RAJENDRA AGRAWAL,DELHI vs. ITO WARD-30(2) , DELHI

ITA No.2272/Del/2024

relevant year on 09.05.2013 declaring income of Rs.7,66,620/-. The case was picked up for scrutiny and the assessment accepting the returned income of Rs.7,66,620/- was completed under section 143(3) of the Act. Later, the PCIT, invoking provisions of section 263 of the Act, set aside the assessment to be framed afresh with the direction to work out correct allowable deduction under section 54 of the Act. The relevant finding of the PCIT in the order dated 17.03.2017 passed under section 263 of the Act are as under:-

“As stated in the preceding paras that the A.O. has granted excess deduction to the assessee u/s 54 of the Income Tax Act, therefore, the assessment order so passed by the A.O. for the assessment year 2012-13 dated 11.03.2015 is erroneous in as much as the same is prejudicial to the interest of the revenue. The assessment order so framed is therefore set aside to be framed afresh with the direction to work out the correct deduction u/s 54 of the Income Tax Act to which the assessee is entitled after disallowing the amounts which have been discussed in this order. The A.O. is directed to examine the issue of deduction u/s 54 in detail and disallow the amounts which do not qualify for deduction u/s 54 of the ACT. It is a case where the assessee has certainly and definitely claimed quite excessive deduction u/s 54 which needs to be set aright while giving effect to this order. The other follow up action after making the aforesaid disallowance may also be taken up while framing the de-novo assessment order. Needless to add the assessee should be given opportunity of being heard before giving effect to this order.”

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3.1 Consequent to the order passed under section 263 of the Act, the AO, disallowing deduction of Rs.53,15,441/- under section 54 of the Act, completed the assessment at income of Rs.60,82,060/- under section 263/143(3) of the Act on 28.12.2017. This disallowance is in dispute in this appeal.

3.2 The assessee, co-owner of a property along with his wife, sold this property on 19.10.2011, which resulted the Long Term Capital Gains (In short, the ‘LTCG’) of Rs.64,23,843/-. Against this LTCG, the assessee claimed deduction of Rs 64,23,843/- under section 54 of the Act by investing the said sum in two different properties as under:-

Investment in Prop. Invested Rs. Allowed Rs. Disallowed Rs. No. Residential Flat at 21,08,402/- 11,08,402/- 10,00,000/- Supertech Constn. of residential 43,15,441/- ----- 43,15,441/- house on roof of Prop. At 34,35, NRI Complex, Mandakini Enclave G.K., New Delhi Total 64,23,843/- 11,08,402/- 53,15,441/-

3.3 The Assessing Officer (In short, the ‘AO’) allowed deduction of Rs.11,08,402/- only as against the aggregate claim of Rs.64,23,843/-holding that section 54 of the Act provides deduction with respect to one residential unit only. With respect to

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the above mentioned two properties, the AO first worked out allowable deduction of (i) Rs.11,08,402/- for Supertech property and (ii) Rs.6,22,155/- for G.K.property. Thereafter, the AO, holding that the higher of these two deductions being beneficial to the assessee is valid as per the law, allowed deduction of Rs.11,08,402/- in respect of Supertech property. Out of claim of deduction of Rs.21,08,402/- for Supertech property, the AO disallowed the claim of Rs.10,00,000/- holding that this investment was not made by the appellant/assessee but by some other third person; namely, “Design N Creations” on behalf of the assessee.

3.4 In respect of G. K. Property, the AO disallowed the claim of deduction of Rs.43,15,441/- holding that the assessee produced five bills aggregating to Rs.11,23,853/- to substantiate the investment made in the G.K.Property. Out of this investment of Rs.11,23,853/-, the AO found that the investment of Rs.5,01,700/- pertained to prior period. Hence, he held the investment of Rs.6,22,155/- (Rs.11,23,853/-minus Rs.5,01,700/-) in G. K. Property, in respect of which supporting documents filed by the appellant/assessee, as allowable deduction under section

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54 of the Act. Aggrieved, the assessee preferred appeal before the Ld. CIT(A), who dismissed the appeal. Hence, this appeal is here.

“i. Nilufer Sayad [2021] 126 taxmann.com 173 (Mum. Trib.) ii. Syed Ali Adil [2013]33 taxmann.com 212 (Andhra Pradesh) iii. Thajunnissa Begum [2023] 152 taxmann.com 191 (Chennai- Trib.) iv. D. Ananda Basappa [2009] 180 Taxman 4 (Karnataka) v. Tilokehand & Sons [2019] 105 taxmann.com 151 (Madras) vi. Saroj Arora ITO [2022]138 taxmann.com 445 (Delhi-Trib.) vii. Shrey Sharma Guleri Prime channel Software Communications (P.) Ltd. [2018] 92 taxmann.com 43 (Mumbai-Trib) viii. Nigam Narendrabhai Khansaheb[2022] 140 taxmann.com 137 (Surat-Trib.)”

