VELLORE SUBRAMANIAN SARAVANAN,CHENNAI V. DEPUTY COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 7(1), CHENNAI

CO 18/CHNY/2024

AI Insights

The case involves an appeal by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals) which allowed the assessee's claim for deduction under Section 54F of the Income Tax Act, 1961. The assessee, Vellore Subramanian Saravanan, had sold a capital asset and claimed deductions for the cost of a new residential building and the land on which it was constructed. The Assessing Officer had initially disallowed the claim for the cost of land as it was purchased before the sale of the original asset. However, the CIT(A) reversed this decision, leading to the Revenue's appeal. The Tribunal's decision favored the assessee, aligning with the precedent set by the Madras High Court in the case of C. Aryama Sundaram vs. CIT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 107297 (ITAT-CHENNAI)
• Appeal Type: Cross Objection
• Pronouncement Date: 25-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: misc
• Other Referred Cases: C. Aryama Sundaram vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA
• Assessee Lawyers: D.ANAND
• Keywords: Set aside; Capital asset; Question of law; Onus to prove; Tax effect; Gift; Capital Gains
• Section: 54; 54F; 13; 20

Judgement Text

"आयकर अपीलीय अिधकरण, ‘सी’ ायपीठ,चे\u0012ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI \u0002ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0015ी जगदीश, लेखा सद\u001b क े सम\u0015 BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकरअपीलसं./ITA No.1132/Chny/2023 & CO No. 18/Chny/2024 िनधा रणवष /Assessment Year: 2015-16 The DCIT, Non-Corporate Circle -7(1), Chennai. v. Vellore Subramanian- Saravanan, S1, Dattatrya Apartments, 25, Giri Road, T.Nagar, Chennai – 600 017. [PAN:AAWPS3926R] (अपीला थ\"/Appellant) (Respondent/Cross Objector) Department by : Ms. Anita, Addl. CIT Assessee by : Mr. D. Anand, Advocate सुनवा ईकीता रीख/Date of Hearing : 08.01.2025 घोषणा कीता रीख /Date of Pronouncement : 25.03.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeal preferred by the revenue and the cross objection filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC (hereinafter in short \"the Ld.CIT(A)”), Delhi, dated 18.07.2023 for the Assessment Year (hereinafter in short \"AY”) 2015-16. 2. The revenue’s grounds of appeal are as under:- 1. The order of the CIT(A) case. 2. The learned CIT(A) erred in not considering purchased residential building 31.03.2015 which is residential building i.e01.02.2013. 3. The learned CIT(A) failed to invest in the before from the date of Act. 4. The Ld. CIT(A) erred decision of the learned CIT(A) the Supreme Court disposed the SLP on account of low tax effect and merits. 5. For these and other grounds that may be adduced at the time of heating, prayed that the order of the learned Assessing Officer restored. 3. The cross objection preferred by the assessee are 1. The order of the learned Commissioner of Income Tax (Appeals) illegal and opposed to law. 2. The CIT(A) has dismissed the claim of the appellant, that the value of the land that had been gifted to twenty people who had illegally occupied a portion of the land sold by the appellant costing Rs.98,12,720/ to complete the sale of land. 3. At the time of completion of assessment the appellant was not able to give a certificate from the Local Body administrator that the lands gifted were taken possession by the occupants. But before CIT (A) the appellant had sub Documents to prove that the said occupants were occupying the said land and (ii) Aerial photographs showing their residence in the gifted land. 4. The A.O had given a remand report recommending the claim of the appellant based on the documents authorities declined to give a certificate that people are occupying the said land as it does not come under their scheme of things to give such a certificate. Instead, they suggested that the aerial photog reallocated land may be taken. But enough documents like Ration Card, Electricity Bills etc of the occupants showing the address of the land along with Patta and Encumbrance certificate issued by the Sta to convince the A.O. that the illegal occupants have taken possession of the reallocated land gifted by the appellant to them and they have started living there. 5. Hence based on the above submissions and also bas rendered at the time of ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 2 :: the CIT(A) is contrary to law, facts and circumstances of the learned CIT(A) erred in not considering the fact that the assessee residential building on 01.02.2013 and the sale of land is more than one year from the date of investment in 01.02.2013. learned CIT(A) erred in not considering the fact that the to invest in the residential building within the specified period of sale as mandated for claiming deduction u/ CIT(A) erred in not considering the fact, against the relied learned CIT(A) in the case of C. AryamaSundaramvs the Supreme Court disposed the SLP on account of low tax effect and For these and other grounds that may be adduced at the time of heating, prayed that the order of the learned CIT(A) may be set aside and Assessing Officer restored. ion preferred by the assessee are as under: 1. The order of the learned Commissioner of Income Tax (Appeals)-NFAC is wrong, illegal and opposed to law. 2. The CIT(A) has dismissed the claim of the appellant, that the value of the land that had been gifted to twenty people who had illegally occupied a portion of the land sold by the appellant costing Rs.98,12,720/- as cost of improvement/ cost incurred complete the sale of land. 3. At the time of completion of assessment the appellant was not able to give a certificate from the Local Body administrator that the lands gifted were taken possession by the occupants. But before CIT (A) the appellant had sub Documents to prove that the said occupants were occupying the said land and (ii) Aerial photographs showing their residence in the gifted land. 4. The A.O had given a remand report recommending the claim of the appellant based on the documents submitted in support of his claim. The Local Body authorities declined to give a certificate that people are occupying the said land as it does not come under their scheme of things to give such a certificate. Instead, they suggested that the aerial photographs to prove the occupation by those people in the reallocated land may be taken. But enough documents like Ration Card, Electricity Bills etc of the occupants showing the address of the land along with Patta and Encumbrance certificate issued by the State Government authorities were submitted to convince the A.O. that the illegal occupants have taken possession of the reallocated land gifted by the appellant to them and they have started living there. 