the accommodation has to be determined after considering the physical integration and use of the premises as a whole.

12.

The assessment order itself records that, during the hearing through video conference on 04.03.2024, the assessee explained that both flats had

ITA No.3163/M/2026 Sandeep Ramdas Daga been purchased and registered on the same date and were being used as one unit after removal of the intervening wall. The assessee had also furnished photographs with the submission dated 01.03.2024. The Ld. CIT(A), after considering the plans, photographs and purchase documents, found that the adjoining flats had been internally combined into one residential unit, with a common entrance and integrated living space. Thus, his conclusion is based upon the physical arrangement of the residence and the material submitted in support of it.

13.

The relevant findings recorded by the Ld. CIT(A) in paragraphs 6.1.6 to 6.1.8 of his order are reproduced below:

“6.1.6 In the present case, the following facts clearly emerge: • Both the flats were booked, purchased and registered on the same date. • The flats are adjacent and internally combined into one residen�al unit. • There exists only one func�onal main entrance. • The property is used as a single dwelling unit.” “6.1.7 Therefore, the investment sa�sfies the requirement of purchase of ‘one residen�al house’ as contemplated under sec�on 54F, even a�er the amendment subs�tu�ng the words ‘a residen�al house’ with ‘one residen�al house’.” “6.1.8 In view of the consistent judicial posi�on and the factual matrix of the case, I find merit in the conten�on of the appellant. Accordingly, the Assessing Officer is directed to allow deduc�on under sec�on 54F in respect of the en�re investment rela�ng to Flat Nos. 4903 and 4904 treated as a single residen�al unit. The ground of appeal rela�ng to sec�on 54F is therefore allowed. AO is directed to allow deduc�on claimed u/s 54F in respect of both flats.”

14.

The separate agreements, possession letters, electricity connections, municipal tax bills and parking allotments relied upon by the Assessing Officer establish that the premises originally bore two flat numbers. Those circumstances do not, by themselves, displace the finding that the adjoining premises were combined into one residential house. In particular, the assumption that the assessee first purchased one flat and thereafter purchased

ITA No.3163/M/2026 Sandeep Ramdas Daga the other as a third residential house is not supported by the common date of execution and registration of the agreements or by the manner in which the premises were combined. The absence of a revised municipal plan also cannot be treated as an independent statutory disqualification under section 54F; the evidence of integration has to be considered as a whole.

15.

The amendment substituting “one residential house in India” with effect from 01.04.2015 does not require a residential house to consist of only one originally numbered flat. It restricts the deduction to one residential house. Where adjoining flats are combined and constitute one residential house on the facts, the investment in that house falls to be considered as a whole. This approach does not extend the deduction to separate houses merely because they are owned or occupied by members of the same family.

16.

In Nakul Aggarwal v. ACIT (supra), concerning assessment year 2017- 18, the Coordinate Bench expressly considered the amended section 54F and allowed the claim in respect of adjoining flats converted into a single dwelling. The revised approved plan in that case was evidence of integration; the decision did not proceed on separate purchase agreements being conclusive against the assessee. The Bench observed:

“The revised plan very categorically iden�fies one kitchen and other necessary structures, to be used as a single dwelling unit.”

17.

Nakul Aggarwal (supra) was decided with reference to the amended provision and recognises that adjoining flats independently purchased may, upon integration, constitute one residential house. The revised sanctioned plan in that case was evidence supporting the combination. In the present case, the Ld. CIT(A) has accepted the internal combination on the basis of the site plan, photographs, common entrance and integrated living space. On an examination of the reasons recorded by both authorities, we agree with that conclusion. The decision in CIT v. Raman Kumar Suri (supra), though concerning the earlier provision and flats joined before acquisition, also supports the limited principle

ITA No.3163/M/2026 Sandeep Ramdas Daga that separately described flats may constitute one residential house. The Revenue’s objection that the Ld. CIT(A) referred to decisions of non- jurisdictional High Courts does not establish any error in his conclusion. Such decisions have persuasive value, and the requirement of the amended provision has been considered independently in the present appeal.

18.

