Income Tax Appellate Tribunal - Delhi
Ashish Bhatia,Delhi vs Ito, Ward-30(4), Delhi on 22 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A', NEW DELHI
BEFORE SH. C.N. PRASAD, JUDICIAL MEMBER
&
SH. M. BALAGANESH, ACCOUNTANT MEMBER
ITA No.1025 & 1026/DEL/2024
Assessment Year: 2012-13
Ashish Bhatia ITO
F-55A, Radhey Mohan Drive Vs Ward- 30 (4)
Bandh Road, Delhi
Village Jonapur,
New Delhi
PAN No.ABUPB2216Q
(APPELLANT) (RESPONDENT)
Appellant by Sh. Nitin Kumar Sharma, CA
Respondent by Sh. A.K. Arora, Sr. DR
Date of hearing: 27.02.2026
Date of Pronouncement: .04.2026
ORDER
PER C.N. PRASAD, JM:
These two appeals are filed by the assessee for the A.Y's 2012-
13. ITA No.1025/Del/2024 was filed by the assessee against the order of the Ld. CIT(A) / NFAC dated 31.01.2024 in denying claim u/s.254 of the Act. Appeal in ITA No.1026/Del/2024 is filed against the order of the Ld. CIT(A) / NFAC dated 30.01.2024 arising out of the order passed u/s.154 of the Act by the AO on account of levy of interest u/s.220 of the Act.
2. First we take up the appeal of the assessee in ITA No.1025/Del/2024 in which the assessee has raised following grounds of appeals :-
"1. The Ld. Commissioner of Income Tax Appeal "CIT(A)" has erred both on facts and in law by not providing the opportunity of virtual hearing to explain the matter holistically in spite of many requests.
2. The Ld. CIT(A) has erred both on facts and in law in confirming the disallowance of deduction made by AO u/s 54/54F of the Act of Rs. 1,80,22,401/- and ignoring the fact that Assessing Officer("AO") has travelled beyond the directions given by Hon'ble ITAT vide their order dated 03.05.2017.
2.1. The Ld. CIT(A) has erred both on facts and in law in ignoring the fact that Hon'ble ITAT had restored the matter for a limited determination as to whether the use of impugned urban "appurtenant land" to residential house was for agriculture.
2.2. The Ld. CIT(A) has erred both on facts and in law in Ignoring the fact that no agricultural activity was being carried out In the impugned property acquired for on which deduction u/s 54F of the Act was claimed and same has been established by the photographs and the report of the Inspector.
2.3. The Ld. CIT(A) has erred both on facts and in law in ignoring the fact that Impugned urban "appurtenant land to residential house was situated in low Density Residential Area (LDRA) located in municipal limit of Delhi.
2.4. The Ld. CIT(A) has erred both on facts and in law in ignoring the fact that property was residential house with appurtenant thereto which had landscaped garden, trees, flowers and a small kitchen garden. land 2.5. The Ld. CIT(A) has erred both on facts and in law in ignoring the fact that necessary approvals were provided by the Municipal Corporation for construction of the residential house on the land on which it has been constructed.
2.6. The Ld. CIT(A) has erred both on facts and law in ignoring the fact that the decision of the Hon'ble ITAT, Chandigarh Bench in the case of Seema Biswas, ITA No. 103/Chd/2018 relating to acquisition of a house in Jonapur area squarely covers the instant appeal.
3. The Ld. CIT(A) has erred both on facts and in law in not adjudicating additional ground of appeal filed-wrong charging of interest u/s. 220 amounting to Rs. 22,89,149/- in assessment order ignoring the fact that there is no default u/s. 220 on part of the Assessee.
4. The Appellant prays for any addition deletion amendment and modification in the ground of appeal before the disposal of the same in the interest of substantial justice to the appellant.
3. The Ld. Counsel for the assessee at the outset submitted that ground No.1 of grounds of appeal of the assessee which was challenged on the ground of not providing virtual hearing by the Ld. CIT(A) is not pressed. In view of the submissions of the Ld. Counsel ground No.1 of grounds of appeal is dismissed as not pressed.
4. Coming to ground Nos.2 to 2.6 of grounds of appeal the Ld. Counsel for the assessee submits that, this is the second round of appeal, in the first round Tribunal in ITA No.1364/Del/2017 dated 03.05.2017 restored the matter to the file of the AO for determination of the nature of use of land for the purpose of extending the benefit of section 54/54F of the Act. The Ld. Counsel for the assessee submitted that pursuant to the order of the Tribunal a consequential assessment was made on 31.12.2018 once again denying the deduction u/s.54 of the Act. The Ld.Counsel submitted that this order of the AO in all materials is similar to the order originally passed by the AO u/s.143(3) on 10.03.2015 completely ignoring the directions issued by the Tribunal. The ld. Counsel submits that the Ld. CIT(A) dismissed the appeal of the assessee in a summary manner merely reproducing and accepting the order of the AO. The Ld. Counsel for the assessee further made the following elaborate submissions :-
"1. FACTS OF THE CASE 1.1 The assessee is an individual who filed his return of income for A.Y. 2012-13 on 26.03.13 declaring a total income of Rs. 1,84,764/-. (Copy of Income computation enclosed at PB from page 44 to 45 and Copy of ITR Acknowledgment enclosed at PB page 48).
