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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.
Page 1 of 13 143(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
Page 2 of 13 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 Page 3 of 13 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.
6. 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:
Page 4 of 13 Page 5 of 13 Page 6 of 13 Page 7 of 13
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:
Page 10 of 13 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,
‘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.
Order pronounced in open court on 15/07/2025