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4.1 The Ld. AR with the help of bank account of the appellant/assessee and M/s. Design N Creation demonstrated that the appellant/assessee had advanced loan of Rs.10,00,000/- to the M/s. Design N Creation on 09.03.2011, which was transferred directly to Supertech on behalf of the appellant /assessee on 11.03.2011. Hence, the AO’s finding that the appellant/assessee had not invested the sum of Rs.10,00,000/- was not well founded. However, it was categorically admitted that the appellant/assessee was not able to explain the source of this investment before the AO and CIT(A); hence, the deduction under section 54 of the Act was disallowed by them. In view of the new facts, the Ld. AR contended that the bank details demonstrating the investment made by the appellant/assessee were filed for the first time before the Tribunal; hence, he prayed for restoring this matter to the AO for further investigations and verifications.

4.2 As far as the disallowance of deduction of Rs.43,15,947/- with respect to G.K.Property is concerned, the Ld. AR admitted that the disallowance of Rs.5,01,700/- made out of the investment Rs.43,15,947/- was justified as it pertained to prior period. Admittedly, the dispute was with respect to Rs.38,15,852/- only. The Ld. AR further contended that the AO and CIT(A) had rightly

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held the sum of Rs.6,22,155/- as allowable deduction under section 54 of the Act as the assessee failed to submit the corroborative evidence of investment of Rs.38,15,852/- before them. Now, the Ld. AR filed evidence of investment of Rs.31,91,586/-for first time before us.

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6.2 We have perused the above-mentioned decisions cited by the Ld. AR and other decisions in this regard. It is worth mentioning the decision of the Hon’ble Delhi High in the case of Gita Duggal in I.T.A. No. 1237 of 2011 (Date of Judgement/Order:

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21/02/2013) and the decision of the Hon’ble Court Karnataka High Court in the case of Arun K Thiagarajan in I.T.A. No. 25 of 2011 (Date of Judgement/Order: 18/06/2020), wherein this issue was dealt in details. The relevant part of decision in case of Gita Duggal (supra) is as under: “5. The revenue carried the matter in appeal before the Tribunal and raised the following ground:- "On the facts and on the circumstances of the case Ld. Commissioner of Income Tax (Appeals) has erred in law and on the facts in deleting the addition of `98,20,722/- u/s. 54F of the IT Act, 1961 which the Assessing Officer had allowed in respect of only one unit by treating the units as two separate residential properties." The Tribunal confirmed the decision of the CIT (Appeals) by observing as under: - "6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that ld. counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Hon‟ble Karnataka High Court in the case of CIT & Anr. Vs. Smt. K.G.Rukminiamma in ITA No.783 of 2008 vide order dated 27.8.2010 wherein it was held as under :- " The context in which the expression „a residential house‟ is used in Section 54 makes it clear that, it was not the intention of the legislation to convey the meaning that: it refers to a single residential house, if, that was the intention, they would have used the word "one." As in the earlier part, the words used are buildings or lands which are plural in number and that: is referred to as "a residential house", the original asset. An asset newly acquired after the sale of the original asset also can be buildings or lands appurtenant thereto, which also should be "a residential house." Therefore, the letter “a‟ in the context it is used should not be construed as meaning "singular." But, being an indefinite 10

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article, the said expression should be read in consonance with the other words „buildings‟ and „lands‟ and, therefore, the singular „a residential house‟ also permits use of plural by virtue of Section 13(2) of the General Clauses Act. - CIT V. D. Ananda Bassappa (2009) 223 (kar) 186 : (2009) 20 DTR (Kar) 266 followed." 7. Upon careful consideration, we find that the contentions of the assessee that the issue is covered in favour of the assessee are correct. 7.1 Ld. Departmental Representative could not controvert the above and no contrary decision was cited before us. 8. Accordingly, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals) and hence, uphold the same."” The relevant part of decision in case of Arun K Thiagarajan (supra) is as under: “11. From close scrutiny of the aforesaid provision, it is axiomatic that property sold is referred to as original asset and the original asset is prescribed as buildings and lands appurtenant thereto and being a residential house. The expression 'a residential house' therefore, includes building or lands appurtenant thereto. It cannot be construed as one residential house. 12. A Bench of this court in case of Smt KG Rukminiamma supra dealt with the meaning of expression 'a residential house' used in Section 54(1) of the Act while taking into account Section 13(2) of the General Clauses Act, 1897 held that unless there is anything repugnant in the subject or context, the words in singular shall include the plural and vice versa. It was further held that context in which the expression 'a residential house' is used in Section 54 makes it evident that it is not the intention of the legislature to convey the meaning that it refers to a single residential house. It was also held that an asset newly acquired after sale of original asset can also be buildings or lands appurtenant thereto, which also should be residential house, therefore, the letter 'a' in the context it is used should

