ACIT., CIRCLE-5(1), HYDERABAD V. SANJAY CHOWDARY GADDIPATI, HYDERABAD

ITA 376/HYD/2025

AI Insights

The case involves an appeal by the Revenue against the order of the Commissioner of Income-Tax (Appeals), which favored the assessee, Sanjay Chowdary Gaddipati. The primary issue was the exemption claimed under Section 54F of the Income Tax Act, 1961, for Long Term Capital Gains (LTCG) arising from the sale of capital assets, which the assessee claimed was reinvested in a new residential property. The A.O. had initially denied this exemption, citing non-compliance with the statutory time limits and lack of documentary evidence. However, the CIT(A) reversed this decision, leading to the Revenue's appeal to the ITAT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 633601 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2025
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Assessment Year: 2022-2023
• Other Referred Cases: Sohanlal Mohanlal Bhandari Vs. ACIT, Circle 1, Nashik, Commissioner of Income Tax vs. H.K. Kapoor (Decd.), CIT vs. J.R. Subramanya Bhat, CIT, Bangalore Vs. B.S Shantha Kumari, Smt. Shashi Varma Vs. CIT, ITO, Lucknow Vs. Bachulal Kapoor
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard; Revised return; Question of law; Corroborative evidences; Capital Gains; Valuation report
• Section: 143(3); 54; 54F; 139

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘बी’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad “B” Bench, Hyderabad श्री रवीश सूद, माननीय न्याययक सदस्य एवं श्री मिुसूदन सावडिया, माननीय लेखा सदस्य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.376/Hyd/2025 (निर्धारण वर्ा/ Assessment Year: 2022-23) Assistant Commissioner of Income Tax, Circle 5(1), Hyderabad. Vs. Sanjay Chowdary Gaddipati, R/o. Shaikpet, Hyderabad. PAN : AVIPS9257L (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri J.J.Varun, CA. राजस्व का प्रतततितित्व/ Department Represented by : Dr. Sachin Kumar, Sr.D.R. सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 09.06.2025 घोर्णध की तधरीख/Date of Pronouncement : 12.06.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the Revenue is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 14.01.2025, 2 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. which in turn arises from the order passed by the Assessing Officer (for short “A.O.”) u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (for short, “the Act”) dated 13.03.2024 for A.Y. 2012-23. The revenue has assailed the impugned order on the following grounds of appeal before us : “1. The learned CIT(A) failed to appreciate that the assessee did not comply with the provisions of sec. 54F(4) of the I.T. Act, 1961. 2. The learned CIT(A) failed to appreciate that the assessee has not produced conclusive documentary evidence relating to investment in new residential house as per the provisions of sec.54F. 3. The learned CIT(A) erred in allowing credit for amount invested in purchase of plot of land which was prior to the period of cut-off period of one year from the date of transfer. 4. The learned CIT(A) erred in appreciating that section 54F does not speak of any \"reasonable time\" for purchase of an asset or investment in residential house by the assessee but sets out specific time limits as contained in the section which is not discretionary.” 2. Succinctly stated, the assessee had filed his return of income for A.Y. 2022-23 on 31.07.2022, declaring an income of Rs.71,08,871/-. Thereafter, the assessee filed a revised return of income on 31.12.2022 declaring the same income as was originally returned. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act. 3 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 3. During the course of assessment proceedings, it was observed by the A.O. that the assessee had in the subject year sold multiple capital assets for an aggregate sale consideration of Rs.5,74,09,286/-. The “Long Term Capital Gains” (LTCG) aggregating to Rs.4,24,08,090/- on the aforesaid sale transactions was claimed by the assessee as exempt u/s 54F of the Act. On being queried, the assessee claimed that as he had utilized the “net sale consideration” received on the sale of the capital assets for the construction of a “new residential house”, therefore, the “Long Term Capital Gains” (LTCG) arising therefrom was claimed as exempt u/s 54F of the Act. Elaborating further on his contention, the assessee submitted that he had purchased a residential plot bearing SY. No.17/8 situated at Dattagalti Village, Kasaba Hobli, Mysore Taluk vide a registered purchase deed No.7877 dated 12.12.2019. It was further claimed by the assessee that he had constructed a residential house on the aforesaid plot, and based on the said investment raised the claim for exemption of Rs. 4,24,08,090/- under Section 54F of the Act. However, the aforesaid claim of the assessee did not find favour with the A.O. primarily for two reasons, viz. (i). that the assessee considering the 4 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. date of the first transaction of sale of capital asset i.e on 17.06.2021, ought to have purchased the residential plot within a period of one year before the said date i.e not earlier to 17.06.2020, but he had purchased