NEELAVARA SANJEEVA RAO,BANGALORE vs. THE INCOME TAX OFFICER, WARD- 7(2)(1), BANGALORE

Per Chandra Poojari, Accountant Member This appeal by the assessee is directed against the order dated 12.12.2019 of the CIT(Appeals), Bengaluru-10, Bengaluru for the assessment year 2014-15. The assessee has raised the following grounds:- 1. The order passed by the learned CIT(A) to the extent prejudicial to the appellant is bad in law and liable to be quashed. 2. The learned CIT(A) has erred in upholding the addition of Rs 38,23,500 made by the learned Income Tax Officer, Ward

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7(2)(1), Bangalore being 50 percent of the difference between the stamp duty guideline value and purchase consideration i.e. 50percent of (1,76,47,000 minus 1,00,00,000) under section 56(2)(vii)(b). The additions being bad in law, is liable to be deleted. 2.1 The learned CIT(A) has erred in not appreciating that the said property was under dispute and was occupied by the tenants who were not willing to vacate the premises. In these circumstances, the market value of the property was lower than the stamp duty guideline value. The addition made u/s 56(2)(vii)(b) is bad in law and is liable to be deleted. 2.2 The learned CIT(A) has erred in not appreciating that assessee had objected to the assessing officer adopting the guideline value of the property for stamp duty purposes in place of the purchase consideration specified in the sale deed, the assessing officer ought to have referred the property for valuation to the valuation officer of the Income Tax Department. The assessing officer having failed to refer the property for valuation to the valuation officer of the Income Tax Department the addition made u/s 56(2)(vii)(b) is bad in law and is liable to be deleted. 2.3 The learned CIT(A) has erred in not following the judicial precedents where in it is held that should an assessee challenge or object to the assessing officer adopting the guideline value of the property for stamp duty purposes in place of the stated consideration in the sale deed, then the assessing officer ought to refer the property for valuation to the valuation officer of the Income Tax Department. The assessing officer and the CIT(A) having failed to follow the judicial precedents, the order passed is bad in law and is liable to be deleted. 2.4 The learned CIT(A) has erred in not appreciating that if the stamp duty valuation is higher than the consideration received, the assessing officer must refer the valuation to the valuation officer even if there is no request by the assessee. The assessing officer having failed refer the valuation to the valuation officer, the consequent assessment order and CIT(A) order passed are bad in law and are liable to be quashed. 2.5 The learned CIT(A) Bangalore has erred in concluding that

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i) appellant has not submitted a valuation report of a registered valuer substantiating that the FMV of the property in question on the date of transaction was less than the stamp duty valuation. ii) no request was made by the assessee to the AO for referring the valuation to the valuation officer

2.6 The learned CIT(A) Bangalore has erred in not appreciating that valuation report of the property substantiating that the FMV of the property in question on the date of transaction was less than the stamp duty valuation, was submitted along with the written submissions filed before CIT(A). The CIT(A) having passed the order without considering the valuation report filed along with the written submissions is bad in law and liable to be quashed. 2.7 On the basis of facts and circumstances of the case and law applicable, the addition of Rs 38,23,500 made u/s 56(2)(vii)(b) is bad in law and is liable to be deleted. 3. The learned CIT(A) has erred in upholding the addition of Rs 2,00,23,125made by the learned Income Tax Officer, Ward 7(2)(1), Bangalore by not granting the exemption of under section 54F as claimed by the appellant. 3.1 The learned CIT(A) has erred in relying on the remand report of the learned Income Tax Officer, Ward 7(2)(1), Bangalore and thereby concluding that the appellant has invested in 4 residential properties and does not qualify for exemption u/s 54F. The CIT(A) order relying on the erroneous remand report of the assessing officer is bad in law and liable to be quashed. 3.2 The learned Income Tax Officer, Ward 7(2)(1), Bangalore and the CIT(A) has erred in not appreciating that the residential property which was purchased on 4.9.2014 was owned by 4 co-owners. All the 4 co-owners had jointly executed a single sale deed in the appellant’s favour. The appellant having satisfied all the conditions provided under section 54F, the exemption of Rs 2,00,23,125 is to be allowed. 3.3 The learned CIT(A) Bangalore has erred in concluding that the appellant has invested in four new houses and therefore is not eligible for deduction u/s 54F of the Act. The impugned conclusion that the appellant has invested in four new houses and therefore is

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not eligible for deduction u/s 54F have been made without any basis or evidence and is therefore bad in law and liable to be quashed. 4. Assuming without admitting that the appellant had purchased 4 new houses as held by the learned assessing officer and CIT(A), the appellant is still eligible for exemption u/s 54F. Section 54F requiring the purchase or construction of one residential house in India was introduced with effect from AY 2015-16. For the AY 2014-15, the appellant was eligible to purchase more than one residential house for the purpose of claiming exemption u/s 54F. The exemption of Rs 2,00,23,125 u/s 54F is to be allowed. 4.1 The learned assessing officer and CIT(A) has erred in not following the jurisdictional high court decisions wherein it is held that the assessee is eligible to claim exemption u/s 54/54F even though the investment is made in more than one residential property. The CIT(A) order having not followed the decisions of jurisdictional high court is bad in law and liable to be quashed. 4.2 On the basis of facts and circumstances of the case and law applicable, having satisfied all the conditions provided under section 54F, the exemption of Rs 2,00,23,125 is to be allowed as claimed by the appellant. 5. Assuming without admitting that the appellant is not eligible for exemption u/s 54F, the CIT(A) has erred in upholding the indexed cost of acquisition as Rs 107,55,461 instead of Rs 1,35,73,822 as claimed in the return of income. 5.1 On the facts and in the circumstances of this case, the indexed cost of acquisition is to be considered at Rs 1,35,73,822 as claimed in the return of income. 6. The CIT(A) has erred in upholding the levy of interest under section 234A and 234B amounting to Rs 1,09,364 and Rs 18,04,506 respectively. On facts and in the circumstances of the case and law applicable, interest under section 234A and 234B is not leviable. The appellant denies its liability to pay interest under section 234A and 234B of the Act. 7. In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed under section 250, to the extent prejudicial to the appellant, be quashed or in the alternative

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i) the addition of Rs 38,23,500 made u/s 56(2)(vii)(b) is bad in law and is liable to be deleted. ii) the exemption of Rs 2,00,23,125 to be allowed u/s 54F as claimed by the appellant The appellant prays accordingly.”

