JAI PRAKASH NARAYAN SHARMA,INDORE vs. ASSISTANT COMMISSIONER OF INCOME TAX-2(1), INDORE
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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 30.09.2024 passed by learned Commissioner of Income-Tax (Appeals)-NFAC, Delhi [“CIT(A)”] which in turn arises out of assessment-order dated 20.12.2018 passed by learned DCIT/ACIT-2(1), Indore [“AO”] u/s 143(3) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2016-17, the assessee has filed this appeal on the grounds as mentioned in Form No. 36 (Appeal Memo).
The background facts leading to present appeal are such that the assessee-individual filed return of AY 2016-17 declaring a total income of Rs.
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 22,60,030/-. The case was selected for limited scrutiny and notices u/s
143(2)/142(1) were issued which were complied with by assessee. In the
return of income filed to department, the assessee declared taxable capital
gain of Rs. 1,14,233/- from sale of a property at Gram Jatkhedi, Tej Hujur,
District – Bhopal on 17.07.2025. However, the AO increased taxable capital
gain to Rs. 90,77,095/- in scrutiny-assessment and accordingly made an
addition of differential capital gain of Rs. 89,62,862/- [Rs. 90,77,095 (-)
1,14,233]. We give below a comparative chart of workings of capital gain
made by assessee and AO:
As per assessee As per AO
Sale consideration 1,37,00,000 2,02,00,000
Less: Indexed cost 11,74,905 11,74,905
Long-term capital gain 1,25,25,095 1,90,25,095
Less: Exemption 1,24,10,862 99,48,000
Taxable Capital Gain 1,14,233 90,77,095
Thus, there are two variations made by AO. Firstly, the assessee
declared sale consideration at Rs. 1,37,00,000/- equivalent to actual
amount received from buyer as against which the AO adopted sale
consideration at Rs. 2,02,00,000/- equivalent to the valuation done by
stamps authority, in terms of section 50C. Secondly, the assessee claimed
exemption of Rs. 1,24,10,862/- u/s 54 on the basis of investment made in
new property (purchase price of new property Rs. 99,48,000 + subsequent
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 expenses of additional work Rs. 26,54,377) but the AO allowed exemption
only of purchase cost of Rs. 99,48,000/- and disallowed exemption qua the
cost of additional work.
Aggrieved, the assessee carried matter in first-appeal whereupon the
CIT(A) granted part relief by passing following order:
“In considered opinion of this appeal, the intent and language of the
above provisions is do not specifically bar any such simultaneous
claim as far as the purchase and construction were completed within
the stipulated period of 02/03 years from the date of purchase.
Therefore, the denial of construction cost of Rs. 26,54,377/- by AO is
found against the provisions of the section 54/54F of the Act. The
disallowance made of Rs. 26,54,377/- is deleted.
In respect of the issue for working of LTCG on property sold, the
appellant's claim that the actual sale consideration was fully utilized
for claiming deduction is not tenable. For the purpose of calculating the
taxable LTCG (before charging deductions thereon) and consequential
tax liability thereon, the full value of consideration needs to be taken
as per provisions of section 50C i.e, as prescribed by the stamp
valuation authority. The same is in this case Rs. 2,02,00,000/- which
ought to have been taken as full value of consideration irrespective of
actual amount received by the assessee. The action of AO in applying
the same is found just and within the applicable provisions of law. The
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 explanation offered by appellant if accepted would defeat the intent
and purpose of bringing the provisions of section 50C by the statute.
The grounds no. 1, 2, 3 are therefore dismissed and the action of AO in
enhancing the LTCG to Rs. 65,00,000/-(2,02,00,000 less 1,37,00,000)
is sustained.
In result, the appeal is partly allowed.”
Still aggrieved, the assessee has come in next appeal before us.
Before us, Ld. AR for assessee submits that the CIT(A) has already
held that the cost of additional work amounting to Rs. 26,54,377/- was
eligible for exemption and hence the assessee’s grievance to that extent is
settled. Further, the assessee does not have any objection against
application of section 50C by AO and adopting sale consideration at Rs.