1.1.1 During the year under consideration, the assessee had sold his with share in residential house no. W-25, Greater Kailash Part-1, New Delhi along with other co-owners and out of the total sale proceeds, his share was Rs.3,50,00,000/- (Sale deed enclosed at PB from page 62 to 71).
1.1.2 On such sale, the assessee earned a net capital gain of Rs.3,07,29,796/-.
1.2 The entire capital gain as above, was invested by assessee along with other co-owners in purchasing a residential farm house which had a residential house built therein, a servant quarter, a driveway and land appurtenant to residential house in low density urban area (LDRA), village Jaunapur, New Delhi (Sale deed enclosed at PB from page 49 to 61). Total purchase consideration Rs. 12,29,50,000 for 11124/4 sq. mtr.). 1.2.1 The assessee claimed exemption u/s 54/54F of the IT Act amounting to Rs.3,07,29,796/- (PB 44).
First Round of proceedings 1.3 The case was selected for scrutiny and order u/s 143(3) was passed on 10.03.2015 (PB 34 to 43) by the Ld. AO.
1.3.1 The learned AO while framing the assessment disallowed proportionately the exemption claimed by the assessee in respect of land appurtenant to residential house on a mistaken belief that the same is an agricultural land not eligible for relief under section 54/54F of the Act.
1.3.2 Consequently, the Ld. AO restricted the exemption claimed by assessee under section 54/54F to Rs.1,27,07,395/-by adding back a sum of Rs. 1,80,22,401/- to the returned income of the assessee.
1.3.3 The learned AO determined the total income of assessee at Rs. 1,82,07,170/-.
1.4 The assessee filed an appeal with CIT(A), which was dismissed (First round).
1.4.1 The assessee challenged the CIT(A) order before the Hon'ble ITAT.
1.4.2 The bench set aside the orders of the authorities below and restored the matter to the file of the AO for determination of the nature of use of land for the purpose of extending the benefits of Section 54 of the Act. (PB 72 to 77 page 76) An extract of the relevant paragraph:
Quote It is therefore, clear, that the classification of the land as per governmental records alone cannot be the conclusive proof as to the nature of land but its use has a bearing on the determination of the nature of land for the purpose of section 54 of the Act. Ld. AR filed the photographs of the land to show that there was agricultural operations that are taking place at the property purchased by the family of the assessees and whatever ie., appurtenant to the residential building is only used as lawns and for growing trees for beneficial enjoyment of the residential property. There is no denial of the facts submitted by the assessee there was no physical verification of the property to determine the actual uses of the appurtenant open land. Unless and until the A.O. reaches a conclusion as to the uses of land with reference to any agricultural operations being conducted there, it is not proper for the authorities to deny the benefit of section 54 of the Act. We are, therefore, of the considered opinion that the uses of land has to be determined by the AO on verification of the land and in the light of the photographs filed by the assessee and after furnishing the copy of patwari's report to the assessee and after affording an opportunity to the assessee of being heard on this aspect. With this view of the matter, we set aside the orders of the authorities below and restore the matter to the file of the AO for determination of the nature of use of land for the purpose of extending the benefits of section 54 of the Act. The AO will furnish a copy of patwari's Report and afford a reasonable opportunity to assessee of being heard on this aspect.
Second Round of proceedings 15 The Lal. A passed his order dated 31.12.2018 u/s 143(3)r.w.s254 of the Act, which, in all material aspects, is similar, to the order originally passed by the L41. AO 143(3) on 10.03.2015, blatantly ignoring the directions issued by the ITAT.
1.6. The order passed by AO was challenged before the CIT(A) 1.6.1 The CIT(A) dismissed the appeal in a summary manner merely reproducing and accepting the order of AO.
1.6.2 The assessee has preferred appeal before the Hon'ble ITAT.
2 With regards to the above grounds, it is humbly submitted that the CIT-A passed its order dated 31.01.2024 vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1060314878(1), which, to much extent, is similar, to the order passed by the Ld. AO u/s 254 r.w.s. 143(3) on 31.12.2018. The Ld. CIT-A upheld the contentions of A.O. and ignored the directions issued by the ITAT.
3. The AO cannot act beyond directions given by Hon'ble ITAT in remand proceeding It is well established in law that the AO cannot travel beyond the issues on which directions have been given in remand order. 3.1 The ITAT restored the matter to the file of AO for determination of the nature of use of land.
3.2 The Ld. Assessing Officer, on the other hand, spun the issue on whether the land/property in question can be considered a residential property or not.
3.3 The Ld. AO continued to discuss on the sole point as to why the land/property question cannot be considered a residential property vide para 2 to 5 of his o dated 31.12.2018.
3.4 By doing so, the Ld. A.O. ignored the directions of the ITAT vide para 7 of order.
3.5 Learned CIT(A) replicated the decision of Ld. A.O. without appreciating the appellant's proposition 3.6 In this regard, the assessee relies on the below mentioned case laws:
3.6.1 Mumbai High Court in the case of INDO-ADEN SALT WORKS CO. 36 ITR 429 Quote For the assessment year 1950-51 the Income-tax Officer allowed the claim of a firm for relief under section 25(4) of the Income-tax Act, on the ground that there twas a succession, only so far as it related to income-tax but declined to grant any relief in respect of super-tax as super-tax had not been paid by the firm either for 2920- 21 or for 1921-22. The firm appealed to the Appellate Assistant Commissioner and the only point raised was that relief in respect of super-tax was wrongly denied.