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As the assessee had claimed that that the value assessed by stamp valuation authority exceeded fair market value of property, it was submitted that the AO ought to have referred the matter to valuation officer instead of deeming value adopted by stamp valuation authority as full value of consideration as held in Sarwan Kumar v ITO (2014) 150 ITD 289 (Delhi)(Trib). 7. From a reading of the provisions of section 50C(2), it is clearly mandated that should an assessee challenge or object to the Assessing Officer adopting the guideline value of the property for stamp duty purposes in place of the stated consideration in the sale deed for the purposes of computing LTCG, then the Assessing Officer ought to refer the property for valuation to the Valuation Officer of the Income Tax Department. [T.V. Nagasena v ITO (2012) 24 taxmann.com 30 (Bang)]. According to the ld. AR, this case law will apply to the facts of the case since the wordings of section 56(2)(viib) of the Act are also similar to section 50C of the I.T. Act. 8. It was submitted that the Delhi Tribunal in ITO v Aditya Narain Verma HUF ITA NO. 4166/Del/2013 dated 07-06-2017 has held that failure by the AO to refer the valuation of the capital asset to a valuation officer instead of adopting the value taken by the stamp duty authorities is a fatal error and the assessment order has to be annulled. The matter cannot be set aside to the AO for a second chance. The power of the ITAT to set aside cannot be exercised so as to allow the AO to cover up the deficiencies in his case. 9. Further, during the course of first appellate proceedings, the assessee filed a copy of valuation report dated 01/06/2013. As per this valuation report, the value of the property is Rs. 93,27,450/- which is much lesser than the guidance value for stamp duty purposes.

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ii. The excessive TDS was returned to the seller. iii. The assessing officer should have referred the property for valuation officer. For this the assessee relied on few case laws. 14. i. Dispute over the property: The ld. DR submitted that to invoke section 56(2) (vii) (b) the fact that the property was under dispute is not a hurdle. The compensation paid to the tenant was subsequent to the purchase of property. At the most, it can be considered as improvement cost and not as cost of purchase. Hence the action of the AO to bring the differential amount between purchase value and stamp duty value is to be upheld. 15. Without prejudice to the above it is submitted that the assessee had paid only Rs. 4,00,000 as settlement amount to the tenant as stated in the page no 76 to 81 of PB1. With expenditure of Rs. 4,00,000 the assessee had obtained benefit of Rs.72,47,000. It needs to be treated as income from other sources. Envisaging these entire situation, the legislature brought the above section. The differential amount between the stamp duty value and the purchase consideration paid is akin to gift received from third party. Hence it is treated as taxable in the hands of purchaser under the Act. Hence there is no force in the argument of the assessee that the property was under dispute and section 56(2)(vii)(b) is not applicable. 16. ii. Return of excessive TDS : The fact that the assessee had returned the TDS has not consequence under the Act. 17. iii. Reference to the DVO : The assessee seeks to invoke the provisions of section 50C of the Act as the proviso to section 56(2)(vii)(b) provides an option to refer the property the Valuation Officer. The ld. DR submitted, however, the assessee failed to choose to refer for valuation. 18. In view of the above, on the facts and in the circumstances of this case, it is prayed that the valuation report submitted by the assessee may

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be considered and the addition of Rs 38,23,500 made under section 56(2)(vii)(b) is to be deleted in entirety or in the alternative, the matter may be referred to the valuation officer. 19. Against the ld. DR’s contention that there is no mechanism u/s 56(2)(viib) to refer the matter to valuation officer, the ld. AR submitted that the first proviso to section 56(2)(viib) of the Act clearly provides a mechanism to refer the matter to the valuation officer. 20. We have heard both the parties and perused the material on record. In this case, the assessee purchased property situated at No 507 to 514, 2nd Main Road, Malleshwaram, Bangalore, measuring around 1500 square feet along with 8 sq. building in the ground floor and 7 sq. building in the first floor. According to the assessee, he has paid a sum of Rs.1 crore. However, as per sale deed copy, the value mentioned for stamp duty was Rs.1,76,47,000. Since the property was purchased along with assessee’s wife, Mrs. Rathna, the AO opined that the balance consideration of Rs.76,47,000 is to be divided amongst these two assesses equally and an amount of Rs.38,23,500 is to be taxed in the hands of the assessee u/s. 56(2)(vii) of the act. The assessee objected on the reason that due to some litigation problem, the assessee paid lesser value than disclosed in the sale deed. Further the assessee submitted copy of report from registered valuer, K. Narayana Prasad dated 1.6.2013 valuing the property at Rs.93,27,450. It was also brought to the notice of the lower authorities that the said property was purchased at Rs.1 crore instead of Rs.1,76,47,000 on the reason that the said property was not vacant and under dispute at the time of purchase and litigation was pending vide F.D.P No. 100/2008 O.S. No. 784/2001, CCIL No. 39 dated 16/02/2008 in order to get the property vacated. The AO overlooked these contentions of the assessee and straightaway considered the value declared in the sale deed for stamp duty at Rs.1,76,47,000 and the excess of Rs.76,47,000 was

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taxed u/s. 56(2)(vii) of the Act in the hands of the assessee as well as his spouse, Smt. Rathna. As seen from the records, the assessee filed valuation report from the registered valuer before the AO and disputed the stamp duty value of the property. However, the AO adopted the stamp duty value as deemed consideration applying the provisions of section 56(2)(vii) of the Act and the difference between the stamp duty value and actual sale consideration paid by the assessee was brought to tax. The assessee all along disputed the valuation of property adopted by the AO on the reason that the said property was subject to litigation as the property was occupied by Smt. Rathnamma and for vacating the property litigation is pending before the court. If the AO disputed the valuation of property made by the registered valuer, he could have very well referred the matter to the DVO to value the same for the purpose of ascertaining the correct value of the property. However, he failed to do so. 21. In ITO v. Aastha Goel in ITA No.6005/Del/2017 dated 8.10.2018, similar issue was considered by the Tribunal wherein the CIT(Appeals) deleted the addition made by the AO u/s. 56(2)(vii)(b) being the difference between the stamp duty valuation and purchase consideration paid for the reason that though assessee disputed the valuation, no reference was made by the AO to DVO when remand report was called for by the CIT(A) as the assessee furnished nearest sale instances as comparables and even at this stage the AO failed to refer the matter to the DVO. In these circumstances, the CIT(Appeals) deleted the addition which was upheld by the Tribunal observing as under:- “14. We have considered the rival arguments made by both the sides and perused the material available on record. We find the assessee in the instant case had jointly purchased the property located at E-886, Narela Industrial Complex DSIIDC Narela Delhi with her husband Shri Rachit Garg each having 50% undivided share in the said property at purchase price of Rs.75,00,000/-. We find on the basis of price adopted by the

