Tribunal decision: Revenue appeal partly allowed, exemption under Section 54 applies to both flats.

The Tribunal partly allowed the Revenue's appeal, upholding the reduction of sale consideration and disallowing the expenditure towards tenant settlements due to lack of evidence. However, the Tribunal rejected the Revenue's argument limiting the exemption under Section 54 to one residential house, allowing the benefit for both flats purchased by the assessee.

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Issues Involved:
1. Acceptance of reduced sale consideration of building.
2. Allowance of expenditure towards settlement of claims of tenants/occupants.
3. Allowance of exemption under Section 54 of the Income Tax Act for two residential houses.

Issue-wise Detailed Analysis:

1. Acceptance of Reduced Sale Consideration of Building:
The Revenue challenged the Commissioner of Income Tax (Appeals) for accepting the reduced sale consideration of Rs. 1.50 Crores from the original Rs. 2.75 Crores as per the registered sale deed. The reduction was formalized through a registered Deed of Rectification. The Tribunal examined the sequence of events, including the development agreement and sale deed, which initially fixed the consideration at Rs. 2.75 Crores. The Tribunal noted that the responsibility of dealing with tenants/occupants was already factored into the original sale consideration. The Tribunal found the execution of the Rectification Deed and subsequent affidavits as dubious and an afterthought to reduce tax liability. The Tribunal held that the reduction in sale consideration was not substantiated by any evidence of actual payment to tenants/occupants. Thus, the Tribunal allowed the Revenue's appeal on this ground.

2. Allowance of Expenditure Towards Settlement of Claims of Tenants/Occupants:
The Tribunal scrutinized the claim of Rs. 1.25 Crores paid towards settling claims of tenants/occupants, which was allowed by the Commissioner of Income Tax (Appeals). The Tribunal found no cogent evidence of such payments, and the affidavits and Rectification Deed were deemed self-serving documents. The Tribunal emphasized that the initial agreements already considered the encumbrances and the responsibility to vacate the premises was on the developer. The Tribunal concluded that the reduction in sale consideration was a method to evade tax liability, and thus, the Revenue's appeal on this ground was allowed.

3. Allowance of Exemption Under Section 54 for Two Residential Houses:
The Tribunal addressed the Revenue's contention that the exemption under Section 54 should be limited to one residential house. The Tribunal referred to case laws, including decisions by the Hon'ble High Courts and other Tribunal Benches, which interpreted "a residential house" to include multiple units within the same building. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to allow exemption for both flats purchased by the assessee in the same building, rejecting the Revenue's appeal on this ground.

Conclusion:
The Tribunal partly allowed the Revenue's appeal, upholding the reduction of sale consideration and the allowance of expenditure towards tenant settlements as dubious and unsupported by evidence. However, the Tribunal rejected the Revenue's contention regarding the exemption under Section 54, allowing the benefit for both residential flats purchased by the assessee.

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