MOHIT GUPTA,CHENNAI V. ITO,NON- CORP WARD 17(2), CHENNAI, CHENNAI

ITA 1847/CHNY/2025

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The case involves an appeal by Shri Mohit Gupta against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, which confirmed the Assessing Officer's decision to tax capital gains in the assessment year 2016-17 and denied exemption under section 54 of the Income Tax Act, 1961. The assessee had sold inherited property in Besant Nagar, Chennai, and claimed the capital gains should be assessed in the subsequent year, 2017-18. Additionally, the assessee argued for exemption under section 54, which was denied due to non-deposit of sale proceeds in the capital gains account scheme before the due date of filing the return. The Tribunal, referencing a decision by the Karnataka High Court, held that the exemption should be granted as the sale proceeds were utilized for purchasing a new asset within the stipulated time, despite not being deposited in the capital gains account scheme.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 788202 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: misc
• Appeal Filed On: 27-06-2025
• Other Referred Cases: Commissioner of Income-tax, Bangalore vs. K Ramachandra Rao, P.Sankaran vs. ITO, A.C. Shyam Sundar vs. JCIT, Madhusuvan Prasad vs. ITO, ACIT vs. Justice T.S.Arunachalam
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOUTHAMI MANIVASAGAM
• Assessee Lawyers: N. ARJUN RAJ
• Keywords: Capital asset; Corroborative evidences; Cost of acquisition; Capital Gains; TDS; Valuation report; Assessment record
• Section: 54; 54F

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘बी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.: 1847/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year: 2016-17 Shri Mohit Gupta, T45, Old No.T11, VI Avenue, Besant Nagar, Chennai – 600 090. PAN: AOQPG 5419R Vs. The Income Tax Officer, Non-Corporate Ward 17(2), Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri N. Arjun Raj, Advocate ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. Gouthami Manivasagam, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 20.11.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 25.11.2025 आदेश/ O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeal), National Faceless Appeal Centre (NFAC), Delhi dated 17.06.2025, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2016-17. Printed from counselvise.com ITA No.1847/Chny/2025 :- 2 -: 2. The Ld.AR had argued two issues namely, (i) capital gains is to be assessed for assessment year 2017-18 as returned by the assessee instead of the impugned assessment year namely 2016-17 (ii) The First Appellate Authority (FAA) has erred in confirming the AO’s action in disallowing the claim of deduction u/s.54 of the Act. 3. Brief facts of the case are as follows: For the assessment year 2017-18, the assessment was reopened to examine the claim of deduction / exemption claimed from capital gains. The assessee had sold inherited property located in Besant Nagar on 23.03.2016 along with five co-owners for a total consideration of Rs.12,50,00,000/-. The assessee had received Rs.2,00,00,000/- as his share and declared capital gains in the assessment year 2017-18. The assessee claimed exemption u/s.54 of the Act for entire sum of Rs.2 crores. The assessment was completed for the relevant assessment year u/s.147 r.w.s.260 r.w.s.144B of the Act on 28.01.2023 by bringing to tax assessee’s share of income of Rs.2,00,00,000/- in the assessment year 2016-17. The AO also denied the claim of deduction u/s.54 of the Act. The AO concluded that assessee had sold the inherited property on 23.03.2016 and received the entire sale consideration before the execution of the Printed from counselvise.com ITA No.1847/Chny/2025 :- 3 -: sale deed. It was further held by the AO that possession of the property was handed over and the same is evident from the sale deed dated 23.03.2016. Therefore, the claim of transfer had taken place in the subsequent year namely assessment year 2017- 18 was rejected by the AO. As regards the claim of exemption u/s.54 of the Act, the AO held that in light of provision of section 54(2) of the Act, since assessee had not deposited the sale proceeds in the capital gains account scheme before the due date of filing of return u/s.139(1) of the Act, claim of deduction u/s.54 of the Act cannot be allowed. Accordingly, the AO added a sum of Rs.2,00,00,000/- as taxable long term capital gains u/s.45 of the Act. 4. Aggrieved by the assessment completed, assessee filed appeal before the First Appellate Authority (FAA). The contentions raised by the assessee was rejected by the FAA by observing as under:-  “The sale consideration of Rs.2 crore is confirmed to have been received in F.Y.2015-16 and correctly taxed under the head \"Long Term Capital Gain\" in A.Y 2016-17 under section 45 of the Act.  