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stamp valuation authority at Rs.2,80,00,000/-, the Assessing Officer made addition of Rs.1,02,50,000/- in the hands of the assessee by following the provisions of section 56(2) of the I.T. Act. We find, in appeal, the ld. CIT(A) deleted the addition, the reasons for which have already been reproduced in the preceding paragraph. It is the submission of the ld. DR that since the ld. CIT(A), instead of calling for a report from the DVO, had deleted the addition on the basis of submissions made by the assessee, therefore, the order of the ld. CIT(A) is not in accordance with law and the order of the ld. CIT(A) be reversed. In his alternate argument it is his submission that the matter should be restored to the file of the Assessing Officer. 15. It the submission of the ld. counsel for the assessee that when the assessee had furnished copy of the registered valuer and has also brought to the notice of the Assessing Officer during the assessment proceedings regarding the arbitrary adoption of circle rate by the stamp valuation authority, the Assessing Officer, instead of referring the matter to the DVO proceeded to make the addition on the basis of the valuation adopted by the stamp valuation authority. Further, during the appellate proceedings, he assessee had filed sale instances of two comparable cases in the nearby area which were forwarded by the ld. CIT(A) to the Assessing Officer and the Assessing Officer at that time also did not refer the matter to the DVO. Therefore, the order of the ld. CIT(A) being in accordance with law should be upheld. 16. We find merit in the above argument of the ld. counsel for the assessee. It is an admitted fact that during the course of assessment proceedings the assessee had filed a valuation report of Captain Suresh Dutt & Associates, Government of India approved and registered valuers, who valued the property at Rs.75,40,000/- vide their report dated 07.06.2013, copy of which is placed at pages 33 to 37 of the Paper Book. It is also an admitted fact that the assessee during the course of assessment proceedings had filed the representations made by the Narela Industrial Complex Welfare Association to the then Chief Minister of Delhi dated 09.12.2010 and another on 30.01.2014, copies of which are placed at pages 29 to 32 of the Paper Book. However, it is strange to note that there is not a whisper in the assessment order by the Assessing Officer on the above facts.

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Even though the assessee has brought to the notice of the Assessing Officer regarding the arbitrary valuation adopted by the stamp valuation authorities, the Assessing Officer instead of referring the matter to the DVO, made the addition on the basis of the difference in the purchase price and value adopted by the stamp valuation authority. We find during the course of appellate proceedings apart from various submissions made by the assessee, two sale instances of nearby areas were filed before the ld. CIT(A) as additional evidences and the ld. CIT(A) forwarded those evidences in shape of sale instances to the Assessing Officer for his comments. At that time also, the Assessing Officer did not refer the matter to the DVO and simply requested the ld. CIT(A) to adjudicate the issue on merit of the case. The relevant portion of the remand report, copy of which is placed at page 42 and 43 of the Paper Book, reads as under :- The AR of assessee vide his letter dated 27-6-2017, during the remand stage furnished the sale deeds of two properties of same location and area i.e. 350 sq.mts. The descriptions of the both the properties is as under:—

Sl. Address of property Area in Date of Value as per Value as No. sq.mtrs. sale deed Circle rates registered (Rs.) sale deed

The copy of valuation report in respect of property No. 886, Block E, Narela Industrial Area, Delhi dated 7-6-2013 of Captain Suresh Dutt & Associates also filed during the remand stage. The copies of letter by the Industrial Complex Welfare Association to the then Chief Minister of Delhi Smt. Sheila Dixit dated 9-12- 2010 and to Shri Arvind Kejriwal dated 30-1-2014,1, stating that the circle rates of industrial plots in Narela Industrial area are

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much higher than the actual market rates and circle rates are enhanced arbitrarily without any logic were also filed." The submission of AR of assessee has been considered and documents now furnished has been examined and placed on records. The copy of valuation report and the letters written to the Chief Minister were also filed by the AR of assessee during the course of assessment proceedings, but the Assessing Officer had not considered the same. Now at the remand report stage the AR of assessee filed copies of two sale deed i.e. dated 13-7-2013 and 8-11-2015 of the same locality and area of the property. These new evidences were not produced before the AO during the assessment proceedings where the properties were sold well below the Circle Rates. The AR argued that due to slump in the property market, the properties in the Narela Industrial area are being sold well below the Circle rates. The documentary evidences now furnished by the AR of assessee is placed on records. In view of above narrated submissions and the facts of the case, it is requested that the appeal of the assessee may please be adjudicated on the merits of the case. 17. So far as the reliance placed on by the Revenue on the decision of the Hon'ble Delhi High Court in the case of Jansampark Advertising and Marketing (P) Ltd. (supra) is concerned, the same, in our opinion, is not applicable to the facts of the present case. In that case the assessment was reopened on the basis of the report of the Investigation Wing that the assessee has received accommodation entries in shape of bogus share capital. Since the Assessing Officer was not satisfied with the genuineness of the claim of receipt of share capital, he issued summons u/s 131 but no one appeared and some of the notices were returned undelivered with the postal remark "Left/no such person". On being asked by the Assessing Officer to produce the persons/parties from whom the assessee received share application money/share capital, the assessee failed to produce the directors of the companies from whom the share capital was received. The Assessing Officer, therefore, invoking the provisions of section 68 of the I.T. Act, 1961 made addition which was deleted by the ld. CIT(A) and subsequently the

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Tribunal upheld the order of the ld. CIT(A). On further appeal by the Revenue, the Hon'ble High Court observed as under :— "38. The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income-tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, "further inquiry", in terms of sub-section (4) which reads as under:— "The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals)." 39. The further inquiry envisaged under section 250(4) quoted above is generally by calling what is known as "remand report". The purpose of this enabling clause is essentially to ensure that the matter of assessment reaches finality with all the requisite facts found. The assessment proceedings re- opened on the basis of preliminary satisfaction that some part of the income has escaped assessment, particularly when some unexplained credit entries have come to the notice (as in Section 68), cannot conclude, save and except by reaching satisfaction on the touchstone of the three tests mentioned earlier; viz. the identity of the third party making the payment, its creditworthiness and genuineness of the transaction. Whilst it is true that the assessee cannot be called upon to adduce conclusive proof on all these three questions, it is nonetheless legitimate expectation of the process that he would bring in some proof so as to discharge the initial burden placed on him. Since Section 68 itself declares that the credited sum would have to be included in the income of the assessee in the absence of explanation, or in the event of

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explanation being not satisfactory, it naturally follows that the material submitted by the assessee with his explanation must itself be wholesome or not untrue. It is only when the explanation and the material offered by the assessee at this stage passes this muster that the initial onus placed on him would shift leaving it to the AO to start inquiring into the affairs of the third party. ** ** ** 42. The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question. This necessitated a detailed scrutiny of the material submitted by the assessee in response to the notice under section 148 issued by the AO, as also the material submitted at the stage of appeals, if deemed proper by way of making or causing to be made a "further inquiry" in exercise of the power under section 250(4). This approach not having been adopted, the impugned order of ITAT, and consequently that of CIT (Appeals), cannot be approved or upheld. 43. In the result, the questions of law stand answered in favour of the Revenue though with a direction that the matter of assessment arising out of notice under section 148 Income-tax Act issued on 18-4-2007 for AY 2004-05 in respect of the assessee would stand remitted to the CIT (Appeals) for fresh consideration/adjudication in accordance with law." 18. However, the facts in the instant case are completely different. The Assessing Officer had not discussed anything about the valuation report filed by the assessee during the course of assessment proceedings. The representations filed by the trade organization before the then Chief Minister of Delhi about the arbitrary adoption of circle rate by the stamp valuation authority was also ignored by the Assessing Officer and instead of

