The assessee after selling two immovable property, purchased another property which consisted of five floors. The ground and first floor was let out and the rest was used as his residence. According to Section 54 of the Income Tax Act of 1961, the assessee claimed an exemption on the proportionate capital gains exemption of Rs. 78,19,945. The Assessing Officer noted that the third and fourth floors were two independent residential units, with the third floor being kept for the assessee’s usage and the fourth floor being rented out after recording the inspection officer’s statement. In light of this, the Assessing Officer determined the amount that qualified for a deduction under Section 54 of the Act and rendered the remaining amount subject to tax. There was also an indexed cost of improvement assessed by the AO and after examining the bills, it was restricted at Rs. 2,46,888. The Commissioner (appeals) confirmed the same and the assesee appealed against the order.

The tribunal held that the assessee had failed to establish how the third and fourth floor were not independent and the AO had restricted the deduction u/s 54 correctly. With respect to the indexed cost of improvement, the tribunal held that it was common to do basic repair and maintenance work with respect to masonry work. Therefore, the payments for cost of improvements should be allowed. (AY.2015-16)