5. Hence based on the above submissions and also based on the submission to be rendered at the time of hearing, it is most humbly prayed that the Hon'ble Tribunal ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan is contrary to law, facts and circumstances of the the fact that the assessee has of land took place on the date of investment in that the assessee has period of one year u/s 54F of the relied upon the AryamaSundaramvsPCIT-3, the Supreme Court disposed the SLP on account of low tax effect and not on For these and other grounds that may be adduced at the time of heating, it is may be set aside and that of the as under:- NFAC is wrong, 2. The CIT(A) has dismissed the claim of the appellant, that the value of the land that had been gifted to twenty people who had illegally occupied a portion of the land as cost of improvement/ cost incurred 3. At the time of completion of assessment the appellant was not able to give a certificate from the Local Body administrator that the lands gifted were taken possession by the occupants. But before CIT (A) the appellant had submitted (i) Documents to prove that the said occupants were occupying the said land and (ii) 4. The A.O had given a remand report recommending the claim of the appellant submitted in support of his claim. The Local Body authorities declined to give a certificate that people are occupying the said land as it does not come under their scheme of things to give such a certificate. Instead, they raphs to prove the occupation by those people in the reallocated land may be taken. But enough documents like Ration Card, Electricity Bills etc of the occupants showing the address of the land along with Patta and te Government authorities were submitted to convince the A.O. that the illegal occupants have taken possession of the reallocated land gifted by the appellant to them and they have started living there. ed on the submission to be it is most humbly prayed that the Hon'ble Tribunal may be pleased to allow the claim of the appellant of Rs.97,07,735/ Capital Gains. (The value of the land gifted was Rs.98,12,720/ 4. At the outset, it is noted that the cross filed by the assessee after a delay of condonation application which is placed on record. reveals that the assessee came to know about the appeal preferred by the revenue only when he got the notice from the Tribunal dated 20.02.2024 and the assessee immediately filed the cross impugned order by suppor one ground which was decided that the assessee has filed the cross that within three months of notice from the Tribunal filed the cross-objection. However, that there was a delay of 179 days and considering the fact that the has been caused not by any deliberate omission on the part of the assessee and the assessee filed an cause of the delay, we find there delay and we do so, and proceed to hear the appeal of the revenue as well as the cross objection preferred 5. The sole ground of Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 (hereinafter in short “the Act”) ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 3 :: o allow the claim of the appellant of Rs.97,07,735/ The value of the land gifted was Rs.98,12,720/-) set, it is noted that the cross-objection filed by the assessee after a delay of ‘179’ days. The assessee has filed condonation application which is placed on record. A perusal of the same reveals that the assessee came to know about the appeal preferred by the revenue only when he got the notice from the Tribunal dated 20.02.2024 immediately filed the cross-objection against the by supporting the order of the Ld.CIT(A) and has raised decided against him by the Ld.CIT(A). It is noted filed the cross-objection on 18.05.2024 that within three months of notice from the Tribunal, the objection. However, the Registry has brought to our that there was a delay of 179 days and considering the fact that the has been caused not by any deliberate omission on the part of the assessee and the assessee filed an affidavit explaining the reasons for we find there was excusable cause for condoning the and proceed to hear the appeal of the revenue as well as the cross objection preferred by the assessee. ground of the revenue is against the action of the Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 (hereinafter in short “the Act”) in respect of cost of the land ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan o allow the claim of the appellant of Rs.97,07,735/- from the objection (CO) has been days. The assessee has filed perusal of the same reveals that the assessee came to know about the appeal preferred by the revenue only when he got the notice from the Tribunal dated 20.02.2024 objection against the ting the order of the Ld.CIT(A) and has raised against him by the Ld.CIT(A). It is noted objection on 18.05.2024, meaning , the assessee has the Registry has brought to our notice that there was a delay of 179 days and considering the fact that the delay has been caused not by any deliberate omission on the part of the explaining the reasons for excusable cause for condoning the and proceed to hear the appeal of the revenue as the revenue is against the action of the Ld.CIT(A) allowing deduction u/s.54 of the Income Tax Act, 1961 of the land purchased on 01.02.2013 (i.e. more than 2 years term capital asset on 31.03.2015 6. Brief facts