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referring the matter to the DVO he made addition being the difference between the circle rate and actual sale consideration. When the assessee submitted various details including two sale instances below the circle rate in the same area, the ld. CIT(A) called for a remand report from the Assessing Officer and the Assessing Officer at that time also did not refer the matter to the DVO. Therefore, under these circumstances, the decision of the Hon'ble Delhi High Court in the case of Jansampark Advertising and Marketing Ltd. (supra) as relied on by the Revenue in the grounds of appeal will not be applicable to the facts of the present case. 19. We find identical issue had come up before the Tribunal in the case of Aditya Narain Verma (HUF) (supra). In the said decision also, the Department had requested the Tribunal for setting aside the matter to the file of the Assessing Officer for referring the case to the valuation officer. However, the Tribunal after considering the various submissions made by the assessee rejected such request of the Revenue and upheld the order of the ld. CIT(A) by observing as under :— "4.1 On the very perusal of the provisions laid down under section 50C of the Act reproduced hereinabove. we fully concur with the finding of the Id. CIT (Appeals) that when the assessee in the present case had claimed before Assessing Officer that the value adopted or assessed by the stamp valuation authority under sub section (1) exceeds the fair market value of the property as on the date of transfer, the Assessing Officer should have referred the valuation of the capital asset to a valuation officer instead of adopting the value taken by the state authority for the purpose of stamp duty. The very purpose of the Legislature behind the provisions laid down under sub section (2) to section 50C of the Act is that a valuation officer is an expert of the subject for such valuation and is certainly in a better position than the Assessing Officer to determine the valuation. Thus, non-compliance of the provisions laid down under sub section (2) by the Assessing Officer cannot be held valid and justified. The Hon'ble jurisdictional High Court of Allahabad in the case of Shashi Kant Garg (supra) has been pleased to hold that it is well settled that if under the provisions of the Act an authority is required to exercise powers or to do an act in a particular manner, then that

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power has to be exercised and the act has to be performed in that manner alone and not in any other manner. Similar view has been-expressed by the other decisions cited by the Id. AR in this regard hereinabove. The first appellate order on the issue is thus upheld. The grounds are accordingly rejected. 5. In the result, appeal is dismissed." 20. Since the facts in the instant case are identical to the facts of the case decided by the Tribunal, therefore, respectfully following the same, we uphold the order of the ld. CIT(A) on this issue and the grounds raised by the Revenue are accordingly dismissed." 22. In the present case before us also, the AO completely ignored the valuation report of the registered valuer submitted by the assessee and submissions made thereon. The AO mechanically applied the provisions of section 56(2)(vii) to bring the difference of stamp duty valuation and actual sale consideration paid by the assessee, without making any efforts to find out the actual cost of property, when in fact the assessee stated that the property when purchased was under litigation and pending before the Civil Court, the AO was not bothered about these impediments and straightaway considered the stamp duty valuation for the purpose of making addition u/s. 56(2)(vii) of the Act. In such circumstances, it was very necessary for the AO to refer the matter to the DVO which he failed to do so. 23. Even before us, the ld. DR submitted that referring the matter to the DVO is only with regard to applicability of section 50C of the Act in the case of seller and it is not all required to refer the matter to the DVO u/s. 56(2)(vii) of the Act which is totally misconceived. In such circumstances, in our opinion, the addition made by the AO is totally unjustified and cannot be sustained. We are also of the opinion that the revenue cannot be allowed a second innings by sending the matter back to the AO to refer the matter to the DVO to ascertain the correct fair market value of the property purchased by the assessee, when assessee all along disputed the

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valuation of property adopted by the AO for the purpose of registration of the same and the AO failed to find out the correct value of the property both at the assessment stage as well as at the first appellate stage. 24. This was considered by the Agra Bench of the Tribunal in the case of Hari Om Garg in ITA No.342/Agra/2017 dated 31.5.2019 wherein a view was taken that the Department cannot be allowed a second inning by sending the matter back to the Assessing Officer enabling the revenue to fill the lacunae and shortcomings and further putting the assessee to face a re-trail for no fault of him and to prove before the Assessing Officer that the sale consideration was the fair market value of the property purchased by him. While coming to such conclusion the Tribunal considered various decisions of Hon'ble High Courts and Tribunals and the observations of the Tribunal are as under: - '8. In the present case, neither, the AO nor the ld. CIT(A) has made any efforts to crystalize the actual value of investment by the assessee in the purchase of the property by way of bringing material documentary evidence on record to establish the unexplained investment in the property by the assessee. Merely, rejection of the reply of assessee without giving valid reasons can not justify the action of the subordinate authorities. 9. The Sub-section (2) clearly mandates that where the assessee claims that the value adopted or assessed or assessable by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, the AO would refer the valuation of such property to the Valuation Officer. Hon'ble Calcutta High Court, in the case of "Sunil Kumar Agarwal v. CIT" reported in 372 ITR 83 has clearly held that the AO, discharging quasi-judicial function, has the bounden duty to act fairly and to follow the course provided by law, which in that case, was the reference to the valuation officer. In the present case, in view of the assessee's specific dispute and claim before the AO that stamp valuation of the property sold was not its "fair market value", it was the bounden duty of the AO to have made

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reference to the Valuation Officer which, for the reasons not borne on records, was not made. 10. Hon'ble Allahabad High Court in the case of CIT v. Chandra Narain Chaudhary in ITAT No. 287/2011 vide Judgment dated 29-8-2013 in a case, though having different facts where assessee therein had filed more than one valuation Report , in the context of section 50C of the Act, held that "whenever objection is taken or claim is made before AO, that the value adopted or assessed or assessable by the Stamp Valuation Authority under sub-section (1) of Section 50-C exceeds the fair market value of the property on the date of transfer, the AO has to apply his mind on the validity of the objection of the assessee. He may either accept the valuation of the property on the basis of the report of the approved valuer filed by the assessee, or invite objection from the department and refer the question of valuation of the capital asset to DVO in accordance with Section 55-A of the Act. In all these events, the AO has to record valid reasons, which are justifiable in law. He is not required to adopt an evasive approach of applying deeming provision without deciding the objection or to refer the matter to the DVO under section 55-A of the Act as a matter of course, without considering the report of approved valuer submitted by the assessee. The Hon'ble High Court further held that Section 50-C of the Act is a rule of evidence in assessing the valuation of property for calculating the capital gain. The deeming provision under section 50 C (1) of the Act is rebuttable. It is well known that an immovable property may have various attributes, charges, encumbrances, limitations and conditions. The Stamp Valuation Authority does not take into consideration the attributes of the property for determining the fair market value in the condition the property is a offered for sale and is purchased. He is required to value the property in accordance with the circle rates fixed by the Collector. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as it occupation by tenant, any charge or legal encumbrances.