the same on 12.12.2019, i.e. much prior to the period prescribed under Section 54F of the Act, which thus, rendered the investment made by him in the subject plot as ineligible for exemption under the under Section 54F of the Act; (ii). that the assessee had failed to substantiate his claim of having invested in the under-construction residential house based on supporting documentary evidence, viz. copy of the approval plan from the concerned authority, construction contract, proof of having incurred expenses against construction activity i.e bank account statements, bills/vouchers etc. Accordingly, the A.O. based on his aforesaid observations declined the assessee’s entire claim for exemption under Section 54F of the Act of Rs.4.24 crores (approx.) and vide his order passed u/s 143(3) r.w.s. 144B of the Act, dated 13.03.2024 determined his income at Rs.4,95,16,960/- (including LTCG). 5 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who found favour with the explanation of the assessee regarding his entitlement for exemption under Section 54F of the Act and allowed the appeal, observing as under: -left blank intentionally- 6 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 7 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 8 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 9 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 10 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 11 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 12 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 13 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 14 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 5. The Revenue being aggrieved with the order of CIT(A) has carried the matter in appeal before us. 15 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 6. We have heard the learned Authorized Representatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncement and CBDT Circular No.667, dated 18.10.1993 that were pressed into service by them to drive home their respective contentions. 7. Dr. Sachin Kumar, the learned Senior Departmental Representative (for short “Ld. DR”), submitted that as the assessee had purchased the plot on which the new residential property is stated to have been constructed much before the period of one year prior to his first transaction of sale of the “capital assets”, therefore, the cost of investment in the said land was not eligible for exemption under Section 54F of the Act. Elaborating further on his contention, the Ld. DR submitted that as the assessee failed to complete the construction within the prescribed period of three years from the date of transfer of the ‘capital assets’, therefore, the investment made by him towards the impugned construction of the super-structure was also not eligible for exemption under the aforesaid statutory provision. The Ld. DR to buttress his claim 16 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. had drawn support from the CBDT Circular No.667, dated 18.10.1993. The Ld. DR submitted that in the aforesaid Circular No.667 (supra), it was provided that an assessee was obligated to complete the construction within the time specified under Section 54/54F of the Act. The Ld. DR further submitted that as the assessee, had failed to substantiate based on clinching documentary evidence that he had completed the construction of the new residential house within the prescribed period, i.e. three years from the date of the transfer transactions, therefore, the A.O. had rightly declined his entire claim for exemption raised under Section 54F of the Act. 8. Per Contra, Shri J.J. Varun, C.A. the learned Authorized Representative (for short “ld.AR”) for the assessee, rebutted the aforesaid contentions of the Ld. DR. It was submitted by him that as there was no opening/anterior time limit provided in sub- section (1) of Section 54F of the Act, within which the assessee was obligated to have purchased the plot on which the new residential house was constructed within the prescribed period i.e. within three years from the date of the transfer transaction, therefore, the 17 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. A.O. while quantifying the exemption under Section 54F of the Act had wrongly discarded the investment made by the assessee in purchase of the residential plot on which the new residential house was constructed. The Ld. AR to buttress his contention has drawn support from the order of ITAT, Pune Bench “B” in the case of Sohanlal Mohanlal Bhandari Vs. ACIT, Circle 1, Nashik, (2019) 104 Taxman.com 116 (Pune). Apart from that, the Ld. AR submitted that as the assessee based on supporting documentary evidence had substantiated the investment made by him towards the construction of the new residential house within the prescribed period, therefore, there was no justification for the A.O. to have drawn inferences regarding the said factual position as was discernible based on the documents/material available before him. Alternatively, the Ld. AR submitted that as the assessee has disposed of the new residential house within the lock-in period of three years, therefore, he had as per sub-section (3) of Section 54F of the Act, offered the subject LTCG for tax in his return of income for the year of transfer i.e., AY 2024-25 (copy of the return of income for AY 2024-25 placed on record). 