are that the assessee purchased a land on 01.02.2013 a cost of Rs.11,43,90,477/ Act, an amount of Rs. residential building costing Rs.1,89,22,000/ Rs.87,39,060/- on the premise that the purview of Section 54F(1) as the assessee has carried out the construction of a residential building land, and therefore, the assessee was entitled to the benefit of for the above said amount. the AO had denied the benefit of Rs.11,43,90,479/- as the said land was acquired by the assessee 01.02.2013 which event happened capital asset on 31.03.2015, but allowed the cost of construction of residential building cost of Rs.1 7. Aggrieved by the decision of the AO, the assessee preferr appeal before the Ld.CIT relying on the decision of the the case of C. Aryama Sundaram v. CIT reported in [2018] 97 taxmann.com 74/258 Taxman 10/407 ITR 1 [Mad ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 4 :: on 01.02.2013 (i.e. more than 2 years & 1 month before the sale of m capital asset on 31.03.2015). Brief facts are that the assessee purchased a land on 01.02.2013 a cost of Rs.11,43,90,477/- and has claimed exemption an amount of Rs.13,43,90,479/- which included construction of a residential building costing Rs.1,89,22,000/- out of the capital gains of on the premise that the assessee's case falls within the purview of Section 54F(1) as the assessee has carried out the f a residential building, which includes the purchase of the assessee was entitled to the benefit of said amount. However, during the assessment proceedings ed the benefit of sec.54F in respect of the cost of land of as the said land was acquired by the assessee 01.02.2013 which event happened before one year of the sale of the on 31.03.2015, but allowed the cost of construction of residential building cost of Rs.1,89,22,000/-. by the decision of the AO, the assessee preferr Ld.CIT(A) who allowed the claim of the assessee decision of the jurisdictional Hon’ble Madras High Court in the case of C. Aryama Sundaram v. CIT reported in [2018] 97 8 Taxman 10/407 ITR 1 [Mad-HC]. ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan 1 month before the sale of long Brief facts are that the assessee purchased a land on 01.02.2013 at and has claimed exemption u/s.54F of the which included construction of a out of the capital gains of ssessee's case falls within the purview of Section 54F(1) as the assessee has carried out the the purchase of the assessee was entitled to the benefit of sec.54F during the assessment proceedings, the cost of land of as the said land was acquired by the assessee on of the sale of the on 31.03.2015, but allowed the cost of construction of by the decision of the AO, the assessee preferred an the claim of the assessee by Hon’ble Madras High Court in the case of C. Aryama Sundaram v. CIT reported in [2018] 97 8. Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is before us. 9. We have heard both the parties a assessee in this case had investment of Rs.13,43,90,477/ house at T. Nagar which was partly allowed to the extent of only Rs.1,89,22,000/- being the cost of construction of the residential building. The AO is thus noted to have disallowed the claim of cost of land at Rs.11,43,90,477, since land was acquired by the assessee before one year of sale of capital asset which earned him capital ga the Ld.CIT(A) has allowed the claim made by the assessee Act by holding that assessee is entitled for the investment made in purchase of land computing cost of the asset deduction u/s.54F, it was held that cost of the land would be included towards the cost of new asset by relying on the Madras High Court in the cas action is challenged before us action of the Ld.CIT(A) i High Court in the case of C. Aryamma Sundram (supra) ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 5 :: Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is We have heard both the parties and perused the records. The this case had claimed exemption u/s.54F of the Act for the investment of Rs.13,43,90,477/- in respect of construction of house at T. Nagar which was partly allowed to the extent of only being the cost of construction of the residential building. is thus noted to have disallowed the claim of cost of land at since land was acquired by the assessee before one year of sale of capital asset which earned him capital gain. On appeal, he Ld.CIT(A) has allowed the claim made by the assessee Act by holding that assessee is entitled for deduction u/s.54F of the Act for the investment made in purchase of land also. Meaning computing cost of the asset constructed by the assessee to claim deduction u/s.54F, it was held that cost of the land would be included towards the cost of new asset by relying on the decision Madras High Court in the case of C. Aryamma Sundram (supra) which challenged before us; and the only question is whether the action of the Ld.CIT(A) in following the decision of the Hon’ble Madras in the case of C. Aryamma Sundram (supra) is erroneous or ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan Aggrieved by the aforesaid action of the Ld.CIT(A), the Revenue is nd perused the records. The 54F of the Act for the respect of construction of residential house at T. Nagar which was partly allowed to the extent of only being the cost of construction of the residential building. is thus noted to have disallowed the claim of cost of land at since land was acquired by the assessee before one in. On appeal, he Ld.CIT(A) has allowed the claim made by the assessee u/s.54 of the deduction u/s.54F of the Act Meaning, while constructed by the assessee to claim deduction u/s.54F, it was held that cost of the land would be included decision of the Hon’ble e of C. Aryamma Sundram (supra) which he only question is whether the following the decision of the Hon’ble Madras is erroneous or not? For that let us have look at the facts of the c Hon’ble Madras High Court 4. The appellant assessee sold a residential house property at No.137, Sundar Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for a total consideration of Rs.12,50,00,000/ that arose to the appellant assessee