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of appearing before AO/DVO at this stage to prove the sale price declared by her is reasonable." 16. In the case of ACIT v. Anima Investment Ltd [73 ITD 0125] Third Member, ITAT, Delhi observed in para 13 of the order as under: "The powers of the Tribunal in the matter of setting aside an assessment are large and wide, but these cannot be exercised to allow the AO an opportunity to patch up the weak part of his case and to fill up the omission. In my opinion, a party guilty of remissness and gross negligence is not entitled to indulgence being shown. In this context, I would like to make a reference to a decision of the Chennai Bench of the Tribunal in the case of Tatia Skyline & Health Farms Ltd. v. Asstt. CIT [2000] 66 TTJ (Chennai) 203 : [1999] 70 ITD 387 (Chennai). In this decision, on the assessee's request that the case be sent back to the AO for another round of enquiry and fresh assessment in accordance with law. the Bench, rejecting the assessee's request has held that the remand order should be made in very rare and exceptional case, for example, if at original stage, patently grave error was committed by the original authority or that the order was made in haste owning to the limitation or that the first appellate authority had violated the rules of natural justice. Nothing like this has happened on the present case. The Bench has further observed that the Courts have also cautioned the Appellate Authorities by holding that remand should be made only in those cases where the original authorities have not passed orders in accordance with law but in no case, remand should be made only in those cases where the original authorities have not passed orders in accordance with law but in no case, remand should be made to enable an assessee to fill in the blanks or lacuna in the case which remains present. What applies to the assessee, would equally apply to the AO. Likewise, in the case of Smt. NeenaSyal v. Asstt. CIT [1999] 70 ITD 62 (Chd.), the Chandigarh Bench of the Tribunal has observed that it is not the function of the Tribunal to allow further opportunity to the AO to cover up legal lapses made by him, by restoring the matter back to his file. Therefore, remand/setting aside order could not be made in this case to enable the AO to make up his earlier deficient work by initiating

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assessment proceedings for the third time after a lapse of considerable time." 17. In the case of Raj Kumar Jain, reported as 50 ITD 0001 (ITAT, Allahabad), Ch. G. Krishnamurthy, the then President of ITAT, as a Third Member also observed in para 5 as follows - "The Tribunal acting as an appellate authority has to see whether the assessment framed by the Assessing Officer and whether the appellate order appealed against was according to law and properly framed on facts and whether there was sufficient material to support it. When there is no material to support it and when as observed by the learned Accountant Member the additions made by the Assessing Officer could not be sustained, it is not for the Tribunal to start investigations suo-moto and supply the evidence for the Department. If the additions are not supported by evidence, the only course open to the Tribunal is to delete the additions pointing out how the additions made could not be sustained for want of adequate supporting material. It is for the Department to gather the material and make proper assessments and the Tribunal is not in that fashion an IT authority. Under the IT authorities stipulated under the IT Act, the Tribunal is not one of them. It is purely an appellate authority. Therefore, the object of the appeal before the Tribunal is whether the addition or disallowance sustained was in accordance with law and supported by material. If there is no sufficient material, the addition must be deleted. The Tribunal cannot order further enquiry with a view to sustain the addition. This will amount to taking sides with the parties which is not the function of a judicial authority like the Tribunal." 18. The Hon'ble Supreme Court also in the case of 'Parusram Pottery Works Co. Ltd. v. ITO', 106 ITR 0001 (SC)] observed as follows — It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in

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mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (emphasis supplied) 19. The Coordinate Bench in the case of 'Dr. Sanjay Chobey (HUF) v. ACIT', Circle - 2(3), Jhansi, ITA No 140/Agr/2018 (Order dated 02/07/2018), in almost similar facts allowed the assessee's appeal observing, vide para 14, as under — "The lower authorities passed the order in summery manner without going into the merits of the case and analyzing the legal issue involved, the applicability of Section 50C(2)(a) of the Act, in a particular. We further find that the AO has not found any adverse material evidence to indicate that the assessee has received any excess money over and above the sale consideration, in the return of income. In light of the peculiar facts of this case and in the absence of the DVO report, we are of the considered opinion that the assessee cannot put to travel up facing virtual trial to appear before the AO after three years to prove that the sale consideration declared by him was reasonable." 20. In the present case, it is noted that neither the Assessing Officer nor the Ld. CIT(A) appreciated the contentions raised by the assessee while adopting the stamp duty value as fair market value of the property purchased nor referred the matter to the DVO as was required U/s 50C(2) of the Act. The AO has also not found or alleged with any corroborative material evidence that the assessee has paid any excess amount over the sale consideration mentioned in the sale deed. 21. Considering the factual Matrix and binding legal decisions, the findings of ld. the CIT(A) in confirming the addition made by the AO can not be approved. In our considered onion, the department cannot be allowed a second inning, by sending the matter back to AO, enabling it to fill the lacunae and shortcomings and putting the assessee virtually to face a re-trial for no fault of him and to again prove before the AO that the sale consideration was the "fair market value" of the property purchased by him. This would amount to giving a lease of life to

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an order which on the basis of facts on records is unsustainable in law.' 25. The present issue in dispute is also supported by the decision of Mumbai Bench of Tribunal in the case of Mohd. Illyas & Sons, 186 ITD 407 (Mum) wherein it was held that when the AO mechanically applied the provisions of section 56(2)(vii) to make addition of the difference between stamp duty value and actual sale consideration paid by the assessee without making any efforts to find out the actual cost of the property, the addition had to be deleted. The relevant observations of the Tribunal are as under:- “27. In the case before us also the Assessing Officer completely ignored the valuation report of the Government Registered valuer submitted by the assessee and the submissions thereon. The Assessing Officer mechanically applied provisions of section 56(2) of the Act to bring the difference between the stamp duty value and the actual sale consideration paid by the assessee without making any efforts to find out the actual cost of the property when in fact the assessee stated that the property when purchased was under semi construction stage and there were disputes between builders and the purchasers and ultimately the builder was abandoned the project and left. The assessee also stated that what was purchased as per the agreement is different than what was given to him as the property was sold to two persons. So there is dispute in the area acquired by the assessee also. In such circumstances, it was all the more necessary for the Assessing Officer to refer it to the Valuation Officer which he miserably failed. Even at the stage of appellate proceedings when the assessee produced Valuation Officer's report who valued Flat No. 601 in the very same Building at Rs. 1,00,76,000/- the Ld.CIT(A) should have called for remand report and in turn the Valuation Officer's report which the Ld.CIT(A) failed to do so. In such circumstances the addition made by the Assessing Officer is totally unjustified and cannot be sustained. We are also of the opinion that the revenue cannot be allowed a second inning by sending the matter back to the Assessing Officer to prove before the Assessing Officer that the sale consideration was the fair market value of the property purchased by the assessee when the