18 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 9. We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives on the aforesaid issues in the backdrop of the orders of the lower authorities. 10. Controversy involved in the present appeal primarily hinges around two issues, viz. (i) whether the investment made by the assessee towards the purchase of the plot (on which construction of the new residential house is stated to have been carried out) i.e purchased 1½ year before the first transaction of sale of the capital asset carried out on 17.06.2021 will form part of his investment eligible for exemption u/s 54F of the Act?; AND (ii). that as to whether or not the assessee is entitled for the claim of exemption u/s 54F for the investment claimed by him to have been made towards the construction of the new residential house based on the documents that were placed on record in the course of the proceedings before the authorities below? 11. Admittedly, it is a matter of fact borne from the record that the assessee had carried out multiple transactions of sale of capital assets over the period 17.06.2021 to 09.03.2022 for an aggregate sale consideration of Rs.5,74,09,286/-, and had claimed 19 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. the entire amount of “Long Term Capital Gains” (LTCG) of Rs.4,24,08,090/- as exempt under Section 54F of the Act. However, as observed hereinabove, the A.O. had declined the assessee’s claim for exemption u/s 54F for the reasons, which as extracted from the body of the assessment order are culled out as under: 20 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 12. Ostensibly, the CIT(A) had dislodged the view taken by the A.O. on both the aforementioned issues and had observed, viz. (i). that Section 54F of the Act, though contemplates an outer limit of three years from the date of sale of a capital asset for construction of a new residential house by the assessee, but there is no opening time in which the assessee is obligated to purchase the plot on which the new residential house is constructed; and (ii) that as the A.O. had erred by neglecting the documentary evidence that was filed by the assessee to substantiate the investment made by him towards the construction of the new residential house, viz. copy of the construction plan, bank account statement, bills/vouchers etc., therefore, there was no justification for him to draw adverse inferences regarding the assessee’s claim of investment in the new residential house and decline the exemption under Section 54F of the Act. 13. Before proceeding further, we deem it fit to cull out the provisions of Section 54F of the Act which read as under: “54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or two years after the date on which the 21 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. transfer took place purchased, or has within a period of three years after that date constructed, one residential house in India (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where— (a) the assessee,— (i) owns more than one residential house, other than the new asset, on the date of transfer of the original asset; or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head \"Income from house property\". Explanation.—For the purposes of this section,— \"net consideration\", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head \"Income from house property\", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head \"Capital gains\" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income 22 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. chargeable under the head \"Capital gains\" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.” 14. Ostensibly, the sub-section (1) of Section 54F of the Act, inter alia, contemplates, that in a case where the assessee has, within a period of one year before or two years after the date on which the transfer took place purchased; or has within a period of three years 23 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. after that date constructed, one residential house in India (hereinafter under referred to as the “new asset”), the capital gain shall be dealt with in accordance with the provisions of the section, viz. (a). if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under Section 45 of the Act; (b). if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration shall not be charged under Section 45 of the Act. 15. On close scrutiny of the aforesaid statutory provision, it transpires that though the “purchase” of a new residential house is circumscribed by a specific opening and closing time limit i.e. a window of one year before or two years after the date on which the sale of the capital asset had taken place, but interestingly, the construction of a residential house has only the outer limit i.e. a period of three years to be reckoned from the date on which the capital asset had been transferred. In the absence of any time limit 24 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. having been provided in Section 54F of the Act within which an assessee is obligated to