was Rs.10,47,95,925/ on 14.5.2007, the appellant assessee purchased the property with superstructure thereon at No.138, JorBagh of Rs.15,96,46,446/-. After demolishing the existing superstructure, the appellant assessee constructed a residential house at a cost of Rs.18,73,85,491/-. Thus, the appellant assessee claimed entire long term capital gain as exempt from tax under Section 54 of the said Act. 5. The Assessing Officer held that only that part of the construction expenditure incurred after the sale of the original asset would be eligible for exemption under Section 54 of the said Act and b cost of construction incurred after the sale of the original asset was Rs.1,14,81,067/-. Exemption of Rs.1,14,81,067/ Section 54 of the said Act. 10. Following question of law Hon’ble Madras High Court i. When capital gain arises from sale of building and/or land appurtenant thereto and a residential house is constructed within three years from the date of such sale, whether the co eligible for set- land, if such land had been purchased three years prior to sale of the property from which capital gain arose? ii. Whether, in computation of cost of new as 54(1) of the Income Tax Act, the cost of land can be segregated from the cost of the constructed house property ? 11. And the Hon’ble High Court has decided the question of law by holding as under: 18. The question is, whether a residential house is exempt from the capital gain tax and if so to what extent? 19. The conditions precedent for exemption of capital gain from being charged to income tax are: (i)The assessee should have pu either one year before or two years after the date of transfer of the ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 6 :: not? For that let us have look at the facts of the case as noted by the Hon’ble Madras High Court in the case of C. Aryamma Sundram (supra) 4. The appellant assessee sold a residential house property at No.137, Sundar Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for consideration of Rs.12,50,00,000/- and the total long term capital gain that arose to the appellant assessee was Rs.10,47,95,925/-. In the meanwhile, on 14.5.2007, the appellant assessee purchased the property with superstructure thereon at No.138, JorBagh, New Delhi for a total consideration . After demolishing the existing superstructure, the appellant assessee constructed a residential house at a cost of . Thus, the appellant assessee claimed entire long term gain as exempt from tax under Section 54 of the said Act. 5. The Assessing Officer held that only that part of the construction expenditure incurred after the sale of the original asset would be eligible for exemption under Section 54 of the said Act and based on records held that cost of construction incurred after the sale of the original asset was . Exemption of Rs.1,14,81,067/- was allowed as relief under Section 54 of the said Act. question of law are noted to have been admitted Court on the aforesaid facts, as under: When capital gain arises from sale of building and/or land appurtenant thereto and a residential house is constructed within three years from the date of such sale, whether the cost of the new asset, which is -off against capital gain, would include the cost of the land, if such land had been purchased three years prior to sale of the from which capital gain arose? Whether, in computation of cost of new asset contemplated in Section 54(1) of the Income Tax Act, the cost of land can be segregated from the cost of the constructed house property ? he Hon’ble High Court has decided the question of law by 18. The question is, whether any part of the capital gain from transfer of the residential house is exempt from the capital gain tax and if so to what extent? 19. The conditions precedent for exemption of capital gain from being charged (i)The assessee should have purchased a residential house in India either one year before or two years after the date of transfer of the ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan ase as noted by the in the case of C. Aryamma Sundram (supra):- 4. The appellant assessee sold a residential house property at No.137, Sundar Nagar, New Delhi on 15.1.2010 in favour of one Smt.Vanadana Manchanda, for and the total long term capital gain . In the meanwhile, on 14.5.2007, the appellant assessee purchased the property with , New Delhi for a total consideration . After demolishing the existing superstructure, the appellant assessee constructed a residential house at a cost of . Thus, the appellant assessee claimed entire long term 5. The Assessing Officer held that only that part of the construction expenditure incurred after the sale of the original asset would be eligible for ased on records held that cost of construction incurred after the sale of the original asset was was allowed as relief under admitted by the as under:- When capital gain arises from sale of building and/or land appurtenant thereto and a residential house is constructed within three years from st of the new asset, which is off against capital gain, would include the cost of the land, if such land had been purchased three years prior to sale of the set contemplated in Section 54(1) of the Income Tax Act, the cost of land can be segregated from he Hon’ble High Court has decided the question of law by ny part of the capital gain from transfer of the residential house is exempt from the capital gain tax and if so to what extent? 19. The conditions precedent for exemption of capital gain from being charged rchased a residential house in India either one year before or two years after the date of transfer of the residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three years from the date of the transfer of the residential property which resulted in the capital gain. (ii)If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between the amount of the capital gain an charged under Section 45 as the income of the previous year. (iii)If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under Section 45. 