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2025 (5) TMI 823
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.... the facts and circumstances of the case and in law, the CT(A) has erred in holding the house property at Nizampet as transferred to the daughter of assessee based on an unregistered Sreedhan Agreement dated 30.11.2017, contrary to the requirement of registration of an immovable property under the transfer of property Act, 1982 and ignoring the assessee's own return filed for the A.Y. 2021-22 where in such said property continued to be shown as owned by the assessee. 4. Whether on the facts and circumstances of the case and in law, the CT(A) has erred is not considering the residential house purchased on 19.01.2021 in A.Y 2020-21, where in another 54F claim was made. 5. Without prejudice to the above contentions, CIT(A) ought to have considered the residential house in My Home Bhuja Apts registered in the name of assessee on 7th July 2021 which is subsequent to the sale of original asset (16 June 2021) and thereby violating the provisions of 54F as per the proviso a(i) of sec 54F(1). 6. Any other ground(s) that may be urged at the time of hearing." 3. Briefly stated facts of the case are that, the assessee is an individual and filed return of incom....
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....aking note of various details filed during the course of assessment proceedings observed that, the assessee is not entitled for claiming exemption under section 54F of the Act towards capital gain derived from transfer of equity shares because, the assessee is having more than one residential house as on the date of transfer of original asset i.e., unquoted equity shares as on 16.06.2021 and in view of proviso to section 54F of the Act, the assessee is not eligible for claiming exemption when he had more than one residential house as on the date of transfer of original asset. The Assessing Officer has further observed that, although the assessee claimed to have gifted one residential house property i.e., Flat at Gayatri Gardens, Balaji Hill, Nizampet, Hyderabad to his daughter viz., Sahiti Duthala way back in the year 2015 on the occasion of her marriage with Shri Mohan Reddy, but, the fact remains that, the assessee claimed to have executed Gift without any formal gift deed registered by paying relevant stamp duty and, therefore, in view of provisions of section 123 of the Transfer of Property Act, 1882, for making a gift of immovable property, the transfer must be executed by a r....
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.... eligible for claiming exemption under section 54F of the Act on investment made in purchase of land because, the assessee has purchased 4153.57 square metres of land, however, constructed residential house only on 291.52 square metre, which means, the assessee has utilised roughly 6% of the land area for the purpose of construction of residential house property leaving behind 94% vacant land. Therefore, the Assessing Officer observed that, the assessee is not eligible for claiming exemption under section 54F of the Act. In other words, the Assessing Officer rejected exemption claimed by the assessee under section 54F of the Act on three grounds including having more than one residential house as on the date of transfer of original asset i.e., shares of companies and further, no investment was made in capital gain account on or before the due date provided under section 139(1) of the Act and further, investing capital gain amount only in purchase of land and constructing residential house in less than 6% of land area. The relevant observations of the Assessing Officer are as under. "Part V - Conclusion : 42. In the case of the assessee, the following conclusions a....
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....ed that, the assessee has satisfied substantive provisions of section 54F of the Act. The assessee had also satisfied the conditions of filing a return of income on or before the due date provided under section 139(1) and also invested the amount of capital gain before the said date for purchase of residential house and also investment in capital gain deposit account scheme. The Assessing Officer never disputed these facts, however, disallowed exemption claimed under section 54F of the Act only on technical ground of not satisfying the conditions of proviso to section 54F(1) of the Act, even though, the assessee has filed relevant evidences to prove that, as on the date of transfer of original asset i.e., shares of the two companies, the assessee is not having more than one residential house property. The assessee had also negated the observations of the Assessing Officer with regard to the due date for filing return of income and utilisation of land for construction of residential house property by filing relevant evidences including construction agreement with the contractor, occupancy certificate issued by the Municipal Authorities for completion of house construction on or befo....
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....nsideration for which these shares were actually sold. In other words, the deeming provisions of Section 50C were not attracted. AO has also made independent verification from buyer of these unquoted shares, and found that the purchase of shares was duly reflected in their financial statements, and the source of funds in their hands was adequately explained. The appellant has computed LTCG of Rs. 92,28,20,193/- arising on sale of these shares (after taking indexed cost of acquisition at Rs. 2,21,72,590/-) during the year. AO has examined the Share Register and noted that the appellant has followed the First-In First-Out (FIFO) method for the purpose of computation of Capital Gains. Out of the total LTCG, the appellant has claimed exemption under section 54F to the tune of Rs. 53,22,48,667/-, and has offered the remaining LTCG of Rs. 39,05,71,526/-for taxation. The claim of exemption under section 54F has been made by the appellant, in proportion to the investment made towards construction of residential house (the new asset), and partly towards amount deposited in Capital Gains Account Scheme. These investments have been made by the appellant in October 2022. In his return of incom....
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.... 5 Copy of Gift deed in favour of daughter in respect of the house at Gayatri Gardens; 6. Copy of Streedhan Agreement dated 30.11.2017; 7. Copy of Construction Contract dated 08.12.2022 with the Builder (M/s Advitha Infra) in respect of construction of residential house (new asset) for total consideration of Rs. 2.02 Crore; 8 Copy of Revised Construction Contract dated 03.01.2023 with the Builder in respect of construction of residential house (new asset) for escalated consideration of Rs. 11 Crore; 9. Copy of Occupancy Certificate dated 18.06.2024 issued by the Municipal Authority in favour of the appellant. 6.10 On a careful perusal of evidence brought on record, I find that the appellant has satisfactorily discharged the primary onus cast upon it to produce sufficient material to establish the fact of investment made in construction of residential house (the new asset) and also the deposits made in Capital Gains Account Scheme, within the prescribed time period, for the purpose of claiming exemption under section 54F, by furnishing all the relevant and material evidence. In respect of investment made towards construction of resident....
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....er than the new asset, on the date of transfer of the original asset, or (ii) purchases any residential house, other than the new asset, within a period of one year after the date of transfer of the original asset; or (iii) constructs any residential house, other than the new asset, within a period of three years after the date of transfer of the original asset; and (b) the income from such residential house, other than the one residential house owned on the date of transfer of the original asset, is chargeable under the head "Income from house property".] Explanation-For the purposes of this section,- [****] [***] "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of [two years] after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is cha....
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.... (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), - (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid." 6.12. On a plain reading of the above provisions, and in the light of evidence brought on record, it is evident that the appellant has fulfilled all the eligibility criterion prescribed therein to claim the benefit of exemption from chargeability of Capital Gains (arising from sale of shares in his hands). The quantum and date of qualifying investments made towards construction of residential house (and deposit of unutilized....
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....t that the appellant has fulfilled the substantive requirements in order to claim the exemption of LTCG under section 54F, on a proportionate basis, by way of investing part of the sale consideration towards construction of residential house, and depositing certain unutilized sale consideration in the Capital Gains Account Scheme, within the prescribed time period. This is duly and adequately supported by documentary evidence on record, as elaborated at Para 6.10 above. AO has, however, denied the benefit of exemption purely on certain technical grounds. The material facts relating to each such ground of denial of exemption are discussed in detail, in the succeeding paragraphs. The due date applicable to the appellant 6.15. Sub-section (4) of Section 54F stipulates that the net sale consideration should be invested in the new asset, or the unutilized sale consideration should be deposited in the Capital Gains Account Scheme, within the due date for furnishing return of income under section 139(1). There is no dispute on the fact that the appellant is one of the partners in the partnership firm M/s Duthala Pharma, having fifty percent share in profits thereof. The ....
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....). I am not inclined to concur with the view of the AO. The view taken by the AO is too pedantic, to say the least. In case of an individual, the due date of furnishing return of income under section 139(1), ordinarily, is 31st July of the relevant assessment year. However, in case of an individual, being partner in a firm whose accounts are required to be audited, the due date of furnishing return of income under section 139(1), ordinarily, is 31st October of the relevant assessment year. The simple reason for allowing partner of a firm extended time to furnish his return of income, is that the details of remuneration, interest etc. paid by the partnership firm are required to be audited by the Tax Auditors of the firm. These details are necessary for the partner to finalize his return of income. In the instant case, the partnership firm M/s Duthala Pharma has got audited its books of accounts for the year, as the Turnover was in excess of Rs. One Crore, and the firm has claimed losses for the year. Therefore, it is only logical that the appellant being partner in such firm, must be allowed extended time up to 31st October of the relevant assessment year (i.e. 31st October' 20....
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....licability of Proviso below sub-section (1) of Section 54F 6.16. The proviso below sub-section (1) of section 54F lays down certain disqualifications for the claim of exemption under the said section. The proviso lays down that the benefit of exemption shall not be available to an assessee, who either owns more than one residential house (other than the new asset) on the date of transfer of original asset; or purchases another residential house (other than the new asset), within a period of one year of transfer, or constructs another residential house (other than the new asset) within a period of three years of transfer. This is subject to further condition that the income from such other residential house is chargeable to tax under the head 'Income from House Property'. 6.16.1. In the instant case, AO has noted from the ITR filed by the appellant for the earlier years i.e. for Assessment Year 2021-22, that the appellant already owned two house properties. Therefore, AO has taken a view that the appellant was not eligible to claim exemption under section 54F, as he had violated either of the first two conditions, namely (i) the appellant was owning more th....
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....was not registered and executed. However, on considering the totality of facts, and in the light of documentary evidence, I am inclined to concur with the appellant's contention that he had validly made a Gift of the aforesaid residential House property to his daughter, Mrs Sahithi Duthala, at the time of her marriage in 2015; even though the same was formalized at a later date. Therefore, the appellant cannot be regarded as owner of the said residential House Property at Gayatri Gardens, as on the sale of shares in June 2021. 6.16.3. In respect of the other residential House Property being Flat No. 1605, Block G, My Homes Bhooja, Gachibowli Raidurgam Village, Hyderabad-500036, the appellant has contended that booking amount for the said house property was paid by his daughter in 2020 (Rs.50,000/- on 30.09.2020 and Rs. 79,11,500/-on 18.12.2020), and the remaining amount was paid by the appellant. The total consideration for the said flat was to the tune of Rs. 4.17 Crore. The appellant has stated that substantial part of the sale consideration (to the tune of Rs. 3.30 Crore) was paid prior to the date of transfer of original asset (i.e sale of shares on 16.06.2021). On....
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....perty" till time of possession, therefore, condition stipulated in clause (b) of proviso to section 54F(1) was not satisfied and, accordingly, consequential relief was to be granted to assessee. 6.16.5. On similar facts, Hon'ble ITAT, Mumbai in the case of Shweta Singh Vs ITO (2024) (161 taxmann.com 302) (Mumbai - Trib.) has held that Joint ownership in two residential properties at time of sale of original asset would not disentitle assessee to claim deduction under section 54F. 6.16.6. On similar facts, Hon'ble ITAT Bangalore in the case of Smt. Sajida Begum Vs ITO (2015) (56 taxmann.com 269) (Bangalore Trib.) has held that exemption under section 54F cannot be denied on pretext of two houses, when assessee had had made an oral gift in respect of one such property in favour of her daughter. In that case also, the Assessing Officer had rejected assessee's claim taking a view that gift had not been executed by a registered document. This view was confirmed by CIT (Appeals), but overruled by the Tribunal. Exemption not admissible on purchase of vacant land 6.17. AO has also denied the claim of exemption on the ground that intention of ....
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....d in the Capital Gains Account Scheme, within the period prescribed therein. The facts on record do not indicate that the appellant has violated any of the conditions prescribed under the Proviso to section 54F, or laid down in sub-section (4) thereof. The completion of construction of new residential house within the permissible period of three years from the date of transfer of original asset is also duly evidenced. On these facts, the action of AO in denying the benefit of exemption under section 54F is not sustained. The Jurisdictional Assessing Officer (JAO) is accordingly directed to delete the addition of Rs. 43,22,48,667/- made on this account. These grounds of appeal are allowed." 8. Shri Mohd. Afzal, Advocate-Learned Counsel for the Assessee referring to the provisions of sec.54F of the Act submitted that, the provisions of said section deals with exemption from capital gain, in case the assessee invests the amount of capital gain derived from transfer of any asset other than the residential property for purchasing/ construction of a new residential house property, a deduction towards the entire amount of capital gain or proportionate amount of capital gain as the case....
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.... by the Assessing Officer that, unless the Gift Deed is registered, there is no valid Gift of property and consequently, the assessee cannot claim that property has been gifted by him is not correct. 8.1. Learned Counsel for the Assessee further referring to the provisions of sec.54F(1), Sec.139(1) and proviso 44AB of the Act submitted that, the observation of the Assessing Officer in light of "due date" for filing return of income u/sec.139(1) is totally incorrect because, as per the provisions of sec.139, the due date for an assessee who is partner of any Firm and books of accounts of the said Firm is required to be audited u/sec.44AB of the Act is 31st October, but, not 31st July as claimed by the learned Assessing Officer. The Assessing Officer without appreciating the relevant facts, on his own imagination and understanding of law, interpreted that, the due date for the assessee for filing return of income is 31.07.2022 by bringing proviso to sec.44AB of the Act, even though, the material placed on record clearly shows that the books of accounts of the Firm is audited by an Accountant and the assessee has filed his return of income as per the due date provided u/sec.139(1) ....
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....essing Officer had brought out the fact that of not investing the consideration in capital gain deposit account scheme on or before the due date for filing return of income by bringing on record relevant provisions of sec.44AB of the Act, where the assessee is not required to get his accounts audited. Further, the Assessing Officer had also brought out clear facts that, assessee has not utilised the total land area for construction of house property and, therefore, observed that, assessee is not eligible for claiming exemption u/sec.54F of the Act. Although, the Assessing Officer has brought on record all the relevant facts and also relied on relevant provisions of the Act, but, the learned CIT(A), without appreciating the reasons given by the learned Assessing Officer, deleted the addition made by the Assessing Officer. Therefore, she submitted that the order of the learned CIT(A) should be set aside and the addition made by the Assessing Officer should be confirmed. 10. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee has sold unquoted equity shares....
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....the assessee. The moot point for adjudication is, whether on the facts and circumstances of the case, the appellant-assessee is eligible to claim exemption u/sec.54F of the Act in respect of qualifying investment made towards construction of residential house property and amount deposited in the capital gain deposit account scheme ? The assessee has placed various evidences including copy of Gift Deed in favour of his daughter, copy of Streedhan Agreement, copy of construction contract and copy of occupancy certificate issued by Municipal Authorities for completion of house property on or before the due date and also IDBI Bank A/c statement in support of capital gain account deposit scheme. In fact, the Assessing Officer never disputed these facts. Therefore, it is necessary for us to understand the reasons given by the Assessing Officer to deny exemption on technical grounds. Admittedly, there is no dispute that the assessee has satisfied substantive provisions of sec.54F of the Act by investing capital gain for purchase of residential house property. The provisions to sec.54F of the Act deals with exemption from capital gain for re-investment of the amount of capital gain for pur....
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....se any residential house [other than the new asset] within one year of transfer or construction of another residential house. This is subject to further condition that the income from such other residential house is chargeable to tax under the Head "Income from house property". In the present case, it was the contention of the Assessing Officer that, the assessee owns more than one residential house as on the date of transfer of original asset. The assessee claims that one residential house property at Flat No.7, Gayatri Gardens, Balaji Hills, Nizampet, Hyderabad has been gifted to his daughter viz., Sahiti Duthala at the time of her marriage way back in the year 2015. The Assessing Officer disputed the gift of the property in absence of registered Gift Deed at the time of gift of the property. In other words, there is a gift deed executed in the year 2022. However, there was no gift deed when the property was gifted in the year 2015. The assessee contended that as per the Hindu Customs and Traditions, oral gifts are common that too at the time of marriage of their children. In the present case, the assessee claims to have gifted one residential house property as promised in favour....