either purchase the plot on which the new residential house is to be constructed; or start the construction, but only contemplates an outer limit of three years from the date of the transfer of the capital asset within which the new residential house is to be constructed, therefore, we concur with the CIT(A) that there was no justification for the A.O. to conclude that as the residential plot on which the new residential plot is stated to have been constructed by the assessee was purchased by him on 12.12.2019, i.e prior to the one year window reckoned from the date of the first transfer transaction on 17.06.2021 (supra), therefore, the investment made in the same was not eligible for exemption under Section 54F of the Act. Once again, we may herein observe that as Section 54F(1) of the Act does not lay down any anterior/opening time limit or “one year before” window, i.e. any specific period prior to the transfer of the capital asset for the purchase of a residential plot/land on which the new residential house is to be constructed; nor circumscribes any such time limit for starting the construction of the said new residential house prior to the transfer of the said capital asset, therefore, the said casus 25 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. omissus could not have been filled by the AO. In short, now when the legislature in all its wisdom, has unlike the obligation cast upon the assessee to purchase a new residential house within the bracketed time period, i.e. one year before or two years after the date on which the transfer of the capital asset took place, not placed any such fetter when it comes to construction of a new residential house, which has only an outer limit of three years from the date of transfer of the capital asset within which the same is to be constructed by the assessee, therefore, we are unable to subscribe to the view taken by the A.O. We say so, for the reason, that the AO had observed, that as the investment in the residential plot on which construction of the new residential house is stated to have been carried out was made by the assessee not within the “one year window” that was available to him before the first transfer transaction on 17.06.2021 i.e. not beyond 17.06.2020, but was purchased by him much prior thereto on 12.12.2019, therefore, the same was not eligible for exemption under Section 54F of the Act. Our aforesaid view, that neither the purchase of the residential plot (on which the new residential house is constructed) nor the construction of the new residential house on 26 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. the same is statutorily required to be subsequent to the date of the sale of the capital asset is supported by the judgment of the Hon'ble High Court of Allahabad in the case of Commissioner of Income Tax vs. H.K. Kapoor (Decd.) [1998] 234 ITR 753 (All), which was rendered in the context of the pari materia provisions of Section 54 of the Act. The indulgence of the Hon'ble High Court was, inter alia, sought for adjudicating the following substantial question of law: “2. Whether, on the facts and the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that for availing of the benefits under section 54 of the Income-tax Act, 1961, it is not necessary that the construction of the new house should begin after the sale of the old house?” The Hon'ble High Court answered the aforesaid issue in favor of the assessee and approved the view taken by the Tribunal. It was observed by the Hon'ble High Court that the exemption of capital gains could not be refused to the assessee simply on the ground that the construction of the new residential house had begun before the sale of the old residential property. The Hon'ble High Court relied upon the judgment of the Hon'ble High Court of Karnataka in the case of CIT vs. J.R. Subramanya Bhat [1987] 27 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 165 ITR 571 (Kar), and observed, that it was immaterial that the construction of the new building was started before the sale of the old building. Accordingly, the Hon'ble High Court concurred with the view taken by the Tribunal, and observed, that the capital gains arising from the sale of the old property to the extent it was invested in the construction of the new residential property was exempt under Section. 54 of the Act. For the sake of clarity, the observations of the Hon'ble High Court are culled out as under: “4. In the alternative, the assessee pleaded before the Income- tax Officer that he started the construction of another residential house at 64, Surya Nagar, Agra, on March 10, 1963, and that came to be completed within two years of the sale of the Golf Link house and that the capital gains to the extent of being invested in the construction of the Surya Nagar house was not taxable under Section 54 of the Act. The Income-tax Officer, however, took the view that the assessee had started construction of this house prior to the sale of the Golf Link house. He, therefore, rejected the alternative contention too of the assessee. 5. On appeal, the Appellate Assistant Commissioner had agreed with the Income-tax Officer. 