The Appellate Assistant Commissioner did not go into the merits of the question but dismissed the appeal on the ground that a registered firm not being an assessable entity could not claim such relief as regards super-tax. On further appeal the Appellate Tribunal reversed the order of the Appellate Assistant Commissioner but on the request of counsel for the firm not to dispose of the question about super-tax as the assessee wanted to lead certain evidence before the Appellate Assistant Commissioner in regard thereto, the Tribunal passed the following order: "He [ie., counsel for the assessee) desired that the Tribunal should set aside the Appellate Assistant Commissioner's order and direct him to deal with the assessee firm's claim for relief from super-tax on its merits. This request is not only reasonable bat proper. I would therefore vacate the Appellate Assistant Commissioner's order and restore the appeal with the direction that it be disposed of on its merits." Where the matter went back to the Appellate Assistant Commissioner, he not only inquired into the facts relating to super-tax relief but went further, suo motu, into the question whether there was a discontinuance of the business earlier in 1933 and held that there was such discontinuance and therefore no relief could be granted to the assessee under section 25(4) and after giving notice of enhancement withdrew the order for relief even in respect of income-tax:
Held, that the order of the Appellate Tribunal, when read in the proper context, restricted the scope of enquiry by the Appellate Assistant Commissioner only to the question of merits affecting the claim of the assessee for relief from suer-tax and, therefore, the Appellate Assistant Commissioner had no jurisdiction to issue the notice of enhancement and to withdraw the relief in respect of income-tax granted by the Income-tax Officer under section 25(4)."
Unquote 3.6.2 Mumbai ITAT in the case of Aventis Pharma Ltd vs. DCIT [2013] 32 taxmann.co 171 (Mumbai - Trib.) (PB 420 to 433 @ page
429) Quote
7. Therefore, in view of the above discussion, we hold that the Assessing Officer while making certain additions by restricting 90% of the receipts by applying clause (baa) of Explanation to sec. 80HHC has travelled beyond his jurisdiction and scope of enquiry as directed by the Commissioner of Income Tax (Appeal because it was not the subject matter of remand proceedings. Since the Assess Officer was lacking the jurisdiction in the remand proceedings to go into the is other than directed to be re-examined, the Commissioner of Income Tax (Appeals) in the appeal proceedings against the order giving effect also has no jurisdiction to go into the said issue because under the provisions of sex. 251, the Commissioner of Income Tax (Appeals) can exercise his jurisdiction on the issue on which the Assessing Officer could have exercised but did not do so. In the case when the Assessing Officer has no jurisdiction over an issue, then in the appellate proceedings, the jurisdiction of the Commissioner of Income Tax (Appeals) cannot be enlarged beyond the jurisdiction of the Assessing Officer. Hence, we set aside the orders of the authorities below on this issue as without jurisdiction.
Unquote 3.6.3 Delhi ITAT in the case of DCIT vs. Daulat Ram Arora LT (55). No. -8/Del/2013 (PB 83 to 91 page90) Quote
12. On a consideration of the same, we find that the AO in the present proceedings had incorrectly proceeded to re-consider the issues which already stood concluded by the Co-ordinate Bench. It is trite law that in the remand proceedings, the AO cannot travel beyond the directions given in the remand.
3.6.4 Kolkata ITAT in the case of M/s Dalia Investment Pvt Vs. DCIT ITA NO 2818/Kol/2013/ITA No 84/Kol/2014 (PB 92 to 108 page
101) Quote
21... The order of the Tribunal must, however, be read and understood in the proper context and in the light of all that is stated in the order itself and if we do so, as indeed we should do so, there is considerable force in the submission on behalf of the assessee that the order must be read as restricting the scope of the inquiry by the Appellate Assistant Commissioner only to the question of merits affecting the claim for relief from super-tax. We must, however, observe that there is in this case scope for the contention very strongly pressed before us by Mr. Joshi. On a consideration of the matter, we prefer to take the view that the order of the Tribunal required the Appellate Assistant Commissioner to inquire only into the matter of relief from super- tax on its merits."
Unquote 3.6.5 The Ahmedabad ITAT in the case of General Motors India Pvt Ltd v ACIT [TS-640 ITAT-2016(Ahd)-TP] (PB 109 to 161 @ page 130) Quote
22. We have noted that, in the remanded proceedings, the Transfer pricing officer has taken considerable pains to point out, what he perceived as, infirmities in the order if the Tribunal holding that GMDAT should be taken as tested party. Such an exercise was entirely uncalled for. Once a direction is given by the tribunal to the Transfer Pricing officer, whether such a direction is reversed by the higher judicial forum, the same is to be implemented without any reservations. There no point in pointing out how and why these directions are unacceptable by the Transfer Pricing officer. Whether the TPO finds these directions reasonable not, these are realities which cannot be simply wished away.
4. Land appurtenant to building was not used for agricultural purposes 4.1 The report of Inspector dated 13.12.2018 (PB 175) after the matter was restored by Hon'ble ITAT does not prove land was being used for agriculture activities. The report is vague in nature and mentions only that a large part of land is either vacant or covered with grass and besides this another part of land is used for growing vegetables. The quantum if these "large parts" is not mentioned anywhere in the report.
4.1.1 The report of inspector also includes some "close-up"
images (PB 238 to 240) of vegetables being grown in the kitchen garden for self-consumption. The "close-up" angles with which the photographs were captured by the inspector clearly reflect that the inspector was trying to project the minimal area of kitchen garden as a substantial area of agricultural operation. The kitchen garden merely takes up 195sq. mtr of area out of the total 11124sq. mtr i.e., 1.75% of total land area. This percentage is clearly not substantial at all.