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not just the cost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable the residential house. 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has been constructed in India, within three years fr which resulted in the capital gain. The said section does not exclude the cost of land from the cost of residential house. 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be us asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain. 23. At the cost of repetition, it it reiterated that exemption of capital being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a period of three years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged of the previous year. If the amount of capital gain is equal to or less than the ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 7 :: residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three e date of the transfer of the residential property which resulted in the capital gain. (ii)If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between the amount of the capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. (iii)If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not ost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of labour and any other cost relatable to the acquisition and/or construction of 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for such adjustment is that the new residential house should have been purchased within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has been constructed in India, within three years from the date of the transfer, which resulted in the capital gain. The said section does not exclude the cost of land from the cost of residential house. 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that the same money received from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration for transfer of a residential house should be used for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which resulted in the capital gain. 23. At the cost of repetition, it it reiterated that exemption of capital gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section 54 that construction could not have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain and the cost of the new asset is to be charged under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan residential house which resulted in capital gain or alternatively constructed a new residential house in India within a period of three e date of the transfer of the residential property which (ii)If the amount of capital gain is greater than the cost of the residential house so purchased or constructed, the difference between d the cost of the new asset is to be (iii)If the amount of the capital gain is equal to or less than the cost of the new residential house, the capital gain shall not be charged under 20. What has to be adjusted and/or set off against the capital gain is, the cost of the residential house that is purchased or constructed. Section 54(1) of the said Act is specific and clear. It is the cost of the new residential house and not ost of construction of the new residential house, which is to be adjusted. The cost of the new residential house would necessarily include the cost of the land, the cost of materials used in the construction, the cost of to the acquisition and/or construction of 21. A reading of Section 54(1) makes it amply clear that capital gain is to be adjusted against the cost of new residential house. The condition precedent for residential house should have been purchased within one year before or two years after the transfer of the residential house, which resulted in the capital gain or alternatively, a new residential house has om the date of the transfer, which resulted in the capital gain. The said section does not exclude the cost of 22. It is axiomatic that Section 54(1) of the said Act does not contemplate that from the sale of a residential house should be used in the acquisition of new residential house. Had it been the intention of the Legislature that the very same money that had been received as consideration ed for acquisition of the new asset, Section 54(1) would not have allowed adjustment and/or exemption in respect of property purchased one year prior to the transfer, which gave rise to the capital gain or may be in the alternative have expressly made the exemption in case of prior purchase, subject to purchase from any advance that might have been received for the transfer of the residential house which gain from being charged to income tax as income of the previous year is attracted when another residential house has been purchased within a period of one year before or two years after the date of transfer or has been constructed within a years after the date of transfer of the residential house. It is not in dispute that the new residential house has been constructed within the time stipulated in Section 54(1) of the said Act. It is not a requisite of Section have commenced prior to the date of transfer of the asset resulting in capital gain. If the amount of capital gain is greater than the cost of the new house, the difference between the amount of capital gain under Section 45 as the income of the previous year. If the amount of capital gain is equal to or less than the cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under the said Act. 24. For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and the second question is answered in the negative. No costs. 12. From perusal of the aforesaid order of the Hon’ble Madras High Court, we find that there is of C. Aryamma Sundram (supra) the Hon’ble Madras High Court is identical with that of the present case, and therefore the case law is squarely applicable to the facts of the present case and the Ld.CIT(A) rightly followed it; and that there is no dispute that the new residential house has been constructed within the time stipulated u/s.54(1) of the Act AO has allowed the deduction claimed for construction of the house to the tune of Rs.1,89,22,000/ of three properties [one at Perambakkam & two at Coimbatore] than the cost of new residential house residential house is constructed u/s.45 of the Act and therefore, we confirm the action of the and dismiss the grounds of appeal raised by the Revenue in this regard. 