6. On further appeal, the Appellate Tribunal reproducing Section 54 in its order found as follows: \"A perusal of the above provision will show that it does not lay down that the construction of any house must be begun after the sale of the old residential house and that the sale proceeds of the old residential house must be used for the construction of the new residential house. We are, therefore, of the opinion that the assessee complied with the requirement of Section 54 in respect of the construction of the house at 64, Surya Nagar, Agra, and that he is entitled to the exemption out of the capital gains from the sale of the house at Golf Link to the extent of the cost of 28 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. construction of the house at 64, Surya Nagar, Agra. We, therefore, direct the Income-tax Officer to modify the assessment accordingly.\" 7. The question for consideration is whether exemption on capital gains could be refused to the assessee simply on the ground that the construction of the Surya Nagar, Agra house, had begun before the sale of the Golf Link house. Similar question came up for consideration before the Karnataka High Court in the case of CIT v. J.R. Subramanya Bhat [1987] 165 ITR 571. In the case before the Karnataka High Court, the date of the sale of the old building was February 9, 1977. The completion of the construction of the new building was in March, 1977, although the commencement of construction started in 1976. On these facts, the Karnataka High Court held that it was immaterial that the construction of the new building was started before the sale of the old building. We fully agree with the view taken by the Karnataka High Court. The Appellate Tribunal was right in holding that capital gains arising from the sale of the Golf Link house to the extent it got invested in the construction of the Surya Nagar house, will be exempted under Section 54 of the Act.” (emphasis supplied by us) Also, we find that a similar view has been taken by the coordinate bench of the Tribunal i.e., ITAT Pune Bench “B” in the case of Sohanlal Mohanlal Bhandari Vs. ACIT, Circle-1, Nashik (2019 ) 104 taxmann.com 161 (Pune). 16. Apropos the Ld. DR’s contention that as the assessee had not completed the construction of the new residential house within the prescribed period envisaged in Section 54F of the Act, therefore, it was for the said reason also disentitled from raising a claim of exemption under the said statutory provision, we are 29 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. unable to accept the same. We are of the firm conviction that the exemption under Section 54F cannot be denied merely because the construction of the house was not complete in all respects within three years of the transfer of the capital asset. As Section 54F is a beneficial provision promoting the construction of residential houses, therefore, it should be construed liberally. The essence of Section 54F is that where the assessee has invested the “net sale consideration” within the stipulated time period, then even if the construction was not fully habitable, he will be entitled for the exemption under the said statutory provision. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Karnataka in the case of CIT, Bangalore Vs. B.S Shantha Kumari, ITA No. 165 of 2014, dated 13.07.2015 and that of the Hon’ble High Court of Madhya Pradesh in the case of Smt. Shashi Varma Vs. CIT (1997) 224 ITR 106 (MP). 17. Apropos the observation of the A.O. that the assessee had failed to substantiate his claim of having invested towards the construction of a new residential house based on supporting documents, viz. copy of the construction plan, bank account statement, bills/vouchers etc., we find that the A.O. had observed 30 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. that as the assessee except for placing on record the photographs of the under-construction house had failed to place on record any supporting evidence like approval plan from the concerned authorities, contract for construction, proof for incurring the expenses against the construction activity as claimed by him i.e. bank statements duly supported by bills/vouchers etc., therefore, the said unsubstantiated claim qua the investment that was claimed by him to have been made towards the construction of the new residential house could not be summarily accepted. Although the CIT(A) had dislodged the observation of the A.O., but a perusal of his order reveals that the same has been done based on general observations. The CIT(A) had though stated in his order that he has perused the documentary evidence that was filed by the assessee before the A.O and found the same to be in order, but we find that there is no whisper in his order about any such specific material/evidence based on which he had accepted the investment claimed by the assessee to have been made in the construction of the new residential house within the prescribed period. In fact, there is no reference by the CIT(A) of any material which substantiated the actual investment made by the assessee in the 31 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. construction of the new residential house, i.e. the bank statement, construction contract (if any), bills/vouchers of material and labour, valuation