The appellant is not eligible for exemption under section 54 due to non- compliance with the mandatory requirements of section 54(2).  Even assuming the compromise decree evidences possession in 2017 mere is no separate agreement of part-performance furnished by the appellant nor say registered agreement preceding the sale deed to which section 53A could apply. Hence, section 2(47)(iva) is not Printed from counselvise.com ITA No.1847/Chny/2025 :- 4 -: attracted. Therefore, the appellant's reliance on this provision is misplaced, and the Assessing Officer has rightly taxed the capital gains in A.Y. 2016-17.  The appellant's failure to substantiate the cost of acquisition with credible evidence, as well as the inability to establish eligibility for exemption under section 54 through proper supporting evidence, renders his claim unsubstantiated and unsustainable in law.  The appellant claims to have filed details of the cost of acquisition (Rs 1,93,299/-) in his submission dated 07.01.2023, which was allegedly not considered by the AO. However, on careful examination of the assessment records and the order, it is observed that no verifiable documentary evidence. such as purchase deed, valuation report, or cost allocation statement, was placed on record. A mere statement or submission without supporting documentation is not sufficient to allow deduction under section 48.  In the absence of any legally admissible proof, the computation offered by the appellant cannot be accepted.” 5. Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has filed a paper-book enclosing therein the return of income filed for the assessment years 2016-17 & 2017-18, the scrutiny assessment completed u/s.143(3) of the Act for the assessment year 2017-18, the return of income filed pursuant to notice issued u/s.148 of the Act for the assessment year 2016-17, the notices issued during the course of proceedings before the AO and the FAA, the statement of capital gains, the sale documents and the case laws relied on, etc. The Ld.AR reiterated the submissions made before the AO and the FAA. Printed from counselvise.com ITA No.1847/Chny/2025 :- 5 -: 6. The Ld.DR supported the orders of the Income-tax Authorities. 7. We have heard rival submissions and perused the material on record. The AR’s preliminary issue is that long term capital gains is to be assessed on the transfer of immovable property in the assessment year 2017-18 instead of relevant assessment year 2016-17. Alternatively, the Ld.AR also contended that if capital gain is liable to be taxed in the relevant assessment year, assessee is entitled for exemption u/s.54 of the Act, since new asset has been purchased within the stipulated time. 8. As regards, alternative plea of assessee is concerned, we note that the original asset was sold vide registered sale deed dated 23.03.2016 vide Doc.No.735/2016 of SRO, Adyar and the new asset was purchased on 08.03.2018 within the time stipulated under the Act. The copy of the deed executed for purchasing the new asset is enclosed at page 156 of the paper-book. The recitals capturing the payments made are under:- That in pursuance of the aforesaid agreement and in consideration for sum of Rs. 2,00,00,000/- (Rupees Two Crores Only) paid by the PURCHASER to the VENDORS in the following manner: Printed from counselvise.com ITA No.1847/Chny/2025 :- 6 -: (1) A sum of Rs. 1,20,83,895/- (Rupees One Crore Twenty Lakhs Eighty Three Thousand Eight Hundred and Ninety Five Only) paid by the Purchaser through ICICI Bank Bankers Cheque bearing No. 048161 to the Vendors Loan Account No. LBCHE00002402056 as outstanding loan amount, dated 28/02/2018, drawn on ICICI, Chennai Branch. (2) A sum of Rs. 18,45,101/- (Rupees Eighteen Lakhs Forty Five Thousand One Hundred and One Only) paid by the Purchaser through ICICI Bank Bankers Cheque bearing No. 048162 to the Vendors Loan Account No. LBCHE00002402088 as outstanding loan amount, dated 28/02/2018, drawn on ICICI, Chennai Branch. (3) A sum of Rs. 25,32,552/- (Rupees Twenty Five Lakhs Thirty Two Thousand Five Hundred and Fifty Two Only) paid by the Purchaser through ICICI Bank Bankers Cheque bearing No. 048163 dated 28/02/2018 to the 1st Vendor drawn on ICICI, Chennai Branch, towards housing loan as part of sale consideration. (4) A sum of Rs.25,32,552/- (Rupees Twenty Five Lakhs Thirty Two Thousand Five Hundred and Fifty Two Only) paid by the Purchaser through ICICI Bank Bankers Cheque bearing No.048164 dated 28/02/2018 to the 2nd Vendor drawn on ICICI, Chennai Branch towards housing loan as