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Facts
The assessee sold 1/2 share of a residential property including the basement for Rs. 8.59 Crores, claiming capital gains deduction under Section 54. The AO completed the assessment allowing the deduction. The PCIT revised the order under Section 263, holding that the basement alone could not be treated as a residential property for the deduction.
Held
The Tribunal held that the assessee sold the entire house property, not just the basement, and the deduction under Section 54 was correctly allowed by the AO. The PCIT's order revising the assessment was considered erroneous.
Key Issues
Whether the sale of a basement along with other parts of a residential property qualifies for deduction under Section 54 of the Income Tax Act when the revision order claims it cannot be treated as a residential property.
Sections Cited
263, 54, 143(3), 144B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SHRI NARENDRA PRASAD SINHA, AM:
This appeal is filed by the assessee against the order of the Principal Commissioner of Income Tax, Ahmedabad-3 (in short “the PCIT”), dated 21.03.2025, in his revisional capacity under Section 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (A.Y.) 2021-22.
The brief facts of the case are that the assessee had filed his return of income for the A.Y. 2021-22 on 11.03.2022 declaring total income of Rs.3,03,58,490/-. The case was selected for complete scrutiny under CASS. The assessee had disclosed income from business, income from house property, capital gain and income from other sources. In the course of assessment, the Assessing Officer had examined the capital gain (Assessment Year: 2021-22) Vipul Kamal Prakash Sud vs. PCIT-3 Page 2 of 6 disclosed by the assessee. It transpired that the assessee had sold his ½ share in the residential property situated at 59/5, New Rohtak Road, Karol Bagh, New Delhi during the year for a consideration of Rs.8.59 Crores on which capital gain of Rs.5,56,54,977/- was worked out by the assessee. The assessee had also claimed deduction under Section 54 of the Act in respect of residential property purchased within two years of the sale of the original house property and the entire Long Term Capital Gain of Rs.5,56,54,977/- was invested towards acquisition of the new residential house. Satisfied with the explanation of the assessee, the Assessing Officer had completed the assessment under Section 143(3) of the Act on 14.12.2022 at a total income of Rs.3,03,58,490/- as per return of income.
2.1 The case record was subsequently called for and examined by the Ld. PCIT. He found that the assessee had claimed deduction under Section 54 of the Act in respect of capital gain arising on sale of basement, which cannot be treated as house property. The Ld. PCIT was of the opinion that the deduction under Section 54 claimed by the assessee against the sale of house property was not allowable as the basement which does not have basic amenities like bath-room, kitchen etc. cannot be treated as a residential property. Accordingly, the Ld. PCIT had set aside the assessment order passed by the Assessing Officer with a direction to pass fresh assessment order after re-examining the claim of deduction under Section 54 of the Act in accordance with the provisions of the Act.
Aggrieved with the order of the Ld. PCIT, the assessee is in appeal before us. The following grounds have been taken in this appeal: -
“1.1 The Order u/s.263 passed on 21.03.2025 by PCIT A'bad-3, A'bad for AY 2021-22 (for short Pr. CIT) holding that the order passed u/s.143(3) rws 144B on 14.12.2022 by AO allowing exemption u/s.54 in respect of basement of the house property was erroneous and prejudice to the interest of the revenue in as much as the AO had not verified the claim is wholly illegal, unlawful and against the principles of natural justice. 2.1 The Id. Pr. CIT has grievously erred in law and or on facts in holding that the order of assessment passed u/s.143(3) rws 144B on 14.12.2022 by AO accepting exemption u/s.54 in respect of basement of the house property was erroneous and prejudicial to the interest of the revenue. 2.2 That the in the facts and circumstances of the Id. Pr. CIT ought not to have invoked the powers of revision u/s.263 and thereby held that the order of assessment passed u/s 143(3) rws 144B on 14.12.2022 by AO accepting exemption u/s.54 in respect of basement of the house property was erroneous and prejudicial to the interest of the revenue. 2.3 The Pr. CIT has failed to appreciate that the issue relating to the capital gain was the subject matter of scrutiny by AO and after having considered material produced by the appellant, the same were accepted in the order of assessment passed u/s 143(3) rws 144B on 14.12.2022 so that it was neither erroneous nor prejudicial to the interest of revenue which could be revised u/s.263 of the Act rw Explanation-2. 3.1 The Id. Pr. CIT has grievously erred in law and or on facts in holding that the provision of Explanation-2 to sec.263 was attracted in the facts of the case. 4.1 The Id. Pr. CIT has grievously erred in law and or on facts in holding that the basement consisted only of a hall so that it lacked the characteristic of the house and capital gain was not exempt u/s.54 in respect of this portion of the house property.
