Section 54F relief cannot be denied merely because property was bought from relatives, if the transaction is genuine and documented.

Exemption under section 54F of the Income-tax Act cannot be denied solely because the residential property was purchased from related family members, if the transaction is genuine and supported by registered documents and corroborative evidence. The assessee's purchase was backed by developer confirmation, demat records, maintenance bills and electricity records, while the Revenue relied only on surrounding circumstances such as family relationship, use of a power of attorney and an allegation that the sellers continued to reside in the property. On the record discussed, those did not establish any legal infirmity, and a colourable device allegation requires cogent evidence rather than suspicion.

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Issues: Whether exemption under section 54F of the Income-tax Act, 1961 could be denied on the ground that the residential property was purchased from related family members and the transaction was a colourable device to evade tax.

Analysis: The assessee substantiated the purchase of the residential flat with registered documents, developer confirmation, demat records, maintenance bills, electricity records and other corroborative material. The Revenue's objections were based on surrounding circumstances such as the family relationship of the parties, the use of a power of attorney, and the allegation that the sellers continued to reside in the property. The evidentiary material on record did not establish any legal infirmity in the purchase transaction or any basis to disregard the registered transfer. A deduction under section 54F cannot be refused merely because the transaction is between relatives, where the transaction is otherwise genuine and supported by record. The allegation of a colourable device was not sustained by cogent material.

Conclusion: The denial of exemption under section 54F was unsustainable and the assessee was entitled to the deduction.

Final Conclusion: The addition made by disallowing the capital gains exemption was deleted and the assessee's appeal succeeded.

Ratio Decidendi: A deduction under section 54F cannot be denied solely because the investment is made in property purchased from relatives if the transaction is genuine, duly documented, and not shown by cogent evidence to be a sham or colourable device.

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