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assessee was all along disputing valuation of the property and the revenue miserably failed to find out the correct value of the property both at assessment stage as well as at first appellate stage. The decisions referred to above squarely applies to the facts of the assessee's case. Thus in the facts and circumstances of the case and also in view of the above judicial pronouncements we direct the Assessing Officer to delete the addition made u/s. 56(2) of the Act. Ground No. 2 of grounds of appeal is allowed. 28. Ld. Counsel for the assessee also made submissions with regard to additional ground raised i.e. provisions of section 56(2)(vii)(b) does not apply to the property which is still under construction and made elaborate submissions on this. The Ld. Counsel for the assessee also made submissions that the addition was entirely made in the hands of the assessee though the flat was purchased by the assessee jointly with his wife. It is also argued that the Ld.CIT(A) erred in taking area of the flat at higher figure than the actual area of the flat in possession. Since we have allowed Ground No. 2 of grounds of appeal of the assessee and deleted the addition made u/s. 56(2)(vii) all other contentions raised in other grounds of appeal including the additional ground are left open as the adjudication of all these grounds would render academic at this stage. The assessee is at liberty to agitate all these grounds at an appropriate stage.” 26. Accordingly, we delete the addition made by the AO u/s. 56(2)(vii)(b) of the Act. This ground of the assessee is allowed. 27. The next ground is with regard to non-granting of deduction u/s. 54F of the Act. The AO has not allowed the exemption of Rs 2,00,23,125 claimed under section 54F for the reason that on the date of transfer of immovable property the assessee owned two residential properties, one at Jayanagar and other at Basavanagudi as on 01.04.2013. The residential property situated at Jayanagar was gifted by the assessee to his daughter Ms. Rashmi vide registered gift deed executed on 25.07.2013. 28. The assessee along with his wife Smt. Rathna jointly owned a commercial property bearing No. 645, V Block, 11th Main Road, Jayanagar,

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Bangalore. The said commercial property was sold on 24.08.2013 in favour of Ms. Antrix Techinfo Pvt Ltd for a consideration of Rs 7,10,00,000. The sale was done after the residential property was gifted to assessee. The assessee’s share of sale consideration was Rs 3,55,00,000. The assessee’s share of indexed cost of acquisition and indexed cost of improvement was Rs 15,48,053 and Rs 1,35,73,822 respectively. After considering the above cost, the long term capital gains was computed at Rs 2,00,23,125. 29. It was submitted that as on the date of sale of the above property, the assessee owned only one residential property situated at Basavanagudi, Bangalore. During the course of hearing, the assessee filed a copy of receipt of latest municipal tax paid by Mrs. Rashmi at Page no. 381 of the PB. Copy of Khata extract and khata certificate in the name of Mrs. Rashmi are filed. As on the date of transfer of the original asset (Commercial Property), the assessee was having only one residential house hence eligible to claim deduction u/s 54F of the Act. In the remand report filed, the AO has admitted that the Jayanagar property was gifted to the daughter of the assessee much before the date of transfer of the original asset. However, it was also stated in the remand report that the gifted property at Jayanagar was still appearing in the balance sheet of the assessee as at 31/03/2014. In this regard, the assessee submitted that inadvertently, the gifted house property was not removed from the Balance sheet as at 31/03/2014. However, he filed copies of balance sheet as at 31/03/2015 and 31/03/2016 wherein the gifted property was not part of the balance sheet of the assessee. In this regard, the assessee also relied upon the decision of Supreme court in the case of Kedarnath Jute Mfg co. Ltd vs CIT 82 ITR 363 wherein it was held as under:- “We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a

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deduction must be allowed by the Income Tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter.” 30. Thus, it was submitted that the assessee has proved with the documentary evidences that the residential house at Jayanagar was gifted much before the date of transfer of the original asset and as per the proviso to section 54F of the Act, the assessee was not owning more than one residential house as on the date of date of transfer of the original asset. This fact is also admitted by the Assessing officer in the remand report filed. 31. To secure exemption under section 54F, the assessee on 04.09.2014 purchased a residential property situated at S. Kariyappa Road, 7th Block, Jayanagar, Bangalore for a consideration of Rs 3,58,82,500 from 4 co-owners. Copy of the purchase deed of the new asset is at Pages 238 to 259 of the paperbook filed. The assessee purchased the said residential property within the due date of filing the return of income u/s 139(1). The assessee having satisfied all the conditions provided under section 54F claimed exemption of long term capital gains to the extent of Rs 2,00,23,125. In the income tax return filed, the assessee had inadvertently selected the exemption section as 54 instead of 54F. 32. The ld. AR submitted that the AO in the remand report has stated that as the assessee had purchased 4 properties from 4 different persons, therefore deduction u/s 54F of the Act is not to be allowed. The CIT(A) in para 5.10 of the appellate order denied the deduction claimed u/s 54F of the Act on the ground that the assessee has invested in 4 different properties owned by four different people and same cannot be construed as one residential property.

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ITAT allowed the deduction u/s 54F of the Act with respect to investment made in various residential units situated at same premises by treating the same as one residential house. In fact, this order is passed for AY 2015- 16., i.e., post amendment to section 54F of the Act. 38. The ld. AR submitted that the above decisions are squarely applicable to the facts of the assessee’s case, therefore the deduction u/s 54F of the Act may be allowed. 39. The assessee sold a commercial property along with his wife on 24.08.2013 for Rs 7,02,90,000 and claimed deduction u/s 54. The assessee during the assessment proceeding as well as during appeal proceedings before CIT (A) (Page 11 of CIT (A) order) as well as during the hearing of Hon'ble ITAT on 21.102.2021 made it clear that the said property was commercial and hence deduction u/s 54 is not available. The AO in his order in page no 5 recorded his finding that the property sold was commercial property and denied deduction u/s 54. 40. The assessee made alternate claim u/s 54F. The assessing officer denied the claim on the ground that the assessee owned two residential properties on the date of transfer — one in Jaya Nagar and another one in Basavanagudi. 41. Before Ld. CIT (A) the assessee made submission that the property at Jayanagar was gifted to assessee's daughter on 25.07.2013 itself i.e., one month before the transfer of old asset. Based on the submission made by the assessee before Ld. CIT (A), he called for remand report from the AO. The AO in his report after verifying the purchase deed dated 04.09.2014 had stated that the assessee had purchased four properties from four different individuals and out of four, three are residential properties and one is vacant land. Hence the AO had stated that the assessee is not eligible for deduction u/s 54F.

