Pradeep Parikh, Vice President. - The assessee is in appeal before us against the order of the learned CIT(A), dated 31-3-2007 for assessment year 2001-02. The issue in this appeal relates to the determination of capital gains at Rs. 12,52,276 and denying the exemption under section 54F of the Income-tax Act, 1961 (‘the Act’) to the assessee.

2. The assessee individual declared total income of Rs. 2,84,762 which included income from salary, income from house property, capital gains and income from other sources. Under the head "Capital gains" long-term loss of Rs. 80,931 was shown on sale of land and property constructed on the said property. The assessee owned a piece of land with a residential property constructed on it at Krishnanagar, Hyderabad. He entered into an agreement with a promoter/developer as per which the promoter was to demolish the existing structure and build a new residential-cum-non-residential complex. As a consideration, the pro-moter was to give 43 per cent of the built-up area to the assessee in the new complex and 57 per cent of the built-up area was to be owned by the promoter. The cost of construction of the 43 per cent of the built-up area was to be the consideration for the assessee for transferring the land and the existing structure thereon. 3450 sq.ft. constituted 43 per cent of the built-up area allotted to the assessee. The cost of construction was determined at Rs. 340 per sq.ft. Thus, the assessee computed the capital gains as follows:

3. However, the Assessing Officer did not agree with the above computation on four counts. Firstly, he took the land at 57 per cent of 500 sq. yds. which the assessee owned instead of 354 sq. yds. which the assessee had taken, but did not disturb the rate adopted by the assessee. Secondly, referring to the agreement, the Assessing Officer held that the existing structure was to be demolished and that what was transferred was land only and not the superstructure. Therefore, he denied the deduction on account of the cost of construction incurred by the assessee in 1987-88. Thirdly, he held that the assessee received three parking lots in addition to 3450 sq. ft. and hence its value has to be added as a part of consideration. Lastly, the assessee was reimbursed by the promoter the rental expenses he had to incur during the construction period. Thus, the Assessing Officer computed the capital gains afresh as follows :—

4. Further, in his return of income, the assessee had claimed deduction under section 54 of the Act. However, in the course of assessment proceedings he put up an alternate claim claiming exemption under section 54F of the Act. The Assessing Officer observed that the assessee had acquired three flats on first floor and one flat on second floor. The assessee occupied two flats on the first floor and let out the other two flats. Therefore, he held all the four flats to be independent with separate kitchens and with no inter-connection and hence denied the exemption under section 54F of the Act.

5. In the first appeal, the CIT(A) observed that no doubt, the old superstruc-ture was handed over to the developer, but it was no asset in his hands, rather a liability as he had to incur some expenditure to remove the same. Thus, he confirmed the action of the Assessing