4.1.2 To show the actual fact situation of the kitchen garden and to disprove the authenticity of photographs taken by the inspector, some other photographs were taken at the time inspector was taking photographs (PB 241 to 249). These photographs clearly show that this kitchen garden cannot be misunderstood with "farming".
4.2 The correct situation of property at F-55A can be depicted from the overview images taken from google maps (PB 235 to
237) along with some other photographs (PB 232 to 234). These were also submitted by the assessee during the course of proceedings.
4.2.1 Had any agriculture activity been done on this property, the google maps picture would have showed this very clearly?
4.2.2 No such thing is seen in these photographs from google maps.
4.2.3 Also, most of the adjoining area has similar land of 2.5 acres or more having residence and mostly farmhouse residences.
4.2.4 No indication of agricultural operation can be observed from these photographs 4.2.5 It is also noteworthy that a judicious agriculturist after drawing out the "COST BENEFIT ANALYSIS" would not be ready to carry out agricultural operation such land with "sanctioned residential farm house" because the value of yield of agricultural produce (Benefit) won't commensurate with the value at which such Land is purchased (cost).
4.2.6 In the present case, as already mentioned, the assessee along with other co-owners invested an amount of Rs. 12,29,50,000 in purchasing a residential farm house at village Jonapur, New Delhi. The assessee owns a 25% share in the said property. A prudent investor would not invest such huge money in an agriculture land knowing that the amount of yield from agricultural produce/operations would not correspond proportionally to the cost of acquiring the land. 4.3 The Hon'ble ITAT also denied the determination of "nature of land" solely in accordance with the govt. records and underlined the need to determine the "nature of land" in the light of its "use".
5. A.O ignored the fact that "appurtenant land" to Residential House was situated in Low Density Residential Area (LDRA) located in municipal limit of Delhi.
5.1 The property purchased by the assessee consist of some constructed area, a driveway and land appurtenant to property.
5.1.1 Instead of considering the entire property as a whole, the AO separated the property into three different parts, one being a constructed area, 5.1.2 second being a driveway, and 5.1.3 lastly an area which is not considered as land appurtenant to property.
5.1.4 Consequently, the AO allowed exemption for the constructed area and driveway area and wrongly contended the land appurtenant to the property as agricultural land.
5.2 CIT(A) committed the same error.
5.3 The Hon'ble ITAT referred to the case of Mahaveer Enterprises (Supra), where the SC observed that the primary thing to be checked, in the determination of a land being agricultural or not, is the situation of that land. Since the land in question is situated in a LDRA and within the MCD limits, it should be considered as residential in nature and not agriculture.
CASE LAWS VERY IMPORTANT JUDGMENT - On all fours 5.4 The Assessee relies on the judgment given by Hon'ble ITAT of Chandigarh in the case of ITO Vs. Smt. Seema Bishnoi (ITA No. 103/Chd/2018) (PB 186 to 204 @ page 198) which squarely covers the case of the assessee. The relevant extracts of the said judgment are reproduced below:
Quote
15. We have considered the rival submissions of both the parties and perused the material available on record in the present case it is not disputed that the assessee sold agricultural land situated at Village Bijwasan, Tehsil Vasant Vihar, Delhi on 18/09/2012 for a sum of Rs.62,50,00,000/-
and earned capital gain of Rs.61,13,24,357/-The assessee made investment of Rs.62,47,51,100/- in the purchase of land measuring 12 Bighas, at village Jonapur, Tehsil Mehrauli, New Delhi, and claimed the exemption under section 54F of the Act. The Assessing Officer denied the exemption to the assessee for the following reasons:
i. The assessee claimed deduction under section 548 and not 54F of the Act.
ii. Whole amount of the purchased assets was related to land only and not for any residential house.
19. Now question arises as to whether the property purchased by the assessee at Village Jonapur was a residential property for the purpose of claiming deduction under section 54F of the Act or not. For that proposition, it is relevant to consider the purchase deed (copy of which is placed at page 21 to 32 of the assesses paper book), in the said purchase deed it is mentioned at para 3 of page 2 that the said property was having Tube well, electric connection and build-up Farm House within the boundary wall. Similar facts have been mentioned at para 2 of page 6 of the purchase deed which clarifies that the assessee had purchased land with boundary wall, tube well, electric connection and build-up farmhouse. In the present case, the Assessing Officer also made the verification by visiting the site which is evident from page no. 6 of the assessment order wherein photographs of the land in question are shown and the Assessing Officer also mentioned in para 2.2 of the assessment order that no agricultural activity was being carried out on the said premises.
20.2 Moreover, the Assessing Officer in the present case, himself admitted at page no. 16 of the assessment order that land purchased by the assessee came into Municipal Limit and in lower density residential area the relevant observation of the Assessing Officer reads as under:
6. "It is pertinent to mention here that this land also comes within the purview of Municipal limits therefore it cannot be taken as agricultural land. A letter has been issued to the Chief Executive Officer, Municipal Corporation of Delhi (South), New Delhi for asking the municipal limited of the said land. In its response Executive Engineer (BLDG)-II South Zone replied that this land comes under municipal limit area. Again, as per notification no. 1405 Government of India dated 18/06/2013, this area comes in lower density residential area. Therefore, it shows that the investment in land is not for agricultural purposes. It is only a huge investment in urban area. It is purely capital assets for taxation purpose.