The objection based on ownership of the property at Krishna Ganga Apartments also does not warrant interference. Clause (a)(i) of the proviso to section 54F(1) refers to ownership of more than one residential house, other than the new asset, on the date of transfer of the original asset. Ownership of one other residential house does not attract that restriction. The office premises are commercial. Further, once the combined adjoining flats are accepted as the new residential house, their constituent flat numbers cannot again be treated as acquisition of another residential house so as to attract the restriction concerning purchase of a house other than the new asset. We accordingly find no infirmity in the order of the Ld. CIT(A) allowing deduction under section 54F in respect of the entire investment. Grounds Nos.1 to 7 are dismissed.

19.

Further, the aggregate investment of Rs.13,32,05,622 in the combined residential house exceeds the net consideration of Rs.9,90,00,000 adopted in the assessment computation. Once the investment is accepted as relating to one new residential house, restriction of the qualifying cost to one-half of that investment has no basis. The direction of the Ld. CIT(A) to allow deduction in respect of the entire investment is accordingly sustained.

20.

As regards indexed cost of improvement, the claim relates to expenditure of Rs.9,91,000 on levelling and fencing of the land in earlier years. The absence of old bills and vouchers is relevant, but the claim has to be examined with the available accounts, payment particulars, nature of the work and explanation for non-availability of the original records. The Ld. CIT(A) considered the ledger extracts and the payment material referred to in his order and accepted the expenditure upon an appreciation of those circumstances.

ITA No.3163/M/2026 Sandeep Ramdas Daga 21. The Ld. CIT(A) has recorded the following findings in paragraphs 6.2.2 to 6.2.5 of his order:

“6.2.2 It is noted that the appellant has furnished:

• Ledger extracts evidencing withdrawals • Bank account statements highligh�ng the payments, and • An explana�on that the work was carried out through labourers and local vendors, and that the expenditure relates to older years where vouchers are no longer traceable.” “6.2.3 The nature of expenditure, i.e., levelling and fencing, is clearly of a capital nature as it enhances the value and usability of the land. The genuineness of the expenditure is further supported by the fact that the same has been recorded in the books of account maintained contemporaneously.”

“6.2.4 It is also relevant that the total improvement expenditure cons�tutes a small frac�on of the sale considera�on and appears reasonable having regard to the size and nature of land. Courts have held that where the expenditure is reasonable and supported by surrounding facts and records, deduc�on cannot be denied merely due to non-availability of old vouchers.”

“6.2.5 In view of the above, and considering the principle of preponderance of probabili�es, the claim of indexed cost of improvement of Rs.15,22,844/- is hereby allowed. AO is directed to allow cost of improvement claimed.”

22.

The Assessing Officer rejected the claim for want of old bills and vouchers. The Ld. CIT(A), however, has specifically referred to the ledger extracts, payment material, contemporaneous recording of the expenditure in the books and the explanation that the work was carried out through labourers and local vendors in earlier years. His conclusion, therefore, does not rest merely on the expenditure being a small fraction of the sale consideration. That observation was an additional circumstance considered with the available records and the nature of the improvement. While the assessee must establish the expenditure claimed, the material reasonably available in respect of old expenditure has to be considered together. On the facts recorded in the appellate order, the absence of the original vouchers does not justify rejection

ITA No.3163/M/2026 Sandeep Ramdas Daga of the claim without giving due weight to the other material accepted by the Ld. CIT(A). The Revenue has relied upon the assessment order but has not demonstrated a specific defect in those findings warranting their reversal. We accordingly find no infirmity in the order of the Ld. CIT(A) allowing indexed cost of improvement of Rs.15,22,844. Grounds Nos.8 and 9 are dismissed.

23.

Ground No.10 is general in nature and requires no separate finding. The order of the Ld. CIT(A) is upheld on both issues.

24.

In the result, the appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 15/10/2026.

Sd/- Sd/- (SANDEEP GOSAIN) (JAGADISH) Accountant Member Judicial Member

Mumbai, Dated: 15/10/2026 A. Rao Sr. Private Secretary

Copy of the order forwarded to: 1. Appellant 2. Respondent 3. The CIT 4. The CIT (Appeals) 5. The DR, I.T.A.T. By order ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE GAVANDE Date: 2026.10.24 13:57:57 +05'30' (Assistant Registrar) ITAT, Mumbai

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