Capital gains & sec 54 | family transfer and subsequent sale

Hi All

I have a client who is looking forward to transfer his residential house property to his son and daughter in law. The transferees subsequently wish to sell this property and buy another jointly in their name.

On plain understanding of the law and its provisions, the capital gain on sale of this property shall be taxable as LTCG  and subsequent purchase shall make them for eligible for deduction u/s 54 for the amount invested.

But i am little skeptical keeping in mind the pro-revenue approach of the assessing officer. Can they deny the benefit u/s 54 under any reasoning. Can they treat the capital gains in the hands of the transferor and thus taxing the CG in his hands without allowing the benefit of section 54

In other circumstance, if the AO decides to club the income from CG in the hands of the transferor on account of Section 64(1)(vi0, will the net income [after Section 54] be clubbed or the gross amount will be clubbed.

Your valuable feedback and advise in both the circumstances is requested. Support of case laws will be highly appreciated

Regards

Sidharth Sahni