Unquote 5.4.1 In the aforesaid case, it was also noted by the Hon'ble ITAT that the AO on one hand reproduced the photographs of the farmhouse and also noted that the AO had observed that the claim of computation was purchase of land and not residential house.
The Hon'ble ITAT of Chandigarh in Para 21 on Page 18 stated (PB 203) as follows: -
Quote We are unable to understand from the aforesaid observation of the Assessing Officer that how a residential farmhouse can be separated from the land when it is constructed on the same land. Therefore, we are of the view that the Ld. CIT(A) rightly allowed the claim of the assessee for deduction under section 54 F of the Act, particularly when the Assessing Officer hintself mentioned in the assessment order that no agricultural activity was being carried out on the land in question and the said property was being used for residential purpose which had been approved by the Assessing Officer during the enquiries. Ld. CIT(A) after verifying the record, mentioned in para 5.6 of the impugned order that in the purchase deed it was clearly mentioned that the original owner had taken approval from the concerned authority i.e; Municipal Corporation of Delhi for construction of farmhouse on the said land on 07/06/2006 which clearly established that the assessee purchased the residential property with appurtenant land, duly approved by the concerned authority. The purchase of the said residential property had been made within the statutory period of two years from the date of receipt of capital gains and the assessee also submitted that she had not owned any other residential house as on the date of purchase made on 19/10/2012 i.e., before furnishing of Income Tax Return for the year under consideration, therefore, the assessee fulfilled all the conditions to claim the exemption under section 54F of the Act and the Ld. CIT(A) rightly directed the Assessing Officer to allow the claim of the assessee for deduction under section 54F of the Act.
Unquote 5.5 From the relevant extract above, it can be observed that the facts of the case of Smt. Seema Bishnoi are similar to the facts of assessee' case to much extent. The property (referred in the judgment above) was ascertained to be a residential property on the basis of purchase deed and AO's findings. The purchase deed of the assessee also speaks similar as that in the above case.
5.6 The assessee further relies on following judicial precedents:
5.6.1 ITAT Delhi in the case of CIT Vs. Narendra Mohan Uniyal (34 SOT 152) (PB 181 184 @ 184) Quote
11. In view of the above discussion and keeping in view the detailed observation made by the CIT(A) at paragraphs 4, 5 and 6, we can safely conclude on proper appreciation of material available on record that the property purchased by the assessee was a single unit and was being used for residential purpose, therefore investment made in respect of both the plots was eligible for claim of exemption under section 54F. We, therefore, uphold the order of CIT(A) and dismiss the appeal filled by the revenue. As the cross-
objection are basically in support of the CIT(A)'s action, we allow the cross-objection in terms indicated hereinabove.
Unquote 5.6.2 ITAT Chennai in the case of Dy. CIT V. Kalyanaraman Nataraja [2017] (82 taxmann.com 93/165 ITD 307) PB 469-476 Quote
6. It is crystal clear from the plain reading of section 54F that exemption is allowable in respect of amount invested in the construction of a residential house. There is no any rider under section 54F that no deduction would be allowed in respect of investment of capital gains made on acquisition of land appurtenant to the building or on the investment on land on which building is being constructed. When the land is purchased and building is constructed thereon, it is not necessary that such construction should be on the entire plot of land, meaning thereby a part of the land which is appurtenant to the building and on which no construction is made, there is no denial of exemption on such investment. Therefore, the contention of the learned DR that there is a distinction with respect to investment in appurtenant land as per sections 54 and 54F is not tenable at all. In the instant case, there is no dispute to the fact that investment of capital gains was made within the statutory period and moreover within the same financial year. Residential house was constructed on the part of plot of land, the exemption claimed in respect of investment made in land cannot be declined when all the other conditions as stipulated under section 54F are being satisfied. While dealing with the objection of the Assessing Officer, the CIT(A) has categorically given a finding that residential building was located in the said land so purchased was of a plot having area of 43,600 sq.ft. consisting of 2 Schedule of property A & B. In 'B' Schedule of property, no residential building and there is only land. Both these plots were having 1000 sq.mtrs. of land. Both the plots formed part of one residential unit and are contiguous and adjoining to each other. The comments of the Assessing Officer to the effect that exemption under section 54F is eligible only for construction of house is not tenable insofar as even cost of land forming part of the residential unit on which no construction is done is also eligible for exemption under section 54F. Thus, the cost of vacant land appurtenant to and forming part of the residential unit is to be considered for claim of exemption under section 54F even if no construction has been done on the appurtenant land. The provisions of section 54F clearly provide for exemption if the net consideration received as a result of transfer of any capital asset, other than a residential house, is invested in the purchase or construction of a residential house. The new residential house is not debarred from having a land appurtenant to any size and it is also not the case of the Assessing Officer that the land appurtenant to the building is not entitled to exemption under section 54F. Had it been a case of land not appurtenant to the building so constructed, then the contention of the Assessing Officer to the effect that investment of capital gains made in the second plot ie. schedule 'B' which is not appurtenant to the building so constructed is not eligible for exemption, can be favourably accepted. On the contrary, the expression "land appurtenant" in section 54F of the Act was held to be construed in a broad and non-technical sense and it was held that the meaning given to that expression in other Acts should be irrelevant. The Hon'ble Delhi High Court in the case of Sunita Aggarwal (supra) has observed that while claiming exemption under section 54, the property though purchased from two different persons by virtue of four different sale instances in the shape of four different parcels, constitutes one single residential unit of the assessee.