13. Before parting, we would like to address Ground No.4 Revenue that, dismissal of order of the Hon’ble Madras High Court ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 8 :: cost of the new residential house, including the land on which the residential house is constructed, the capital gain is not to be charged under Section 45 of 24. For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and the second question is answered in the negative. No costs. perusal of the aforesaid order of the Hon’ble Madras High there is similarity in the facts of present case with that C. Aryamma Sundram (supra) and the question of law raised the Hon’ble Madras High Court is identical with that of the present case, and therefore the case law is squarely applicable to the facts of the present case and the Ld.CIT(A) rightly followed it; and further, there is no dispute that the new residential house has been constructed within the time stipulated u/s.54(1) of the Act AO has allowed the deduction claimed for construction of the house to the tune of Rs.1,89,22,000/-; and since, the amount of capital gain from sale [one at Perambakkam & two at Coimbatore] e cost of new residential house including the land on which residential house is constructed, the capital gain need not u/s.45 of the Act and therefore, we confirm the action of the and dismiss the grounds of appeal raised by the Revenue in this regard. we would like to address Ground No.4 that, dismissal of SLP preferred by the Revenue against order of the Hon’ble Madras High Court in the case of C. Aryamna ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan cost of the new residential house, including the land on which the residential Section 45 of 24. For the reasons discussed above, the appeal is allowed. The questions framed above are answered in favour of the appellant assessee and against the respondent revenue. The first question is answered in the affirmative and perusal of the aforesaid order of the Hon’ble Madras High of present case with that and the question of law raised before the Hon’ble Madras High Court is identical with that of the present case, and therefore the case law is squarely applicable to the facts of the further, we note there is no dispute that the new residential house has been constructed within the time stipulated u/s.54(1) of the Act, because, the AO has allowed the deduction claimed for construction of the house to the ount of capital gain from sale [one at Perambakkam & two at Coimbatore] is less including the land on which he capital gain need not be charged u/s.45 of the Act and therefore, we confirm the action of the Ld.CIT(A) and dismiss the grounds of appeal raised by the Revenue in this regard. we would like to address Ground No.4 of the rred by the Revenue against the in the case of C. Aryamna Sundaram (supra) for low tax Hon’ble Madras High Court Court, and therefore Ld CIT(A), erred in following it. force in the said ground of Revenue for the reason stated infra. no quarrel that the Hon’ble Supreme Court has dismissed the SLP preferred by the Revenue against the order of the Hon’ble Madras H Court in the case of C. Aryamna Sundaram (supra) and therefore, we accept that happen. However, the in the facts of the present case is squarely applicable present assessee’s case, the impugned action of the Ld.CIT(A) place on record that the Hon’ble Supreme Court has overturned the aforesaid view rendered by the Hon’ble Madras High Court. Therefore, there is no merit in the contention of the Revenue and so, it is dismissed. 14. The only issue rais against the action of the Ld.CIT(A) disallowing the cost of improvement of land Rs.97,07,735/- while computing the LTCG on sale of that property ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 9 :: for low tax- effect, doesn’t mean that the view Hon’ble Madras High Court has been upheld by the Hon’ble Supreme d CIT(A), erred in following it. We don’t find any force in the said ground of Revenue for the reason stated infra. no quarrel that the Hon’ble Supreme Court has dismissed the SLP preferred by the Revenue against the order of the Hon’ble Madras H Court in the case of C. Aryamna Sundaram (supra) only for we accept that the principle of doctrine of . However, the jurisdictional Hon’ble Madras High Court decision in the facts of the present case is squarely applicable to the facts of present assessee’s case, and therefore, no error can be attributed against the impugned action of the Ld.CIT(A), unless the department the Hon’ble Supreme Court by subsequent the aforesaid view rendered by the Hon’ble Madras High Court. Therefore, there is no merit in the contention of the Revenue and raised by the assessee in his Cross against the action of the Ld.CIT(A) disallowing the deduction cost of improvement of land at Perambakkam to the tune of while computing the LTCG on sale of that property ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan that the view of the ld by the Hon’ble Supreme We don’t find any force in the said ground of Revenue for the reason stated infra. There is no quarrel that the Hon’ble Supreme Court has dismissed the SLP preferred by the Revenue against the order of the Hon’ble Madras High only for low tax effect doctrine of merger didn’t Hon’ble Madras High Court decision to the facts of and therefore, no error can be attributed against department is able to by subsequent decision the aforesaid view rendered by the Hon’ble Madras High Court. Therefore, there is no merit in the contention of the Revenue and Cross-Objection is deduction claimed on Perambakkam to the tune of while computing the LTCG on sale of that property. 