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enjoyment of their respective portions. Thereby, on application of the VENDORS, based on the said Partition Deed, the Office of the BBMP bifurcated the total property under the Special Notice No.DA(J)59/KTR/125/92-93; il/ITR 157/93-94 dt.13-12-1993 and assigned property numbers of them, No.258: 12:0 in respect of the FIRST VENDOR, No.258:12:02 in respect of the SECOND VENDOR, No.258:12:03 in respect of the THIRD VENDOR and No.258:12:04 in respect of the FOURTH VENDOR to the Schedule of the Properties Item No.1,2,3 & 4 respectively and mutated their names." v. The vendors got separate Khatas as evident from the followings (page 244 of PB 1): "The BBMP issued separate Khata Certificates to each of the VENDORS herein" vi. The vacant land belongs to one individual and house site belong to three other individuals as evident from the following (page 244 -245 of PB 1): “'presently, for the portion fallen to the share of the FIRST VENDOR namely Smt. D P Saroja & Sri A P Varadaraj, the BBMP assigned New PID No.59- 111-12/1 and which is having 10 squares ground floor house (built in 1963-64). For the portion fallen to the share of the SECOND VENDOR namely, Smt. A P Gayathri, the BBMP assigned new PID No.59- 111-12/2 having a duplex house of 10 squares (built in 1995-96). For the portion fallen to the share of the THIRD VENDOR namely, Smt. A P Bharathi, the BBMP assigned New PID No.59-111-12/4 having 3 squares ground floor building (built in 1995-96). For the portion fallen to the share of the FOURTH VENDOR namely, Smt A P Sandhya, the BBMP assigned New PID No.59-111-12/3 having a vacant site.” vii. Though the assessee had claimed to have purchased all scheduled properties through single deed the sale

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consideration was fixed separately for each of the scheduled properties and was paid to the respective owners separately (page 246 of PB 1). First Vendor sold for - Rs. 1,46,68,750 Second Vendor sold for - Rs. 83,37,500 Third Vendor sold for - Rs. 53,38,750 Fourth Vendor sold for - Rs. 75,37,500 (Vacant Site) 43. The ld. DR further submitted that the investment in vacant site is not eligible for deduction u/s 54F. They are different properties as each property is mentioned as belonging to different separate individuals. As evident from the Schedule of the properties mentioned below: “SCHEDULE OF THE PROPERTIES ITEM No.1: Property belonging to Smt. D.P. Saroja and Sri. A.P. Varadaraj All that piece and parcel of the residential property bearing New PlD No.59-111-12/1 (Old-No 258:12:01), situated at S. Kariyappa Road, (previously Kanakapura Road), 7th Block, Jayanagar, Bangalore, with boundaries as under East by: Old.No.245 site West by: Property of Smt. A.P. Gayathri North by: Property bearing Old No.259 South by: Property of Smt. D.P. Sujatha and her children The site has the following measurements East to West : 55ft North to South : 33 1/2 ft (Area: 1842.5 Sq.ft) The Property has a residential RCC ground Floor building of about 10 squares with Red Oxide Flooring, doors and window

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shatters and frames are made of jungle wood constructed in the year 1963-64. ITEM No.2: Property belonging to Smt. A. P. Gayathri All that piece and parcel of the residential property bearing New PID No.59-111-12/2 (Old No. 258:12:02), situated at S. Kariyappa Road, (previously Kanakapura Road), 7th Block, Jayanagar, Bangalore with bounder boundaries as under. East by: Property of Smt. D.P. Saroja and A.P. Varadaraj West by: Property of Smt. A.P. Sandhya North by: Property bearing Old No.259 with 9 common passage South by: Property of Smt. D.P. Sujatha and her children The site to has the following dimensions East to West : 30ft. North to South : 33 ½ ft. (Area : 735+270=1005 Sq.ft (including 9ft. x 30 ft common passage) The property has a residential RCC duplex house of about 10 Squares having Red Oxide flooring, doors and window shutters and frames are made of Jungle wood. ITEM No.3 Property belonging to Smt. A.P. Bharathi All that piece and parcel of the property bearing New PID No.59- 111-12-4, (Old No.258:12:04), situated at S. Kariyappa Road, (previously Kanakapura Road), 7th Block, Jayanagar Old, Kanakapura Road, Bangalore, with boundaries as under: East by: Property No. 12/3 Smt. A.P.Sandhya West by: Main Road, North by: Property bearing old no.259 with 9' Common passage South by: Property of Smt. D P Sujatha and her children

The site has the following measurements East to West : 15 ft. North to South : 33 1/2 ft.

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Totally measuring 367.5 +135= 502.5 Sq.ft. (including 9 ft.x15 ft common passage)” The Property has a RCC 3 squares ground floor building and 3 squares RCC building in First floor, having Mosaic Flooring and windows and doors frames and shutters are made of honne wood. ITEM No.4: Property belonging to Smt. A.P. Sandhya All that piece and parcel of the property being Vacant Site bearing New PID No. 59¬111-12/3, (Old No. 258:12:03), situated at S. Kariayappa Road, (previously Kanakapura Road), 7 Block, Jayanagar with boundaries as under East by : Property of Smt. A.P. Gayathri West by : Property of Smt. A.P. Bharathi North by : Property bearing old No.259 with 9' common passage South by : Property of Smt. D.P. Sujatha and her children The vacant site has the following dimensions: East to West :30ft North to South: 33 ½ ft (Area: 735+270=1005 Sq.ft (including 9ft. x 30 ft common passage) The Schedule of Properties measuring East to West 130 Ft and North to South 33 ½ ft. totally measuring 4355 Sq.ft. 44. The buildings were constructed at different point of time and construction was never done in one of the properties as listed below:- a. New PID No.59-111-12/1 having 10 squares ground floor house was built in 1963-64. b. New PID No.59-111-12/2 having a duplex house of 10 squares was built in 1995-96 c. New PID No.59-111-12/4 having 3 squares ground floor building was built in 1995-96 d. New PID No.59-111-12/3 is a vacant site.

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of the AO that the property purchased by the assessee situated at S. Kariyappa Road, 7th Block, Jayanagar, Bangalore consists of 4 residential properties belonging to 4 different individuals. On this count also, the ld. DR argued that assessee is not entitled to deduction u/s. 54F of the Act. The assessee purchased this property vide Sale Deed dated 4.9.2014, the schedule of the properties are listed in the preceding paragraph. 49. According to the ld. DR, it consists of 4 independent and distinct properties, as such assessee is not entitled for deduction as the assessee is required to invest in one residential house and he has invested in 4 residential houses. 50. We have gone through the said Sale Deed copy dated 4.9.2014 as per which the Vendors are the absolute owners in possession. The relevant portion of the Sale Deed is extracted below:-

