Appeal partially allowed: re-examination of construction cost, interest claims, Section 54 exemption clarified.

The Tribunal partially allowed the appeal, directing the AO to re-examine the cost of construction with the help of the DVO and to reconsider the additional grounds and claims related to the interest paid on the loan facility. The exemption under Section 54 was allowed for one house, provided it was purchased in the name of the wife with the entire consideration flowing from the assessee.

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Issues Involved:
1. Computation of Long Term Capital Gain.
2. Denial of Exemption under Section 54.
3. Admission of Additional Ground during Appellate Proceedings.
4. Consideration of Interest Paid on Loan Facility as Part of Cost of Construction under Section 48 and Section 24(b) of the IT Act, 1961.

Detailed Analysis:

1. Computation of Long Term Capital Gain:
The primary issue was the computation of Long Term Capital Gain (LTCG) at Rs. 44,94,343/- against the declared LTCG as nil by the assessee. The assessee sold a property for Rs. 60,00,000/- and claimed exemption under Section 54 for the purchase of two houses. The AO found discrepancies in the cost of construction claimed by the assessee and relied on a valuation report from ICICI Bank, which contradicted the assessee's claim. The AO recomputed the cost of construction using PWD rates, reducing it significantly from Rs. 26,80,000/- to Rs. 7,84,870/-. The Tribunal noted that the valuation report was for loan purposes and not conclusive for income tax purposes. It directed the AO to refer the case to the Departmental Valuation Officer (DVO) for proper verification and examination.

2. Denial of Exemption under Section 54:
The assessee claimed exemption under Section 54 for two houses purchased in the name of his wife. The AO denied the claim, and the CIT(A) upheld this decision. The Tribunal referred to various High Court rulings, including CIT vs. V. Natarajan and CIT vs. Kamal Wahal, which allowed exemptions even if the new house was purchased in the name of the spouse. The Tribunal held that the assessee was entitled to the exemption for one house, as the purchase consideration flowed entirely from the assessee. However, it denied the exemption for the second house, following the decision in Pawan Arya vs. CIT, which does not permit exemption for multiple residential units situated in different locations.

3. Admission of Additional Ground during Appellate Proceedings:
The assessee raised an additional ground during the appellate proceedings, which was not admitted by the CIT(A). The Tribunal found that the additional ground related to the deduction of interest paid on the loan facility, which was directly connected to the primary issue of cost of construction. It set aside this issue to the AO for consideration and adjudication along with other remitted issues.

4. Consideration of Interest Paid on Loan Facility as Part of Cost of Construction under Section 48 and Section 24(b) of the IT Act, 1961:
The assessee claimed that the interest paid on the loan facility should be considered part of the cost of construction under Section 48 and Section 24(b) of the IT Act, 1961. The CIT(A) did not admit this claim. The Tribunal noted that this issue was directly connected with the claim regarding the use of borrowed funds for construction. It set aside this issue to the AO for examination and adjudication in conjunction with the other remitted issues.

Conclusion:
The Tribunal partially allowed the appeal, directing the AO to re-examine the cost of construction with the help of the DVO and to reconsider the additional grounds and claims related to the interest paid on the loan facility. The exemption under Section 54 was allowed for one house, provided it was purchased in the name of the wife with the entire consideration flowing from the assessee.

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