Section 54 relief for more than one residential unit allowed for pre-amendment years, subject to fresh verification.

For assessment years before the prospective amendment, the phrase "a residential house" in section 54 was treated as not limited to a single residential unit, so deduction could extend to more than one residential property subject to factual verification. The assessee was therefore considered entitled in principle to claim section 54 relief for both units, but the precise quantum had to be re-examined because additional evidence was produced for the first time before the ITAT. The assessment was also found to remain within the scope of the section 263 directions, as the Assessing Officer did not travel beyond the matters set aside for fresh examination.

---

---

Issues: (i) whether the assessment order was vitiated on the ground that the Assessing Officer acted beyond the scope of the proceedings under section 263 of the Income-tax Act, 1961; and (ii) whether, for the assessment year in question, deduction under section 54 of the Income-tax Act, 1961 could be allowed in respect of more than one residential unit, and whether the quantum required fresh verification in light of additional evidence.

Issue (i): whether the assessment order was vitiated on the ground that the Assessing Officer acted beyond the scope of the proceedings under section 263 of the Income-tax Act, 1961

Analysis: The order passed under section 263 had specifically set aside the issue of deduction under section 54 for fresh examination. The material on record did not show that the Assessing Officer travelled beyond the contours of that direction while framing the consequential assessment. The challenge was therefore confined to an allegation unsupported by the assessment record.

Conclusion: The objection was rejected and the assessment was held to be within the scope of the section 263 proceedings.

Issue (ii): whether, for the assessment year in question, deduction under section 54 of the Income-tax Act, 1961 could be allowed in respect of more than one residential unit, and whether the quantum required fresh verification in light of additional evidence

Analysis: The expression "a residential house" in section 54 was construed in the light of the prevailing judicial view for the relevant assessment year, under which the phrase was not confined to a single house and could extend to more than one residential unit. The subsequent amendment substituting the phrase with "one residential house in India" was treated as prospective. On that basis, the assessee was held entitled in principle to claim deduction for both properties. However, since fresh documentary evidence had been produced for the first time before the Tribunal, the exact quantum of eligible deduction required examination by the Assessing Officer.

Conclusion: The assessee was held eligible in principle for deduction under section 54 in respect of both residential units, but the matter was remanded to the Assessing Officer for fresh quantification after verification of the additional evidence.

Final Conclusion: The appeal succeeded to the extent that the assessee's entitlement under section 54 was recognised for both properties, while the amount admissible was left open for de novo verification by the Assessing Officer.

Ratio Decidendi: For assessment years prior to the prospective amendment, the expression "a residential house" in section 54 is not restricted to a single residential unit, and the claim may extend to more than one house subject to factual verification of the investment.

---