Facts of the Case

The Revenue filed an appeal under Section 260A against the ITAT’s order dated 25.09.2024 for Assessment Year 2011-12. The assessee, Lata Goel, filed her return declaring income of ₹70,87,301 and claimed deduction under Section 54F on investment of capital gains arising from sale of unlisted shares of FIITJEE Ltd. into a residential property at E-27, Vasant Vihar, New Delhi.

A search under Section 132 was conducted in the FIITJEE Group on 17.12.2012, following which assessment under Section 153A restricted the Section 54F deduction. The CIT(A) allowed the full deduction, holding that there was no requirement to trace sale proceeds in specie to the new asset. Subsequently, reassessment proceedings under Section 147 were initiated by notice dated 30.03.2017 on the premise that municipal records showed ownership of more than one residential house (basement and second floor at D-6/5, Vasant Vihar). The reassessment disallowed the entire Section 54F claim. The CIT(A) upheld the disallowance, but the ITAT allowed the assessee’s appeal. The Revenue challenged the ITAT’s decision.

Issues Involved

Whether different floors of the same property constitute more than one residential house for the purposes of the proviso to Section 54F(1), whether reassessment beyond four years was valid in the absence of failure by the assessee to truly and fully disclose material facts, and whether any substantial question of law arose.

Petitioner’s Arguments

The Revenue contended that the basement and second floor constituted separate residential houses, disentitling the assessee from Section 54F relief under the proviso. It was also argued that reassessment was justified based on municipal records indicating multiple residential units.

Respondent’s Arguments

The assessee supported the ITAT’s findings, submitting that different floors of the same property constitute one residential house and that all material facts relating to the transaction and property ownership were fully disclosed in the return. It was contended that reassessment beyond four years was barred as there was no failure of disclosure.

Court Order / Findings

The Delhi High Court held that ownership of different floors of the same property by the assessee and family members does not amount to ownership of more than one residential house. Relying on binding precedents including CIT v. Gita Duggal, D. Ananda Basappa, Pawan Arya, Mrs. Kamla Ajmera, and Gumanmal Jain, the Court reiterated that the expression “a residential house” denotes a residential building and not a singular residential unit, and that multiple floors capable of being used as one residence constitute one residential house.

The Court further held that reassessment beyond four years was invalid as there was no failure by the assessee to truly and fully disclose all material facts. The assessee had disclosed the sale of the original asset and the acquisition of the new residential property; the configuration of floors in municipal records did not establish any non-disclosure.

Accordingly, the Court found no infirmity in the ITAT’s order and held that no substantial question of law arose.

Important Clarification

The High Court clarified that for Section 54F, different floors of the same property are to be treated as one residential house, and reassessment beyond four years cannot be sustained in the absence of failure to disclose material facts, even if the Revenue subsequently forms a different view based on municipal records.

Final Outcome

The appeal filed by the Revenue was dismissed. The Delhi High Court upheld the ITAT’s order allowing deduction under Section 54F to the assessee and held that reassessment proceedings were barred by limitation. All pending applications were disposed of.

Link to download order https://www.mytaxexpert.co.in/uploads/1769757398_THEPR.COMMISSIONEROFINCOMETAXCENTRAL1VsLATAGOEL.pdf  

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.