2,02,00,000/- in place of Rs. 1,37,00,000/- declared by assessee. However,
the assessee’s grievance is that the quantum of exemption needs to be re-
computed at Rs. 1,75,00,834/- and the resultant capital gain of Rs.
15,24,261/- ought to be taxed, accordingly further relief is required to be
given to assessee. The Ld. AR for assessee filed following Written-Synopsis
giving facts, the working of exemption and the judicial rulings relied upon by
assessee and iterated the same during hearing:
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Replying to this, Ld. DR for revenue relied upon Para No. 13 & 14 of
decision of Hon’ble Bombay High Court in Jagdish C. Dhabalia Vs. Income-
tax Officer, 25(2)(1), Mumbai (2019) 104 taxmann.com 208 (Bombay) to
contend that the provision of section 50C must be given full effect; that the
provision of section 50C is relevant not only for computation of capital gain
u/s 48 but also for determination of the quantum of exemption. Ld. DR
accordingly requested that the calculation of exemption given by Ld.
AR/assessee at Rs. 1,75,00,834/- is not acceptable to revenue.
Ld. AR filed following Additional Synopsis after conclusion of hearing:
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 9. We have considered rival submissions of learned Representatives of
both sides and carefully perused the case record including the orders of
lower authorities. After a careful consideration, we find two critical mistakes
in the orders of lower-authorities which need to be addressed first:
(i) The first mistake is such that the assessee himself claimed exemption
of Rs. 1,24,10,862/- in the return of income whereas the total
investment in new property as per figures considered by lower
authorities come to Rs. 1,26,02,377/- being sum total of purchase
price of new property Rs. 99,48,000 + subsequent expenses of
additional work Rs. 26,54,377. Further, in his Written-Synopsis re-
produced above, the Ld. AR is seeking exemption on the basis of
investment of Rs. 1,26,02,377/- in new property. Thus, there is a
variation in the amount of investment in new property from Rs.
1,24,10,862/- claimed in return to Rs. 1,26,02,377/- now being
claimed. The reason of this variation is not discernible from the orders
of lower authorities, it appears that the lower authorities have not
applied mind to this aspect. If the reason of this variation is not
verified, it will result in giving higher exemption to assessee. Therefore,
the correct amount of new investment needs to be verified.
(ii) The second mistake is such that in the return of income filed to
department, the assessee has claimed ‘full exemption’ equal to the
investment in new property. Under the scheme of Income-tax Act,
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 section 54 allows ‘full exemption’ but section 54F allows
‘proportionate exemption’ in the ratio of ‘new investment’ to ‘net
consideration’. That means, the assessee claimed exemption u/s 54.
Thereafter, in entire assessment-order, the AO has discussed and
allowed exemption u/s 54. Thereafter, in the order of first-appeal, the
CIT(A) has mentioned section “54/54F”. Now, the Ld. AR has, in his
Written-Synopsis, given working of ‘proportionate exemption’ u/s 54F.
Thus, there is an ambiguity at all levels. Therefore, the AO needs to
apply correct provision of law in assessment-order and allow
exemption thereunder.
Therefore, in such a situation, we feel it most appropriate to remand
this matter back to the file of AO for adjudication afresh after examining two
mistakes/issues discussed by us in preceding para. It is made clear that the
AO shall not unsettle the proposition already accepted by CIT(A) that the
cost of additional construction is also eligible for exemption; the AO can,
however, verify the correct amount of such cost. Further, while computing
exemption under correct provision of law, whether section 54 or 54F as
applicable to assessee’s case, the AO shall consider entire submission of
assessee as the assessee may choose to file including the decisions relied by
both sides before us as well any other decision as the assessee may bring to
the notice of AO.
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Jai Prakash Narayan Sharma ITA No. 807/Ind/2024 – AY 2016-17 11. Resultantly, this appeal is allowed for statistical purpose.
Order pronounced in open court on 15/07/2025
Sd/- Sd/-
(PARESH M. JOSHI) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore िदनांक/Dated : 15/07/2025 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order E COPYSr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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