part of sale consideration. (5) A sum of Rs.1,00,000/- (Rupees One Laklh Only) paid by the Purchaser through RTGS on Various dates by way of TDS on behalf of the 1st Vendor. (6) A sum of Rs.1,00,000/- (Rupees One Lakh Only) paid by the Purchaser through RTGS on various dates by way of TDS on behalf of the 2nd Vendor. (7) A sum of Rs,8,05,900/- (Rupees Eight Lakhs Five Thousand Nine Hundred Only) paid by the Purchaser through RTGS on various dates to the Vendors as full and final settlement.” Printed from counselvise.com ITA No.1847/Chny/2025 :- 7 -: 9. The Annexure-1A at page 166 of the paper-book demonstrates the purchase of the new asset comprising of land and building, which is captured below:- Printed from counselvise.com ITA No.1847/Chny/2025 :- 8 -: 10. The sole reason for denial of exemption u/s 54 of the Act for the assessment year under consideration is on the ground that the assessee had not deposited the sale proceeds into the capital gains accounts scheme thereby negating the eligibility of such exemption. In this context, we note that the sale proceeds were utilized towards creation of the new asset on or before the due date specified u/s 139(4) of the Act. 11. The Hon’ble Karnataka High Court in the case of Commissioner of Income-tax, Bangalore vs. K Ramachandra Rao, reported in [2015] 56 taxmann.com 163 had held in the context of Section 54F of the Act that when the entire sale consideration is utilized in construction of a residential house on or before the time limit specified u/s 139(4) of the Act, exemption cannot be denied merely because the amount was not deposited in the capital gains account scheme before the due date u/s 139(1). The relevant finding of the Hon’ble High Court reads as follows:- “4. Re.Question No.2 : As is clear from Sub Section (4) in the event of the assessee not investing the capital gains either in purchasing the residential house or in constructing a residential house within the period stipulated in Section 54F(1), if the assessee wants the benefit of Section 54F, then he should deposit the said capital gains in an account which is duly notified by the Central Government. In other words if he want of claim exemption from payment of income tax by retaining the cash, then the Printed from counselvise.com ITA No.1847/Chny/2025 :- 9 -: said amount is to be invested in the said account. If the intention is not to retain cash but to invest in construction or any purchase of the property and if such investment is made within the period stipulated therein, then Section 54F(4) is not at all attracted and therefore the contention that the assessee has not deposited the amount in the Bank account as stipulated and therefore, he is not entitled to the benefit even though he has invested the money in construction is also not correct. 5. For the aforesaid reasons both the substantial questions of law are answered in favour of the assessee and against the Revenue. Therefore, we do not see merit in any of the appeals. Accordingly, all the four appeals are dismissed.” 12. In light of aforesaid judgment of the Hon’ble Karnataka High Court, we hold that assessee is entitled to the re-investment made in terms of section 54 of the Act, in view of the utilization of the sale proceeds within the stipulated time prescribed u/s.139(4) of the Act. 13. Moreover, the failure to deposit the sale proceeds into the capital gains account scheme should be reckoned as a technical breach and such technical breach cannot disentitle the exemption claimed u/s.54 of the Act. In this context, we place reliance on the following judicial pronouncements, wherein it was held that the non-routing of the sale proceeds through the capital gains account scheme is only a technical breach:- i. P.Sankaran vs. ITO in ITA No.1167/Mds/2016 ii. A.C. Shyam Sundar vs. JCIT in ITA No.2279/Mds/2015 Printed from counselvise.com ITA No.1847/Chny/2025 :- 10 -: iii. Madhusuvan Prasad vs. ITO in ITA No.2485/Mds/2004 iv. ACIT vs. Justice T.S.Arunachalam in ITA No.2455/Mds/2017 14. Therefore, we direct the AO to grant exemption claimed u/s.54 of the Act for the assessment year 2016-17 provided assessee satisfies the other condition prescribed under the said section. Since, we have allowed the alternative plea of the assessee, the preliminary issue raised, in which assessment year the long-term capital gain is to be taxed is not adjudicated and is left open. It is ordered accordingly. 15. In the result, the appeal filed by the assessee is partly- allowed for statistical purposes. Order pronounced in the open court on 25th November, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 25th November, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. Printed from counselvise.com "