Unquote 5.6.3 Furthermore, CBDT's circular no. 667 dated 18.10.1993 (PB 185) also clarifies that while computing the cost of new asset at the time of calculating exemption u/s 54/54F, cost of plot and cost of building both shall be considered.
5. SUMMARY 5.1 The Hon'ble ITAT had set aside the original order of AO for the want of determination of "nature of use of land" but both, the AO and Ld. CIT-A travelled beyond the directions given by the Hon'ble ITAT.
5.2 Summarise the facts 5.3 Based on the above submissions it would be just to conclude that the property was a residential house with land appurtenant thereto which had landscaped garden, trees, flowers and a small kitchen garden.
5.3.1 The said property had vacant land owing to the enforcement of DDA laws and necessary MCD approvals were also taken.
5.3.2 In view of the above, we submit that the payment for entire property acquired by the assessee being residential house and land appurtenant thereto was eligible for deduction u/s 54F of the Act and we pray before your honour to allow the same.
5. On the other hand the Ld. DR relied on the orders of the AO/ CIT(A).
6. Heard rival submissions and perused the orders of the authorities below. We find merit in the submission of the Ld. Counsel for the assessee. On perusal of the order of the Tribunal in the first round we observed that the Tribunal had set aside the matter to the file of the AO for "determination of the nature of use of land for the purpose of extending the benefits u/s.54 of the Act. The AO will furnish a copy of Patwari's report and afford a reasonable opportunity to the assessee of being heard on this aspect."
7. On reading of the Tribunal's order we observed that the Tribunal directed the AO to examine and determined the nature of use of land for the purpose of benefits u/s.54 of the Act and also obtain Patwari's report. However, on perusal of the assessment framed pursuant to the Tribunal's order we find that the AO has travelled beyond the directions of the Tribunal and denied the deduction u/s.54 of the Act once again.
8. We find that almost an identical issue came up for consideration before the Chandigarh Bench of the Tribunal in the case of ITO Vs. Smt. Seema Bishnoi in ITA No.103/Chd/2018 dated 20.02.2019 wherein the Tribunal held as under :-
"15. We have considered the rival submissions of both the parties and perused the material available on record in the present case it is not disputed that the assessee sold agricultural land situated at Village Biwasan, Tehsil Vasant Vihar, Dethi on 18/09/2012 for a sum of Rs. 62,50,00,000/- and earned capital gain of Rs. Ra. 61.13.24,357/ The assessee made investment of Rs.62,47,51,100/-in the purchase of land measuring 12 Bighas, at village Jonapur, Tehsil Mehrauli, New Delhi, and claimed the exemption under section 54F of the Act. The Assessing Officer denied the exemption to the assessee for the following reasons:
i. The assessee claimed deduction under section 548 and not 54F of the Act.
ii. Whole amount of the purchased assets was related to land only and not for any residential house.
16. As regards to deduction not claimed under section 54F of the Act is concerned, it is noticed that assessee in the computation of income which is reproduced in para 2 at page no. 2 of the assessment order dt. 31/03/2016, claimed deduction under section 54F/548 of the Act (as per Anneuxre C), so it cannot be said that the assessee did not claim deduction under section 54F of the Act.
17.On a issue relating to the allowability of the deduction even if it is not claimed and otherwise allowable legally, the Hon'ble Kerala High Court in the case of Raghavan Nair Vs. Assistant Commissioner of Income Tax and Another [2018] 402 ITR 400 (Ker) held as under:
Under article 265 of the Constitution no fax shall be levied or collected except by authority of law.
The powers of the Assessing Officers under the Act are quasi- judicial in nature and they are duty-bound, therefore, to act fairly in the discharge of their functions They are also invested with the authority to do justice to the assessees in a case where it is apparent on the face of the record that the assessee has included in his return, an income which is exempted from payment of income-fax, on account of ignorance or by mistake, the Assessing Officer is bound to take into account that fact in a proceeding under section 143 of the Income-tax Act, 1961, In other words, if the capital gains on a transaction are exempted from payment of lax the Assessing Officer has a duty to refrain from levying tax on the capital gains and the Assessing Officer cannot, in such cases, refuse to grant relief under section 143 of the Act to the assessee on the technical plea that the assessee has not filed a revised return. It is so since the paramount duty of the Assessing Officer is to complete the assessments in accordance with law.
The assessee the received a sum of Rs. 1,28,43.192 in the year 2014-15 by way of the compensation for land acquired from him for the Kochi Metro Rail Project. The assessee, at the relevant time was under the impression that the capital gains exigible to fax under the Act. resulting from the acquisition of the land was exigible Consequently, in the return filed by the assessee under the Act for the assessment year 2015-16, he had disclosed the capital gains resulting from the acquisition of the land and paid tax on that basis for that purpose, the assessee had worked fair market valve as on April 1,1981 out the indexed cost of the land reckoning its for of Rs. 50.000 per cent, the return was taken under scrutiny. The deduction claimed by the assessee under the head "Capital gains" was the issue Identified for examination. An inquiry was started. In the meanwhile, in the light of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act. 2013, the court held in a that compensation payable to persons for the lands acquired under the statute was exempted from payment of fax under the Act. In the circumstances, in so far as the acquisition of the land of the assessee was under that statute. the assessee submitted a reply to the notice requesting the Assistant Commissioner to drop the proceedings initiated against him under section 143 of the Act. Since the Assistant Commissioner did not consider the request made by the assessee, the assessee will petition challenging the continuance of the proceedings under was admitted on July 24, 2017 and an interim order filed section 143. The writ petition was ad was passed on July 24, 2017 restraining the Assistant Commissioner from continuing the proceedings. In the meanwhile, the assessee was served with an order dated July 14, 2017, by which the Assistant Commissioner completed the proceedings raising a demand for Rs. 9,95.070. On a writ petition:
Held, that this was a clear case where the Assistant Commissioner had penalised the assessee for having paid fax on an income which was not exigible to fax. The order, in the circumstances, was liable to be quashed.