report, etc. We are unable to subscribe to the summary acceptance of the assessee’s claim of having invested in the construction of the new residential house within the prescribed period by the CIT(A). We thus, in terms of our aforesaid observations, are of the firm conviction, that the matter is required to be restored to the file of the A.O., for the limited purpose of verifying the assessee’s claim of having invested up to the date of furnishing the return of income under Section 139 of the Act (including investment made towards the purchase of the residential plot on which the new residential house is stated to have been constructed, i.e SY. No.17/8 situated at Dattagalti Village, Kasaba Hobli, Mysore Taluk, vide registered purchase deed No.7877 dated 12.12.2019) based on which he has raised a claim for exemption under Section 54F of Rs. 4,24,08,090/-. Needless to say, the A.O. shall in the course of the set-aside proceedings afford a reasonable opportunity of being heard to the assessee who shall remain at liberty to substantiate his claim based on fresh documentary evidence, if any. 32 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. 18. Before parting, we may herein observe, that the Ld. AR has stated before us that the assessee had transferred the subject new residential house i.e., Sy.No.17/8 situated at Dattagalti Village, Kasaba Hobli, Mysore Taluk during the A.Y. 2024-25 i.e. within the lock-in period, and had offered the subject “Long Term Capital Gains” (LTCG) of Rs.4,24,08,090/- as his income in the said year. The Ld. AR to support his claim has placed on our record the copy of the return of income along with the computation of income of the assessee for the AY 2024-25 which, prima facie, supports his aforesaid claim. As the aforesaid facts may have a strong bearing qua the quantification of the tax liability of the assessee for the subject year before us, therefore, for the said reason we deem it necessary to give directions to the A.O. on the said issue. In case, the claim of the assessee of having invested in the construction of a new residential house during the subject year before us i.e. A.Y. 2022-23 is in the course of the set-aside proceedings not found to be in order, which thus, renders him exigible for the consequential tax liability on the “Long Term Capital Gains” (LTCG) or any part thereof during the subject year i.e AY 2022-23, then, as a fall out thereof, the offering of the LTCG on the subject property for tax on 33 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. the subsequent transfer of the new residential house during the lock-in period i.e AY 2024-25 to the said extent will be rendered as redundant and otiose. If that be so, then the A.O. shall make appropriate adjustments in the hands of the assessee for the subject year i.e AY 2022-23 considering the tax realized by the revenue on the subject LTCG in AY 2024-25, failing which the same would tantamount to double taxation in the hands of the assessee which is de hors Article 265 of the Constitution of India. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of ITO, Lucknow Vs. Bachulal Kapoor (1996) 60 ITR 74 (SC). The Hon'ble Apex Court in its order, had observed in the context of the facts involved in the case before them, that if the assessment proceedings initiated under Section 34 of the Income Tax Act, 1922 in the hands of the individual members of the HUF culminated in the assessment of HUF, then the appropriate adjustment is to be made by the ITO in respect of the tax realized by the Revenue in respect of the part of the income of the family that was assessed in the hands of the individuals of the said family. It was observed that by doing so, it would not result to the reopening of the final order of assessment, 34 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. but in reality, to arrive at the correct figure of tax payable by the HUF. We thus, in terms of our aforesaid observations direct the AO that in case if the assessee’s claim for exemption u/s 54F or any part thereof is not found by the AO to be in order, then considering the fact that the entire amount of said LTCG of Rs. 4,24,08,090/- (as claimed by the assessee based on the return of income placed on our record) has been offered by him as his income under Section 54F(3) in AY 2024-25 i.e the year in which the subject new residential house was transferred during the lock- in period, he shall carry out appropriate adjustments in respect of the tax realized by the revenue on the said amount of LTCG or any part thereof, as per the extant law. 19. Resultantly, the appeal filed by the Revenue is partly allowed for statistical purposes. Order pronounced in the Open Court on 12th June, 2025. Sd/- (श्री मिुसूदन सावडिया) (MADHUSUDAN SAWDIA) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER 35 ITA No.376/Hyd/2025 Sanjay Chowdary Gaddipati, Hyderabad. Hyderabad, dated 12.06.2025. **TYNM/sps आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : Sanjay Chowdary Gaddipati, Plot No.653, Road No.34, Jubilee Hills, S.O. Shaikpet – 500033, Hyderabad, Telangana. 2. रधजस्व/ The Revenue : The Assistant Commissioner of Income Tax, Circle – 5(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "