AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (5) TMI 1547
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....e appeal filed by the assessee in ITA No. 1599/Hyd/2025, wherein the impugned order has been assailed on the following grounds of appeal: 1. That the learned CIT(A) erred both on facts and in law in passing the impugned order. 2. That the learned CIT(A) erred in granting relief to the assessee on the basis of an 'Agreement of Sale', ignoring the fact that the ownership of the property had not been physically or legally transferred to the transferee. 3. That the learned CIT(A) erred in holding that taking of physical possession or execution of a registered sale deed was immaterial to the question of ownership and transfer. 4. That the learned CIT(A) failed to appreciate that, as per Section 54 of the Transfer of Property Act, unregistered documents cannot be relied upon to claim ownership of immovable property. 5. That the learned CIT(A) erred in treating the 'Agreement of Sale' as constituting a complete transfer by relying on judicial precedents cited in Paragraph 6.2.9 on page 20 of the appellate order. 6. That the learned CIT(A) ignored the fact that mere possession or execution of a sale agreement, without conclusive proof o....
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.... order, has carried the matter in appeal before us. 7. DR. Sachin Kumar, learned Departmental Representative (for short, "Sr. DR") strongly relied upon the assessment order, and submitted that the CIT(A) had grossly erred in law and fact of the case in granting relief merely on the basis of an unregistered agreement of sale. Elaborating on his contention, the Ld. DR submitted that the ownership of immovable property cannot pass in the absence of a registered conveyance deed and, therefore, the assessee cannot be said to have purchased a residential property within the meaning of section 54 of the Act. Apart from that, the Ld. Sr. DR raised doubts regarding the genuineness of the unregistered "agreement to sell", dated 01/03/2021, which was stated to have been entered by the assessee with her group entity. 8 Per Contra, Shri. AV Raghuram, Advocate, the learned Authorized Representative (for short, "AR") for the assessee, supported the order of the CIT(A) and submitted that the assessee had substantially invested the capital gains towards the purchase of a new residential house property within the prescribed time. It was contended that for claiming exemption under section 54 of....
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....Mrs. Shakuntala Devi (2016) 389 ITR 366 (Kar), wherein it is held that utilization of capital gains in the purchase/construction of a residential house would suffice to claim the benefit of Section 54 of the Act. In fact, a view to that effect has been taken by the coordinate bench of the Tribunal in the case of DCIT (International Taxation)-1 vs. Syama Reddy Mali Reddy, ITA No. 366/Hyd/2025, dated 03/09/2025. The Tribunal, based on its exhaustive deliberations, had observed as under: 17. The controversy involved in the present appeal boils down to the solitary issue, i.e. whether or not the assessee, though having made payments aggregating to Rs. 4,10,85,000/- to M/s. DSR Builders & Developers (supra) for purchase of the new residential house, viz. flat/apartment bearing No. 1102, 11th floor of the Tower, "The First" in Survey No. 66/2, at Raidurg, Panamaktha, Serilingampalli Mandal, Ranga Reddy District, Telangana, i.e. upto the date of filing of her return of income for the subject year on 22.07.2019, was entitled for claim of deduction under Section 54F of the Act, though the possession letter was issued by the builder/developer on 24.08.2020, while for the registered ....
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.... dated 9th February, 2006 between the assessee and the builder and observed that the ownership in the new property would be conferred on the date of issuance of occupation certificate. Further, the expected date of completion was 36 months from the date of the agreement dated 9th February, 2006 i.e. 8th February, 2009. He held that the assessee was not entitled to benefit of Section 54 as he had not purchased the new property within a period of one year before the sale of first property on 3rd June, 2005 or within two years from the date on which the transfer took place. The assessee had not constructed residential house within three years from 3rd June, 2005. Assessing Officer observed that legal ownership of the property never vested in the assessee within the aforesaid period and therefore, the purchase was not completed within two years which was the period stipulated and specified in Section 54 of the Act. He, accordingly, computed the long term capital gain, after granting benefit of indexation on cost of acquisition and cost of improvement, at Rs. 45,36,273/-. While examining the question of capital gains, the Assessing Officer also disallowed the claim of the assessee to th....
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....he amount of the capital gain which is not appropriated by the assessee towards the purchase of the new assets made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset: Provided that if the amount deposited under this sub-section is not utilised wholly or partly fo....
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.... allowed to play and create confusion or linguistic distortion. The argument that "purchase‟ primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money‟s worth. The word "purchase‟, it was observed was of a plural semantic shade and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain. 9. Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sh. Sanjeev Lal Etc.Etc. vs. CIT, Chandigarh & Anr., decided on 01/07/2014, 2014 (8) SCALE 432 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received Rs. 15 lacs by way of earnest money and subsequently received the balance sale consideration of Rs....
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....rt installments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was Rs. 31,980/- whereas the installments paid were Rs. 71,256/-, i.e. much more than the amount of capital gain. Reference was made to Circular No. 471 dated 15th October, 1986 [1986] 162 ITR (Stat.) 41. It was observed that Section 54 of the Act says that assessee could have constructed the house and not that the construction should have necessarily been completed. Noticing that it was not easy to construct a house within the time limit of three years and under the Government schemes, construction takes years. When substantial investment was made in the construction and it should be deemed that sufficient steps had been taken, and it satisfied requirement of Section 54. 11. What has been stated in the judgment of the Madhya Pradesh High Court in 1997, in practical terms and in reality still holds good. This is a matter of common knowledge that flats or apartments being constructed by builders take time. The Government Housing Boards also take time and seld....
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....asic purpose behind Section 54 is to ensure that the assessee is not taxed on the capital gains, if he replaces his house with another house and spends money earned on the capital gains within the stipulated period. 13. The view we have taken gets support from sub-section (2) to Section 54. The aforesaid sub-section requires the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word "purchase‟ is used in sub-section (2) and indicates that the said word is not restricted or confined to registered sale deed or even possession but has a wider connotation. The proviso supports the aforesaid interpretation and stipulates that the amount deposited but not utilized wholly or partly for purchase or construction of new asset within the specified period will be charged to tax under Section 45 in the previous year in which the period of three years from the date....
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....bunal. However, we are of firm conviction that the facts involved in the present case before us are distinguishable from those involved before the "Special bench" in the case of Mahindra & Mahindra Ltd. vs. ITO (supra). As the claim of the Ld. DR regarding the veracity of the "agreement to sell", dated 01.03.2021 stems from and is inextricably interlinked or rather interwoven with the core issue based on which the revenue has preferred the present appeal before us, i.e., maintainability of the assessee's claim of deduction under section 54 of the Act, based on the said unregistered "agreement to sell" dated 01.03.2001, therefore, we are of firm conviction that as the Tribunal being the last fact finding authority is vested with the jurisdiction under Section 254(1) of the Act to "....pass such orders thereon as it thinks fit", the aforesaid contention advanced by the Ld. DR, which goes to the roots of the issue involved in the present appeal, cannot be brushed aside and needs to be looked into and verified. 14. Coming to the Ld. AR's contention that as the revenue has not raised any "ground of appeal" regarding the genuineness of the "agreement to sell", dated 01.03.2021, in the....