It is, therefore, prayed that the order of revision passed u/s.263 by the respondent should be quashed and direction to make addition should be quashed.”
Shri S.N. Divatia, Ld. AR of the assessee, submitted that in the course of assessment, the Assessing Officer had examined this issue and the assessee had furnished details and clarification as required. Therefore, the order of the Assessing Officer cannot be held as erroneous and prejudicial to the interest of the revenue. He submitted that the Ld. (Assessment Year: 2021-22) Vipul Kamal Prakash Sud vs. PCIT-3 Page 4 of 6 PCIT had considered the order of the Assessing Officer as erroneous for the reason that the deduction under Section 54 of the Act in respect of sale of basement was not found to be eligible. The Ld. AR explained that what the assessee had sold was his entire share in the house property including the basement, ground floor, first floor, second floor and third floor. The assessee has sold his share to different buyers. Merely because the basement was sold to one of the buyers, deduction under Section 54 of the Act cannot be denied, considering the fact that the assessee had sold the entire house property and capital gain computed by the assessee was in respect of the entire house property and not for the basement. The Ld. AR submitted that in view of these facts, the finding of the Ld. PCIT that the order of the Assessing Officer was erroneous was not correct.
Per contra, Shri R. P. Rastogi, Ld. CIT-DR submitted that the Assessing Officer had merely accepted the submission of the assessee in respect of deduction claimed under Section 54 of the Act. He, therefore, strongly supported the order of the Ld. PCIT.
We have considered the rival submissions. The fact that the assessee had sold his entire ½ share in the residential property at 59/5, New Rotak Karol Bagh, New Delhi has not been disputed. This fact has also been acknowledged by the Ld. PCIT in his order wherein the sale made to different parties was reproduced as under: - S.No. Name of Buyer Gross Sale Stamp Duty Portion Sold Amount 1. Smt. Rajkumari 1,10,00,000/- 4,40,000/- Ground Floor 2. Smt. Rajkumari 1,15,00,000/- 4,60,000/- Third Floor 3. Sanjeev Bansal & 84,00,000/- 5,04,000/- Second Floor Madanlal Gupta 4. Subhash Nayar 2,25,00,000/- 9,00,000/- First Floor 6.1 It is thus found that the assessee had sold different portions (floors) of the property to different buyers vide separate sale deeds. Nevertheless, the fact remains that the entire share of the assessee in the property was sold during the year. The deduction claimed under Section 54 of the Act was in respect of sale proceeds of Rs.8.59 Crores in respect of the entire property and it was not in respect of sale of basement alone. Even if we exclude sale consideration of basement Rs.3.25 Crores, the remaining sale proceeds of the house property was to the extent of Rs.5.34 Crores. The Ld. PCIT was not correct in considering the sale proceeds of basement alone towards deduction under Section 54 of the Act. As is evident, the assessee had sold the entire property, including the basement, during the year and the Ld. PCIT was not correct in considering the sale of basement separately from the sale of other floors. It is further found that this aspect was duly examined by the Assessing Officer in the course of assessment and the assessee vide letter dated 07.07.2022 had brought all the relevant facts to the notice of the Assessing Officer. The Assessing Officer, after considering the explanation of the assessee, had taken a view, which cannot be held as incorrect. Merely because the different floors of the property were sold to different parties through separate sale deeds, it does not change the nature of the property sold, which was a single residential house. Therefore, the Assessing Officer had rightly allowed deduction under Section 54 of the Act to the assessee and we do not find any error in the order of the Assessing Officer. Considering these facts, the order of the Assessing Officer cannot be held as erroneous and prejudicial to the
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on this 16th October, 2025.