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Sale Deed as a single property and this property owned by 4 persons cannot constitute distinct and separate properties so as to deny deduction u/s. 54F. For the purpose of convenience on earlier occasion Katha of these properties was in the name of 4 individuals, later after purchasing the above properties the assessee once again got the Katha merged which is kept on record at pages 267 & 268 of PB. It is observed that the Katha has been transferred in the name of the present assessee and all the properties have been merged to Sy.No.12/1 as a single property. The property though purchased from four Vendors remains as a single property. Being so, the property has to be considered as a single property and deduction u/s. 54F should be granted. This view is also supported by the decision of Sri. Maurice Patrick De Rebello vs ITO (supra) wherein it was held as under:- “9. We have heard the rival submissions and perused the material on record. The facts of the assessee’s case are similar to the case of Smt.K.G.Rukminiamma reported in 331 ITR 221 (Kar.) In the case of K.G.Rukminiamma (supra) the assessee on a site measuring 30' x 110' had a residential premises. Under a joint development agreement the assessee gave that property to a builder for construction of residential units. Under the agreement, eight flats are to be put up in that property. Four flats representing 48% is the share of the assessee and the remaining 52% representing another four flats is the share of the builder. So the consideration for selling 52% of the site was four flats representing 48% of built up area and the four flats are situated in a residential building. The Hon’ble Court held that the four flats constitute 'a residential house' for the purpose of deduction u/s 54 of the I.T.Act. In that view of the matter, the Hon’ble Court concluded that the Tribunal as well as the appellate authority were justified in holding that there is no liability to pay Capital Gains tax as the case squarely falls under sec. 54 of the Income Tax Act, 1961.

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9.1 The Hon'ble Madras High Court in the case of CIT Vs. Smt. V.R Karpagam reported in 373 ITR 127 (Mad.) on identical facts have decided the issue of deduction u/s 54F of the I.T.Act for five flats in favour of the assessee. The assessee in the case of V.R.Karpagam (supra) entered into an agreement with M for development of a piece of land owned by it. As per agreement, assessee was to receive 43.75% of built-up area after development, which was translated into five flats. The Assessee claimed exemption u/s 54F on the value of five flats. The AO granted benefit of capital gains in respect of one flat and the CIT(A) affirmed findings of AO holding that claim of assessee u/s 54F of the I.T.Act for all five flats could not be admitted. However, the CIT(A) took the view that the assessee would be entitled to benefit of section 54F of the I.T.Act in respect of one single flat with largest area. In appeal, tribunal held that assessee was eligible for exemption u/s 54F on all five flats received by her in lieu of land she had parted with. It was held by the Tribunal that the word 'a' appearing in section 54F of the I.T.Act should not be construed in singular, but should be understood in plural. The Madras High Court upheld the order of the Tribunal. It was also held that amendment was made to s 54F of the I.T.Act with regard to word 'a' by Finance (No.2) Act, 2014 w.e.f only from 01.04.2015 withdrawing deduction for more than one flat (residential house). Post amendment, viz., from 01.04.2015, benefit of s 54F will be applicable to one residential house in India. However, prior to said amendment, a residential house would include multiple flats/residential units. Similar decisions were rendered by the Hon'ble Madras High Court in the case of CIT vs Gumanmal Jain reported in 394 ITR 666 (Mad.) 9.2 In the present case, all the flats for which the assessee is claiming exemption u/s 54 of the I.T.Act are situated in the same premises. Therefore, the judgment rendered in the case of Smt.K.G.Rukminiamma (supra) will squarely apply. In the light of the above judicial pronouncements on identical facts, we are of the view that the assessee is entitled to deduction u/s 54 of the I.T. Act on the entire built-up area received from the builder as per the JDA dated 28.04.2008. Since we have decided the issue of claim of deduction u/s 54 of the I.T.Act, in favour of the assessee, the other issues raised by the assessee in the grounds of appeal are not adjudicated. It is ordered accordingly.”

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9.1 Now the contention of DR is that the building is having multiple residential units. The assessee is entitled for deduction in respect of only one residential unit. 10. We have gone through the case records. Actually, this was the single piece of property bearing Sy.No.47/8 (Eastern Portion), Doddabommasandra, Chamundeshwari Layout, Vidyaranyapura, Yelahanka Hobli. The area of land is East to West 25ft, North to South 93ft, totally 2,325 sq.ft. The assessee constructed residential building consisting of the following: “The building is having Ground, First & Second Floor. Ground floor consists of a parking area with 2 BHK of 2 units. First floor consists of a 2BHK of 3 units. Second

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floor consists of a 1BHK of 5 units. All the units are Rented out except first floor is fully occupied by the owner.” 11. According to the DR, there are multiple residential units w.e.f. 01.04.2015, the assessee is entitled for deduction to the extent of value of only one residential unit. The claim of the assessee is that the assessee invested in single residential unit and is eligible for deduction under section 54F of the Act on the entire value of the building and relied on judgment on judicial High Court in the case of K. G. Rukminiamma 331 ITR 211 wherein it was held that the phrase “a” residential house would mean “one” residential house is not correct. The expression “a” residential house should be understood in a sense that building should be of residential house in nature and “a” and should not be understood to indicate a singular number. Section 54/54F uses the expression “a residential house” and not “a residential unit”. Section 54F requires the assessee to acquire “a residential house” and so long as the assessee acquires the building, it may be constructed, for the sake of convenience, in such a manner as to consist of several units which can, if the need arises, be conveniently and independently, used as an independent residence, the requirement of Section should be taken to have been satisfied. There is nothing in these Sections which requires a residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use. If there is nothing in this Section which requires that the residential house should be in built in a particular manner, it seems to us that the Income Tax Authorities cannot insist upon that requirement. A person may construct a house according to his plans, requirements and compulsions. A person may construct a residential house in such a manner that he may use the ground floor for his own residence and let out the first floor having an independent entry so that his income is augmented. It is quite common to find such arrangements, particularly post retirement. One may build a house consisting of four bedrooms (all in same or in different floors) or in such a manner than an independent residential unit consisting of two or three bedrooms may be carved out with an independent entrance so that it can be let out. He may even arrange for his children and family to stay there, so that they are nearby, an arrangement which can be mutually supportive. He may construct his residence in such a manner that in case of a future need he may be able to dispose of a part

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thereof as an independent house. There may be several such considerations for a person while constructing a residential house. The physical structuring of the new residential house, whether it is lateral or vertical, cannot come in the way of considering the building as a residential house. The fact that the residential house consists of several independent units cannot be permitted to act as an impediment to the allowance of the deduction u/s 54/54F. It is neither expressly nor by necessary implication prohibited. 12. We are therefore of the opinion that the assessee in principle, is entitled for deduction under section 54F in respect of investment made in impugned property subject to production of other relevant evidence by the assessee before the A.O. In the present case, the assessee has not filed relevant evidences for incurring the cost on new residential house before the A.O. Hence, we inclined to restore the issue to the file of A.O. for quantification purpose the deduction u/s 54F of the Act. The assessee is directed to produce all relevant evidences in support of the claim of deduction u/s 54F of the Act.”

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Bangalore, Dated, the 29th November, 2021.

/Desai S Murthy /

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Assistant Registrar ITAT, Bangalore.