In the present case, even if the assessee claimed the deduction under both section le: 54F and 548 of the Act, it was the duty of the Assessing Officer to allow the right deduction for which the assessee was eligible.
18. As regards to the admissibility of the claim made during the course of assessment proceeding, the CBDT issued a Circular No. 14 dt, 11/04/1955 which reads as under
"IIT Officers must not fake advantage of ignorance of an assessee Officers of the department must not take advantage of ignorance of an assessee as to his rights, it is one of their duties to assist a taxpayer in every reasonable way. particularity in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund relief is due to him. This attitude would in the long run, benefit the department, for it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees an whom it is imposed by law, officers should-
(a) draw their attention to any refund or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other,
(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."
From the aforesaid Circular, it is crystal clear that the Assessing Officer must not take advantage of ignorance of the assessee as to his rights & liabilities, it is one of the duty of the officer to advice when approached by the assessee as to his rights and liability and as to the procedure to be adopted for claiming refund and relief.
18.1 in the present case the assessee claimed deduction under section 54F of the Act, during the course of assessment proceeding and also duty mentioned in the computation of income for the sald deduction. So, it was the duty of the Assessing Officer to allow the claim under section 54F of the Act if it was legally allowable to the assessee, in our opinion the Ld. CIT(A) rightly directed the Assessing Officer to allow the claim of the assessee under section S4F of the Act.
19. Now question arises as to whether the property purchased by the assessee at Village Jonapur was a residential property for the purpose of claiming deduction under section 54F of the Act or not. For that proposition, it is relevant to consider the purchase deed (copy of which is placed at page 21 to 32 of the assesses paper book), in the said purchase deed it is mentioned at para 3 of page 2 that the said property was having Tube well, electric connection and buildup Farm House within the boundary wall, Similar facts have been mentioned at para 2 of page 6 of the purchase deed which clarifies that the assessee had purchased land with boundary wall, tube well, electric connection and buildup farmhouse, in the present case, the Assessing Officer also made the verification by visiting the site which is evident from page no. 6 of the assessment order wherein photographs of the land in question are shown and the Assessing Officer also mentioned in para 2.2 of the assessment order that no agricultural activity was being carried out on the said premises.
20. Now the question arises as to whether the farm house on the agricultural land may be considered as the house for the purpose of deduction under section 54F of the Act. On a similar issue the Hon'ble kerala High Court in the case of Smt. Asha George Vs. ITO, Ward2(1), Thrissur in ITA No. 114 of 2012 order dt. 16/01/2013 (copy of which is placed on record) held as under:
"12. Section 54F is intended to encourage construction of or acquisition of residential house with the aid of the proceeds from the transfer of any long term capital asset, which is not a residential house. The provision contemplates computing the cost of the residential buliding, but the value of the plot on which the farm house stands and the land appurtenant could also be considered."
20.1 Similar view has been taken by the ITAT, Jaipur Bench in the case of Shyam Sunder Mukhija Vs. ITO [1991]38 ITD 125 wherein it has been held as under:
"The expression 'residential house' used in section 54F has not been defined. The popular meaning of the work 'house' is a place or building used for habitation of man. 'Residential House' is a dwelling house as distinct from a house of business, warehouse, office, shop, etc. In other words, residential house is a building used as a place of abode in which people reside or dwell in contra-distinction to one which is used for commercial or business purpose. Since a house is called residential house with reference to the purpose of its user, it may not be necessary that somebody should live in it continuously. It is enough if it was a that somebody should live in it continuously, is necessary that some A farm house is also a residential house, A farm house according to the dictionary meaning, is a former's house attached to a farm. In the present case, there was no evidence that there was no evidence that there was any farm in existence. The assessee had paid Rs. 7,560 on 7-4-1984 as conversion charges. He again paid Rs. 4,200 as development charges to the UIT on the UIT on 26-5- 1984. Therefore, the ITO could not take the view that what was in existence could not be called as a residential house. The description of the construction, which was not in dispute. showed that it was a com complete unit having a big hall kitchen, toilet and verandah notwithstanding the size of the swimming pool, which was also there. As rightly pointed out by the assessee, there was no prohibition regarding the construction of a residential house on agricultural land. Therefore, the assessee was entitled to the deduction claimed under section 54F."
