TaxTMI 
TaxTMI 
2026 (7) TMI 942
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.... i. passing order u/s. 143(3) of the Act determining taxable income at Rs. 1,71,96,581/- against returned income in a sum of Rs. 23,80,340/-. ii. making an addition of Rs. 1,48,16,241/- by disallowing the deduction u/s. 54GB of the Act." 3. The relevant facts in brief are that for the Assessment Year 2022-2023, the Assessee filed return of income of 31/07/2022 declaring total income of INR. 23,80,340/-. The case of the Assessee was selected for complete scrutiny on account of 'Non-fulfilment of Requisite Condition(s) for claiming deduction u/s. 54/54B/54F/54GB on Capital Gains (Non-business ITR)'. The Assessing Officer noted that the Assessee claimed deduction of INR.1,48,16,241/- under Section 54GB of the Act in respect of investment of INR.3.69 Cores made in equity shares of Autonymi Pvt. Limited [hereinafter referred to as 'APL']. Vide show cause notice, dated 19/12/2023, the Assessee was asked to explain why the Long Term Capital Gain exemption claimed under Section 54GB of the Act should not be disallowed due to non-fulfillment of the requisite conditions for claiming the aforesaid deduction. The relevant extract of the aforesaid show cause notice read as under:....
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.... in the equity shares of APL to total consideration received computed as under: A Amount Invested INR.3,69,00,000 B Sale Consideration INR.4,40,00,000 C Total Capital Gains INR.1,76,67,062/- D= (A/B) x C Exemption u/s. 54GB INR.1,48,16,241/- The Assessee clarified that the benefit of Section 54GB of the Act was available to the Assessee even for the transactions undertaken during the relevant previous year as the benefit of Section 54GB of the Act extended for the transactions undertaken before 31st March, 2022. As regards Assessing Officer's observations that amount of investment under Section 54GB of the Act could not exceed INR.50 Lakhs, the Assessee clarified that the said limit was not application to Section 54GB of the Act. The Assessee further submitted that APL has submitted detailed response on 23/12/2023 to the Notice, dated 08/12/2023, issued by the Assessing Officer under Section 133(6) of the Act to APL whereby APL has clarified that entire amount of investment (INR.3.69 Cores) has been used for purchase of capital assets as per provision of Section 54GB of the Act. 5. However, the Assessing Officer was ....
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....th supporting evidences. Therefore deduction claimed by the assessee to the extent to Rs. 1,48,16,241/- u/s. 54GB of the Act has been disallowed. Assessee has earned total capital gain of Rs. 1,76,67,062/ during the year under consideration. Out of this total capital gain assessee has cla med deduction u/s. 54GB to the tune of Rs. 148,16,241/- and balance Rs. 28,50,821/-has shown and declared under LTCG and offered for laxation. Hence the long term capital gain amounting to Rs. 1,48,16,241/- is being added back to the total income of the assessee for the relevant assessment year Penalty proceeding u/s. 270A of the Act for under reported of income in consequence of misreporting is being initiated separately. (Addition of Rs. 1,48,16,241/-) 6. Being aggrieved, the Assessee preferred appeal before Learned CIT(A). Vide Letter, dated 27/05/2025, the Assessee filed written submissions which were further supplemented by the written submissions submitted on 06/12/2025. After considering the submission of the Assessee and taking into consideration the findings returned by the Assessing Officer, the Learned CIT(A) dismissed the appeal preferred by the Assessee concluding as un....
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.... statements of the company reveal withdrawals for administrative expenses, payments to related parties, and transfers to third-party accounts unrelated to capital asset acquisition." "No bills, invoices, payment vouchers, fixed asset schedules or auditor certificates have been submitted to show utilisation of funds for new plant or machinery." Non-utilisation of the funds for new plant or machinery is a fatal defect under Section-54GB. This condition has not been satisfied. 3. Post-Subscription Shareholding Threshold Not Satisfied Statutory Requirement: The assessee must hold the minimum prescribed percentage of share capital or voting power after subscription, depending on whether the company qualifies as an eligible start-up or a general eligible company. AO's Findings: "As per the ROC records and the shareholding pattern obtained during assessment. the assessee's holding after subscription is below the statutory threshold required under Section 54GB. The assessee has not met the mandatory post-investment voting requirement." Conclusion: The failure to meet the prescribed post-subscription sh....