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....executing the sale deed. Although, the facts of the above case before the Hon'ble Supreme Court is in light of Agreement to Sell between the parties, but, if we apply the ratio laid down by the Hon'ble Supreme Court, in our considered view, the Gift can be considered as a valid Gift going by the practice prevailing in Indian Society. 13. In so far as the argument of the Learned DR in light of mortgage of the gifted property to Kotak Mahindra Bank, in our considered view, merely for the reason of mortgaging the said property to a Bank for availing loan by the assessee, it cannot be said that the assessee is not gifted the property in favour of his daughter. Admittedly, the gift is between father and daughter. Going by the relationship between the parties, it is not surprised for us that, the property belong to daughter has been used by the father to avail Bank loan because, it is common in our society that, a related-party property has been given as collateral for availing loan with the consent of the other party. In the present case, it was the claim of the Learned Counsel for the Assessee that, the property has been mortgaged by the appellant-assessee to Kotak Mahindra Bank for....
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....ase, going by the date of booking the Flat i.e., on 30.09.2020 and the subsequent execution of sale deed dated 07.07.2021, there is no reason to disbelieve the argument of the assessee that the builder has completed the construction and handed over the possession in the year June 2022 because, in normal course from the date of booking the Flat, the builder will take 2 or 3 years time for completion of the construction of a project and to handing-over the possession to the prospective customers. If we consider the date of booking the Flat and payment of substantial consideration, then, the assessee has paid the substantial consideration on 25.05.2021 which means, he has paid substantial amount of consideration before the date of transfer of original asset dated 16.06.2021 and, therefore, the argument of the Assessing Officer that the assessee has purchased new residential house property within one year from the date of transfer is incorrect. Further, going by the argument of the assessee that he has received physical possession of the property in June, 2022, then, also the observation of the Assessing Officer is incorrect that, assessee has purchased one more residential property wi....
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....dger accounts of receipts and payments and observed that, cash payments and cash receipts is less than 5% and, therefore, the assessee falls under clause-(b) of proviso to sec.44AB of the Act and as per the said provisions, if the turnover does not exceed Rs. 10 crores, then, there is no requirement of filing audit report in Form-3CB and Form 3CD. 15.1. We find that, assessee is a partner in a partnership firm and partnership firm is subjected to audit u/sec.44AB of the Act. It is also on record that, the assessee has filed relevant audit report issued by an Accountant of partnership firm and as per the said audit report, the Auditor's specified the "due date" of filing audit report is 31.10.2022. Once, there is no dispute with regard to the fact that, the assessee is a partner in a firm, whose accounts are required to be audited and in fact, the assessee has filed relevant audit report in prescribed Forms to prove it's case, in our considered view, the Assessing Officer ought not to have artificially inserted a "due date" as per his own understanding of law, even though, the evidences clearly shows that actual "due date" for filing return of income in the present case is 31.10.....
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....nstructed residential house within three years from the date of transfer of original asset and, therefore, in our considered view, it is irrelevant whether the assessee has constructed building on entire portion of land and has only utilised portion of land for residential house and kept remaining land vacant. In our considered view, what is required to be seen is, whether the land purchased by the assessee for construction of residential house or not ? Once the land is purchased for the purpose of construction of house property, then, there is no reason to disallow deduction only on the ground that the assessee has used part of land for construction of house property. In the present case, going by the facts available on record, we find that, the assessee has purchased land and also constructed residential house property within the "due date" provided under the Act. Therefore, the assessee is eligible for exemption u/sec.54F of the Act. 16.1. At this stage, it is relevant to consider certain judicial precedents, where it was held that, the cost of land includes the cost of new residential house property which is eligible for exemption u/sec.54F of the Act. In this regard, it is ....