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not be construed as meaning singular, but the expression should be read in consonance with other words viz., buildings and lands. Accordingly, the contention raised by the revenue was rejected. Similar view was taken by a bench of this court in Khoobchand M. Makhija supra, B.Srinivas supra and in the case of Smt Jyothi K Mehta supra. The Madras High Court while dealing with Section 54 of the Act as it stood prior to amendment by Finance Act No.2/2014 in the case of Tilokchand and Sons supra took the similar view and held that the word 'a' would normally mean one but in some circumstances it may include within its ambit and scope some plural numbers also. The Delhi High Court also took the similar view in case of Gita Duggal supra. 13. It is well settled in law that an Amending Act may be purely clarificatory in nature intended to clear a meaning of a provision of the principal Act, which was already implicit. In view of aforesaid enunciation of law by different High Courts including this court and with a view to give definite meaning to the expression 'a residential house', the provisions of Section 54(1) were amended with an object to restrict the plurality to mean singularity by substituting the word 'a residential house' with the word 'one residential house'. The aforesaid amendment came into force with effect from 01.04.2015. The relevant extracts of Explanatory note to provisions of Finance Act No.2/2014 reads as under: 20.3 Certain courts had interpreted that the exemption is also available if investment is made in more than one residential house. The benefit was intended for investment in one residential house within India. Accordingly, sub-Section (1) of Section 54 of the Income- Tax Act has been amended to provide that the rollover relief under the said Section is available if the investment is made in one residential house situated in India. 20.5 Applicability: - These amendments take effect from 1st April, 2015 and will accordingly apply in relation to

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Assessment year 2015-16 and subsequent Assessment years. Thus, it is axiomatic that the aforesaid amendment was specifically applied only prospectively with effect from Assessment year 2015-16. 14. The subsequent amendment of Section 54(1) also fortifies the fact that the legislature felt the need of amending the provisions of the Act with a view to give a definite meaning to the expression 'a residential house', which was interpreted as plural by various courts by taking into account the context in which the aforesaid expression was used. The subsequent amendment of the Act also fortifies the view taken by this court as well as Madras High Court and Delhi High Court. It is trite law that the principle underlying the decision would be binding as precedent in a case. In Halsbury Laws of England, Volume 22, Para 1682, Page 796, the relevant extract reads as under: The enunciation of the reasons or principle on which a question before a court has been decided is alone binding as a precedent. This underlying principle is often termed the ratio decidendi, that is to say, the general reasons given for the decision or the general grounds on which it is based, detached or abstracted from the specific peculiarities of the particular case which gives rise to the decision. 15. This Court as well as Madras and Delhi High Court have interpreted the expression 'a residential house' and have held that the aforesaid expression includes plural. The ratio of the decisions rendered by coordinate bench of this court are binding on us and we respectively agree with the view taken by this court while interpreting the expression 'a residential house'. Therefore, the contention of the revenue that the assessee is not entitled to benefit of exemption under Section 54(1) of the Act in the facts of the case does not deserve acceptance. In view of preceding analysis, the substantial question of law framed by this court is answered in favour of the

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assessee and against the revenue. In the result, the order passed by the assessing officer and Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal insofar as it deprives the assessee of the benefit of exemption under Section 54(1) of the Act are hereby quashed and the assessee is held entitled to benefit of exemption under Section 54(1) of the Act. In the result, the appeal is allowed.” 6.3 Following the decisions mentioned above in Para 6.2 and the Tribunals order relied upon the Ld. AR, we are of the considered view that the appellant/assessee is entitled to claim the deduction on both residential units under section 54 of the Act. Accordingly, we order so subject to the finding in subsequent Para.

6.4 New evidences, which were never filed before the Income Tax Authorities, as mentioned above were filed before us. We are of the firm view that these evidences need to be examined afresh for quantification of deduction under section 54 of the Act. Hence, in the interest of justice and considering all the afore-stated observations, we are of the considered view that it is fit case to restore the matter back to the AO for determining the quantum of allowance of deduction under section 54 of the Act in respect of both properties. In principle, the appellant/assessee has been held eligible to claim deduction under section 54 of the Act in respect of

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both properties. Needless to say, that the AO shall provide reasonable opportunity of being heard to the appellant/assessee. In view thereof, without offering any comment on quantum of deduction under section 54 of the Act in respect of both properties, this issue is found fit to set aside and remit the matter back to the file of the AO. The appellant/assessee should ensure compliances during the set-aside proceeding before the AO.