14.1 Brief facts as noted cost of improvement Rs.97,07,735/- [while computing the capital gains from sale of property in the relevant year]. Therefore expenses, for which, the assessee brought to twenty (20) unauthorized at Perambakkam, which was creating hindrance in selling the property; and in order to clear the unauthorized/adverse possession part of the land], it was agreed to give the corner of the same land the property; and for which, assessee after they had them. According to the assessee, total value of the land gifted by the assessee to the ‘20’ persons which has been claimed as cost of improvement while calculating the Long Term Capital Gain (LTCG) on sale of land at Perambakkam and prove the aforesaid facts, AO, the twenty (20) Gift Deeds AO disallowed the ibid claim to produce any clinching eviden local body that ‘20’ persons were staying in the main part of the land at Perambakkam i.e, the twenty (20) illegal ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 10 :: noted by the AO are that the assessee has claimed on land at Perambakkam to the tune of [while computing the capital gains from sale of property in Therefore, the AO asked the assessee the assessee brought to his notice that there were unauthorized occupants/families on the main part of the land , which was creating hindrance in selling the property; e unauthorized/adverse possession ], it was agreed to give them free of cost a piece of land at the corner of the same land in lieu of them vacating from the main and for which, twenty (20) Gift Deeds were executed by the had also undertaken not reclaim the land occupied by According to the assessee, total value of the land gifted by the persons/families were to the tune of Rs. which has been claimed as cost of improvement while calculating the Long Term Capital Gain (LTCG) on sale of land at Perambakkam and prove the aforesaid facts, the assessee is noted to have filed before the Gift Deeds executed on 21.12.2017. How AO disallowed the ibid claim on the specious plea that the assessee failed clinching evidence by adducing any certificate from the local body that ‘20’ persons were staying in the main part of the land at twenty (20) illegal occupants had occupied ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan that the assessee has claimed on land at Perambakkam to the tune of [while computing the capital gains from sale of property in , the AO asked the assessee for the proof of notice that there were part of the land , which was creating hindrance in selling the property; [from the main a piece of land at in lieu of them vacating from the main-part of re executed by the not reclaim the land occupied by According to the assessee, total value of the land gifted by the were to the tune of Rs.98,12,720/- which has been claimed as cost of improvement while calculating the Long Term Capital Gain (LTCG) on sale of land at Perambakkam and in order to filed before the 21.12.2017. However, the on the specious plea that the assessee failed by adducing any certificate from the local body that ‘20’ persons were staying in the main part of the land at had occupied the said land at Perambakkam. claim made by the assessee in incurring such expenses. 14.2 Aggrieved, the assessee preferred an appeal before the Ld who dismissed the same on the 14.3 Aggrieved, the assessee is before us. 14.4 We have heard both the parties and issue, it is noted that the assessee had sold the land at Perambakkam on 31.03.2015 for a sal computing the capital gains had claimed improvement) to the tune of Rs.97,07,735/ the AO that there were possession [adverse possession without any title] on the main part of the said land. Therefore, it was not possible property without clearing them from the land. negotiations, they conveyed their of the land provided, they were the same land, which was accepted such agreement, twenty (20) families which was valued at Rs.98,12,720/ claim, assessee is noted to have ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 11 :: Meaning, the AO disbelieved the veracity of the claim made by the assessee in incurring such expenses. Aggrieved, the assessee preferred an appeal before the Ld who dismissed the same on the very same reasoning. Aggrieved, the assessee is before us. We have heard both the parties and perused the records. On this he assessee had sold the land at Perambakkam on for a sale consideration of Rs.9,26,58,520/ the capital gains had claimed expenditure (cost of to the tune of Rs.97,07,735/- by bringing to the notice of the AO that there were ‘20’ illegal/unauthorized families who possession [adverse possession without any title] on the main part of the land. Therefore, it was not possible for the assessee t clearing them from the land. After protracted they conveyed their willingness to clear from they were allotted free of cost land at the corner of which was accepted by the assessee ;and such agreement, twenty (20) Gift Deeds were executed in favour of s valued at Rs.98,12,720/- and in order to prove the is noted to have produced the copy of ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan the AO disbelieved the veracity of the Aggrieved, the assessee preferred an appeal before the Ld.CIT(A) perused the records. On this he assessee had sold the land at Perambakkam on consideration of Rs.9,26,58,520/- and for expenditure (cost of by bringing to the notice of families whom all were in possession [adverse possession without any title] on the main part of the for the assessee to sell the After protracted from the main part land at the corner of ;and by virtue of s were executed in favour of ‘20’ in order to prove the copy of all Gift Deeds before the AO. But the AO didn’t the assessee didn’t file evidence/certific that there were illegal Perambakkam property During the appellate proceedings for a Remand Report to find out the truth the assessee and pursuant to it contents of which is reproduced as under: Sir Sub: Submission of remand report AAWPS3926R - AY 2015 Ref: T. Letter in No. ITA No.116/CIT(A) ----------------------------------------------------------------------------- With reference to the above following report 2. The CIT(A) vide her letter dated 24.10.2019 directed the assessing officer to verify the claim on cost of improvement for Rs. of land was given as to the dwellers who sai to be residing in the said land sold. 2.1: Letter dated 01.11.2019 was issued to the assessee seeking the (i) details/documents to prove that the said occupants were occupying earlier in the said land (ii) Present aerial 3. In reply, assessee produced the the 20 occupants. Also, patta and encumbrance certificate for were submitted and perused. Aerial photographs showing the occupants occupying in the reallocated land called for were a 4. Hence the claim of the assessee may be considered on merits. 11. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us. ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 12 :: . But the AO didn’t allow the claim only on the ground that the assessee didn’t file evidence/certificate from local bo that there were illegal ‘20’ families occupying the main part of the property and that they were relocated in the said During the appellate proceedings, we note that the Ld.CIT(A) had called Report to find out the truth/veracity of the claim made by pursuant to it, the AO has filed Remand Report contents of which is reproduced as under: Sub: Submission of remand report - in the case of Sri Saravanan 2015-16 · regarding. Ref: T. Letter in No. ITA No.116/CIT(A)-Z/2017-18 dated24.10.2019 ----------------------------------------------------------------------------- With reference to the above following report is submitted. vide her letter dated 24.10.2019 directed the assessing officer to verify the claim on cost of improvement for Rs.97,07,735/- under the garb that part to the dwellers who sai to be residing in the said land sold. .11.2019 was issued to the assessee seeking the details/documents to prove that the said occupants were occupying earlier in the said land aerial photographs showing their residence in the gifted land. In reply, assessee produced the relevant copies of gift deeds executed in favour Also, patta and encumbrance certificate for the said 20 occupants were submitted and perused. Aerial photographs showing the occupants occupying in the reallocated land called for were also submitted and verified. 4. Hence the claim of the assessee may be considered on merits. Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us. ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan only on the ground that ate from local body to establish the main part of the they were relocated in the said land. , we note that the Ld.CIT(A) had called of the claim made by the AO has filed Remand Report, Saravanan - ITA - 18 dated24.10.2019 ----------------------------------------------------------------------------- vide her letter dated 24.10.2019 directed the assessing officer to the garb that part to the dwellers who sai to be residing in the said land sold. details/documents to prove that the said occupants were occupying earlier in the gifted land. relevant copies of gift deeds executed in favourof said 20 occupants were submitted and perused. Aerial photographs showing the occupants occupying in Aggrieved by the aforesaid action of the Ld.CIT(A), the assessee is before us. 14.5 A perusal of the Remand Report the assessee had produced before the AO rele executed in favour of Certificate for the said ‘ the occupants occupying in the reallocated lan acknowledged to have observation about it, m produced by assessee to prove the veracity of his claim the aforesaid report of discharged his burden to prove that the assessee had gifted to families property worth Rs.97,07,735/ part of land which was sold on 31.03.2015. And expenses, the assessee couldn’t have sold the property at Perambakkam for a value of Rs.9,26,58,520/ improvement of Rs.97,07,735/ 15. In the result, appeal filed by the Re Objection filed by the assessee is allowed. Order pronounced on the Sd/- (जगदीश) (JAGADISH) लेखासद\u001b/ACCOUNTANT MEMBER ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 13 :: A perusal of the Remand Report filed by the AO clearly shows that assessee had produced before the AO relevant copies of the executed in favour of ‘20’ occupants and also Patta & ‘20’ occupants and the aerial photographs showing occupants occupying in the reallocated land; and verified the same and didn’t raise a observation about it, meaning, accepted the veracity of the documents produced by assessee to prove the veracity of his claim. the AO, we are of the view that the assessee has discharged his burden to prove that the assessee had gifted to ies property worth Rs.97,07,735/- and relocated them from the main part of land which was sold on 31.03.2015. And without incurring s expenses, the assessee couldn’t have sold the property at Perambakkam for a value of Rs.9,26,58,520/-. Therefore, expenses claimed improvement of Rs.97,07,735/- needs to be allowed and we order so. In the result, appeal filed by the Revenue is dismissed Objection filed by the assessee is allowed. Order pronounced on the 25th day of March, 2025, in Chennai. Sd/ /ACCOUNTANT MEMBER (एबी टी. (ABY T. VARKEY ाियकसद\u001b/JUDICIAL MEMBER ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan clearly shows that ant copies of the Gift Deed nts and also Patta & Encumbrance nts and the aerial photographs showing and the AO has the same and didn’t raise any adverse accepted the veracity of the documents In the light of the AO, we are of the view that the assessee has discharged his burden to prove that the assessee had gifted to ‘20’ and relocated them from the main without incurring such expenses, the assessee couldn’t have sold the property at Perambakkam . Therefore, expenses claimed as cost of to be allowed and we order so. venue is dismissed and Cross- , in Chennai. Sd/- . वक ) ABY T. VARKEY) /JUDICIAL MEMBER चे\u0012ई/Chennai, िदनांक/Dated: 25th March, 20 TLN आदेश की 1ितिलिप अ2ेिषत/Copy to 1. अपीलाथ\"/Appellant 2. 13थ\"/Respondent 3. आयकरआयु4/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय1ितिनिध/DR 5. गाड फाईल/GF ITA CO No. 18/Chny/2024 Vellore Subramanian Saravanan :: 14 :: , 2025. Copy to: , Chennai / Madurai / Salem / Coimbatore. ITA No.1132/Chny/2023 & CO No. 18/Chny/2024(AY 2015-16) Vellore Subramanian Saravanan , Chennai / Madurai / Salem / Coimbatore. "