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Facts
The assessee claimed exemption under Section 54F for long-term capital gain from the sale of an immovable property, investing the proceeds in two adjoining flats. The Assessing Officer and CIT(A) disallowed the exemption for one of the flats, restricting the exemption to ₹15,34,776 and adding ₹13,54,096 to total income, on the premise that they were separate units. The assessee argued that the two flats were physically merged and converted into a single integrated residential unit, supported by a builder's certificate and architect's plan.
Held
The Tribunal found that the two adjoining flats were indeed converted into a single integrated residential unit. Citing various High Court and Tribunal decisions, it held that if independently acquired adjoining units are physically combined into a single residential unit for residence, the exemption under Section 54F cannot be denied. Therefore, the assessee was entitled to the entire exemption claimed.
Key Issues
Whether exemption under Section 54F can be claimed for investment in two adjoining residential flats that are physically converted into a single integrated unit.
Sections Cited
Section 54F, Section 143(3), Section 254(1)
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PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by assessee is directed against the order of learned CIT/ADDL/JCIT(A), Faridabad dated 25.03.2025 for Assessment Year (A.Y.)
2015–16. The assessee has raised following grounds of appeal:
“1. That the learned Addl/JCIT(A) erred in law and on facts in confirming the order of the learned DCIT, Circle –1 passed under section 143(3) which is bad in law and wrong on facts.
2. That the learned Addl/JCIT(A) erred in law and on facts in confirming the order of assessing officer restricting the exemption claimed under section 54F to `. 15,34,776/– and adding an amount of `. 13,54,096/– to the total income as long term capital gain. On facts and circumstances of the case, the action of both the authorities is highly unjustified.
That the learned Addl/JCIT erred in law and on facts in disregarding the evidences submitted in support of the fact that the assessee has got the house designed and built as one single residential unit and is entitled for entire exemption of `. 28,88,872/– claimed in the return of income against long term capital gain.
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The action of the Addl/JCIT(A) in not treating the residential flat as one unit is contrary to evidence placed on record.
4. That for any other ground with kind permission of your honour at the time of hearing of appeal.”
Rival submissions of both the parties have been heard and record perused. The learned authorised representative (ld. AR) of the assessee submits that while filing return of income shown total income of `. 2.45 crore. In the computation of income, the assessee claimed exemption of `. 28.88 lac under section 54F.
Such exemption was claimed by assessee in respect of long term capital gain which was earned on sale of immovable property at District Sitamarhi, Bihar. The assessee invested capital gain in purchase of two adjoining / adjacent flat and claimed exemption under section 54F. The assessing officer allowed exemption in respect of only one flat and disallowed in respect of adjoining flat, whereby assessing officer, out of total exemption under section 54F disallowed `.
13,54,096/–. The ld. CIT(A) confirmed the action of assessing officer. The ld. AR of the assessee submits that assessee made investment in adjacent flat being flat no. A–704 & A–705 at Godrej Anandam City, Nagpur. At the time of designing of these two flats both these two flats are converted into a single integrated residential unit comprising common entrance, single living room, single kitchen and four bed rooms. The combined total area of residential unit is only 2164 square feet. The builder also issued a certificate for merger of two flats into a single unit. The reason for entering into two separate agreements was explained before assessing officer as it is the requirement of law under Apartment
Shri Ajitkumar Badriprasad Bhartiya ITA 250/Nag/2025 (A.Y. 20215–16)
Ownership Act. To support her submission, the ld. AR relied upon the following decision: CIT vs Devdas Nail (2014) 49 taxmann.com 30 dtd. 10.06.2014 (Bom–HC) Pr. CIT vs Rashmikant D Visharia (2019) TaxPub(DT) 0507 (Bom–HC) dtd. 07.01.2019 Shri Rajendra Madhukar Mahajan vs ITO in dtd. 10.01.2022 (Nagpur Tribunal) Nakul Aggarwal vs ACIT (2024) 167 taxmann.com 540 dtd. 14.10.2024 (ITAT Mumbai) CIT vs Raman Kumar Suri (2013) taxmann.com 231 (Bom HC) dtd. 27.11.2012 3. On the other hand, the learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The ld. Sr. DR for the revenue submits that there cannot be two sale deed / agreement to sale or a single residential house. The AO / CIT(A) rightly disallowed exemption in respect of one residential and rightly disallowed in respect of second residential house.
We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. We have also deliberated on various case laws and the documentary evidence before this Tribunal. We find that there is no much dispute on facts as has been explained by both the parties.
Admittedly, the assessee entered into two separate agreements for purchase of two adjoining flat i.e. flat no. A–704 & A–705 at Godrej Anandam City, Nagpur.
The assessee has placed on record a certificate of builder wherein he has certified that two flats no. 704 & 705 in Tower A, Godrej Anandam City is made into a single unit. As per the architect and NTDA designer also certified that both the flats are converted into single integrated residential unit as per requirement
Shri Ajitkumar Badriprasad Bhartiya ITA 250/Nag/2025 (A.Y. 20215–16) of assessee. The assessee also furnished lay out plan of both the flats which are adjoining each other, however, converted into a single unit.
We find that Hon’ble Jurisdictional High Court in CIT vs Devdas Naik (supra) held that where acquisition of two flats had been done independently but eventually they were a single unit and house for purpose of residence, claim under section 54 could not be denied. Further, jurisdiction High Court in PCIT vs Rashmikant D.
Visharia (supra) by following the decision in Devdas Nayak allowed similar relief.
We also find that Mumbai Tribunal in Nakul Aggarwal vs ACIT (supra) also held that where assessee purchased two adjacent flats and claimed exemption under section 54F, since revised plan clearly established that said two flats though independently purchased by assessee were to be used as a single unit, exemption under section 54F could not be denied to assessee.
We further find that Nagpur Tribunal in Rajendra Madhukar Mahajan vs ITO (supra) by following the decision of Jurisdiction High Court in Devdas Naik (supra) also allowed similar relief in respect of two residential flats which were converted into a single living unit. Thus, in view of the aforesaid factual and legal discussion, the grounds of appeal raised by assessee are allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in open court on 24/02/2026 at the time of hearing Sd/– Sd/– KHETTRA MOHAN ROY PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur: Dated: 24/02/2026 Biswajit 4
Shri Ajitkumar Badriprasad Bhartiya ITA 250/Nag/2025 (A.Y. 20215–16)