Pavan Kumar Agarwal Vs DCIT (ITAT Bangalore)
Bengaluru ITAT: Section 54 Exemption Available Separately for Each Residential House Sold
In a significant ruling, the Bengaluru ITAT held that where an assessee sells multiple residential houses, the exemption under section 54 is available separately in respect of the capital gains arising from each residential house, subject to the condition that the number of new residential houses purchased or constructed does not exceed the number of residential houses transferred. In the present case, the assessee had sold 17 residential flats, earning long-term capital gains of ₹11.80 crore, and invested the entire gains in the purchase of four residential houses and construction of one residential house. The Assessing Officer restricted the exemption to only one residential house, disallowing ₹5.89 crore, which was confirmed by the CIT(A).
The Tribunal reversed the lower authorities and held that sections 45 and 48 require capital gains to be computed asset-wise, and consequently, the exemption under section 54 must also be examined separately for each residential house transferred. It observed that the amendment made by the Finance (No. 2) Act, 2014, replacing the words “a residential house” with “one residential house in India”, only restricts the exemption arising from the sale of one residential house to investment in one new residential house. It does not mean that where multiple residential houses are sold during the year, the exemption is confined to only one new house. Relying on the statutory scheme, CBDT Circular No. 207/24/76-IT(A-II) dated 25.03.1977, the Special Bench decision in Montgomery Emerging Markets Fund, and several Tribunal decisions, the ITAT held that since the assessee had sold 17 flats and invested the gains in only five residential houses, the conditions of section 54 stood satisfied. The Tribunal also noted that the Revenue had accepted an identical claim in the assessee’s own cases for AYs 2018-19 and 2019-20, and following the rule of consistency, directed the Assessing Officer to allow the entire exemption of ₹11.80 crore claimed under section 54. The appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)-15, Bengaluru dated 24.06.2025 vide DIN: ITBA/APL/M/250/2025-26/1077710367(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2020-21.