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....titled to claim deduction of INR.1,48,16,241/- under Section 54GB of the Act. Section 54GB of the Act is applicable to the Assessment Year 2022-2023 reads as under: "Section - 54GB, Income-tax Act, 1961 - FA, 2022 Capital gain on transfer of residential property not to be charged in certain cases. 54GB. (1) Where,- (i) the capital gain arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee (herein referred to as the assessee); and (ii) the assessee, before the due date of furnishing of return of income under sub-section (1) of section 139, utilises the net consideration for subscription in the equity shares of an eligible company (herein-referred to as the company); and (iii) the company has, within one year from the date of subscription in equity shares by the assessee, utilised this amount for purchase of new asset, then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer takes place, it shall be dealt with in accordance with the following provisions of this section, th....
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....f transfer of residential property after 31st March 2017. However, the aforesaid cut-off date extended to 31st March, 2019 by Finance Act, 2017, thereafter to 31st March, 2021 by the Finance Act, 2019 and thereafter to 31st March, 2022 by the Finance Act, 2021. This becomes clear on Proviso to Section 54GB(5) of the Act which reads as under: "Provided that in case of an investment in eligible start-up, the provisions of this sub-section shall have the effect as if for the figures, letters and words "31st day of March, 2017", the figures, letters and words "31st day of March, 2022" had been substituted." 10. Therefore, it is apparent that the stand taken by the Assessing Officer in the show-cause notice to the effect that the benefit of Section 54GB of the Act could not have been availed in respect of transfer of residential property after 31st March, 2017 was based upon incorrect understanding of the legal position. It is also clear that benefit of exemption under Section 54GB of the Act was available in respect of "eligible start-up". In the present case, it has not been disputed by the Assessing Officer that the investment was made by the Assessee in APL which failed ....
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....filed reply on 23/12/2023 stating that the complete investment received from the Assessee has been converted into fully paid voting equity shares and the same have been utilised towards purchase of plant and machinery. In support APL had also furnished the financial statements for the Financial Year 2022-2023. We find that no follow up query or notice was issued by the Assessing Officer to APL asking for further details before making the disallowance. 14. Even in appeal preferred by the Assessee, the Learned CIT(A) failed to take cognizance of the aforesaid confirmation and supporting documents furnished by APL in response to notice issued under Section 133(6) of the Act and recorded his concurrence with the Assessing Officer on this issue in the following manner: "2. Subscription Money Not Utilised for Purchase of New Plant and Machinery Statutory Requirement: Section 54GB mandates that the amount received by the company must be utilised "for purchase of new plant and machinery before the due date of filing the return." AO's Findings: "No evidence has been furnished to show that any plant or machinery was acquired out of the funds receive....
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....5 - Details filed 24/07/2023 itself. PB 20 - 1.69 crores paid in Sept/Oct 2021. PB 16-19 - 2.00 crores pad in July 2022. PB 21 - Autonymi's Start-up India certificate. PB 22 - Confirmation dated 24/07/2023 from Autonymi as to nature of business, investment in equity, eligibility for section 54GB under Startup India, shareholding threshold. PB 23 - Confirmation from Autonymi as to purchase of machinery, referring balance sheet. "We have already issued compliance certificate......" 4. Maximum eligible investment u/s. 54-GB is Rs. 50 lakhs Yes 06-SCN. 14- Maximum amount that can be invested in eligible SME is Rs. 50 lakhs There is no such condition in section 54-GB 5. No proof of purchase of machinery. Yes 14-Letter from Autonymi furnished stating that machinery purchased. Complete details not filed. 10-No evidence of utilization of investment in company for purchase of plant & machinery. Sub-sections (2) & (3) to section 54-GB clearly provide for purchase to be made in future periods. 6. Investee company not eligible No 10-(Refers AO's findings-THERE IS NO SUCH FINDING IN ASST ORDER) - No evidence of manufacturing activi....