20.2 Moreover, the Assessing Officer in the present case, himself admitted at page no. 16 of the assessment order that land purchased by the assessee came into Municipal Limit and in lower density residential area, the relevant observation of the Assessing Officer reads as under:
"It is pertinent to mention here that this land also comes within the purview of Municipal limits therefore it cannot be taken as agricultural land. A letter has been issued to the Chief Executive Officer, Municipal Corporation of Delhi (South), New Delhi for asking the municipal limited of the said land. In its response Executive Engineer(BLDG)- South Zone replied that this land comes under municipal limit area. Again as per notification no. 1405 Government of India dated 18/06/2013, this area comes in lower density residential area. Therefore it shows that the investment in land is not for agricultural purposes. It is only a huge Investment in urban area. It is purely capital assets for taxation purpose."
20.3 In the instant case the Assessing Officer on the one hand reproduced the photographs of the farmhouse at page no. 6 of the assessment order which clearly shows the constructed form house, on the other hand he mentioned in para (vii) at page no. 23 of the assessment order that the assessee claimed exemption in its computation for the purchased amount of land only and not for the purchase of residential house, the relevant observation of the Assessing Officer reads as under:
vii The assessee claimed exemption in its computation for the purchase amount of land only, it shows that this investment has been made only for purchase of land only not for purchase of residential house. If this exemption would have been claimed for residential house, then the assessee would claim it for the both amount Le. land purchase amount and construction of house amount but he assessee claimed exemption for purchase of land only not for construction of house amount. Therefore, the assessee is not eligible for claiming exemption u/s 54F of the Income Tax Act."
21. We are unable to understand from the aforesaid observation of the Assessing Officer that how a residential farmhouse can be separated from the land when it is constructed on the same land. Therefore, we are of the view that the Ld. CIT(A) rightly allowed the claim of the assessee for deduction under section 54 F of the Act, particularly when the Assessing Officer himself mentioned in the assessment order that no agricultural activity were being he land in question and the said property was being used for residential purpose which had been approved by the Assessing Officer during the enquiries. Ld. CIT(A) after verifying the record, mentioned in para 5.6 of the impugned order that in the purchase deed it was clearly mentioned that the original owner had taken approval from the concerned authority le: Municipal Corporation of Delhi for construction of farmhouse on the said land on 07/06/2006 which clearly established that the assessee purchased the residential property with appurtenant land, duly approved by the concerned authority. The purchase of the sold residential property had been made within the statutory period of two years from the date of receipt of capital gains and the assessee also submitted that she had not owned any other residential house as on the date of purchase made on 19/10/2012 le: before furnishing of Income Tax Return for the year under consideration, therefore, the assessee fulfilled all the conditions to claim the exemption under section S4F of the Act and the Ld. CIT(A) rightly directed the Assessing Officer to allow the claim of the assessee for deduction under section 54F of the Act.
22. Before parting, it is relevant to point out that the case law relied by the Ld. CIT DR in the case of Municipal Corporation of Delhi & others Vs. Shri Naresh Kumar And Others judgment dt. 10/03/1997, the issue was relating to the exemption from general tax on the dwelling house situated on an agriculture land and it has been held that the dwelling house includes within its ambit such appurtenant land as is necessary for a proper and convenient enjoyment of the dwelling house, therefore, the said judgment is not of any help to the department."
9. The decision of the Chandigarh Bench squarely applies to the facts of the assessee's case. In the case of the assessee the property was residential house with land appurtenant thereto which had landscaped garden, trees, flowers and small kitchen garden. The said property had vacant land owing to the enforcement of DDA laws and assessee has taken necessary MCD approval. Further the Inspector report dated 13.12.2018 which is placed at page 175 of the paper book also did no conclusively prove that there were substantial agricultural operations in the land appurtenant to the building. The report also suggest that part of the land was used for construction of Residential building with two Floors and there is also small construction of guard room and a semi constructed covered parking for cars. There are trees along the boundary wall of the land and along with drive way. In some of the area land is also used for growing vegetables namely spinach, cauliflower, cabbage, radish, tomato and coriander leaves. The extent of the land cultivated by the assessee is not reported by the Inspector anywhere in the report. The contention of the assessee that the vegetables were growing for own consumption cannot be brushed aside. Therefore, the Inspector report dated 13.12.2018 did not conclusively prove that the assesse had under taken agricultural operations in large scale and therefore, the land appurtenant to the building cannot be classified as agricultural land and segregated from the residential building.
10. In the above circumstances we hold that the property acquired by the assessee being residential house and land appurtenant was eligible for deduction u/s.54F of the Act. Thus, we direct the AO to allow the claim made u/s.54/54F of the Act by the Assessee. Ground Nos. 2 to 2.6 are allowed.
11. Ground No.3 is in respect of levy of interest u/s.220 of the Act and the same is consequential in nature. Thus it is restored to the file of the AO.
12. Coming to the appeal of the assessee in ITA No.1026/Del/2024, the assessee has challenged the order of the Ld. CIT(A) in sustaining the interest charged u/s.220 of the Act and since we have allowed the appeal of the assessee by deleting the disallowance of deduction u/s.54 F of the Act the grounds raised in this appeal becomes consequential in nature and the same are restored to the file of the AO.
13. In the result, the appeal in ITA No.1025/Del/2024 is partly allowed and ITA No.1026/Del/2024 is allowed for statistical purpose.
Order pronounced in the open court on 22.04.2026.
Sd/- Sd/-
[M. BALAGANESH] [C.N. PRASAD]
ACCOUTNANT MEMBER JUDICIAL MEMBER
Dated:22.04.2026
NEHA , Sr.P.S.*
Copy forwarded to:
1. Appellant
2. Respondent
3. PCIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi