NAGAMMA,RAICHUR V. INCOME TAX OFFICE-WARD 1, RAICHUR

ITA 549/BANG/2025

AI Insights

The case involves Nagamma, the appellant, who sold immovable property and did not initially file a return of income, leading to notices under various sections of the Income Tax Act. After filing her return, she claimed deductions under sections 54F and 54B for investments made from the sale proceeds. The Assessing Officer (AO) disallowed these deductions, leading to an appeal to the CIT(A), which was also dismissed. The main legal contention revolved around the proper valuation of the property and the eligibility for deductions under section 54F despite not adhering to the procedural requirement of depositing the sale proceeds in CGAS. The Tribunal's decision highlighted the importance of the actual use of the sale proceeds in construction over procedural non-compliance.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772132 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: CIT vs. Ramachandra Rao (2015) 56 taxmann.com 163 (Karnataka)
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REVENUE; GANESH R. GHALE; STANDING COUNSEL REVENUE
• Assessee Lawyers: PRATHIK P
• Keywords: Capital asset; Fair market value; Cost of acquisition; Gift; Capital Gains
• Section: 148; 142(1); 54; 153A; 54B; 54F; 139

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH : BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER ITA No.549/Bang/2025 Assessment Year : 2018-19 Nagamma, 1-3-573/197 Officers Colony, Ashapur Road Raichur, Raichur - 584101, Karnataka, India. PAN : BMXPN 0980 L Vs. ITO, Ward – 1, Raichur. APPELLANT RESPONDENT Assessee by : Shri. Prathik P,Advocate Revenue by : Shri. Ganesh R. Ghale, Advocate, Standing Counsel for Revenue. Date of hearing : 16.07.2025 Date of Pronouncement : 28.08.2025 O R D E R Per Laxmi Prasad Sahu, Accountant Member : This is an appeal filed by the assessee against the ex-parte Order passed by the CIT(A) vide DIN &Order No: ITBA/NFAC/S/250/2024- 25/1073520825(1) dated 20.02.2025. 2. Briefly stated, the facts of the case are that as per the information from the risk management strategy formulated by the CBDT through ITBA software under the head NMS case and assessee had carried out following transactions for the Financial Year 2017-18. Assessee sold immovable property, received Rs.69 lakhs. In spite of that she did not file return of income. Accordingly, notices under section 142(1) of the Act dated 10.02.2023 and 14.02.2023 were issued to the assessee and notice under section 148 of the Act dated 30.03.2022 was also issued to the assessee to file Printed from counselvise.com ITA No.549/Bang/2025 Page 2 of 10 income tax return and assessee filed return on 26.04.2022. Thereafter, notice under section 143(2) of the Act was issued to the assessee subsequently other statutory notices were also issued to the assessee. Assessee was asked to produce the documents in support of the claim and assesssee submitted reply. From the submission it was noticed that property was gifted by assessee’s husband. Thus cost of acquisition to the fair market value from 01.04.2001 and it was claimed to be as Rs.20 lakhs. The AO noted that as per the compensation paid by the Government for compulsory acquisition as in which land sold by assessee was situated. The compensation of Rs.3,50,000/- per acre was declared on 06.08.2006. The claim that he has filed plea for enhanced compensation and hence higher value be taken. So market value was considered as per settled value rather than adhoc value. So full value of FMV as on 01.04.001 is Rs.9,89,754/-. The property was sold on 25.01.2018 for claim of deduction under section 54F of the Act in the Financial Year 2017-18, the amount should have been kept in the capital gain account claimed by the assessee by the due date of filing of ITR. In the present case, the assessee has not deposited the proceeds from transfer of capital assest in capital gain account scheme account. Hence, the amount spent on construction of house in Financial Year 2018-19 starting from January 2019 was not allowed under section 54F of the Act. The AO allowed index cost of acquisition of Rs.26,92,131/- and deduction under section 54B of the Act was allowed of Rs.16,01,435/-. Accordingly, long term capital gain was calculated at Rs.26,06,434/-. Assessee filed detailed written submissions which was considered and not accepted and AO made addition under the LTCG of Rs.26,06,434/-/ 3. Aggrieved from the above Order, assessee filed appeal before the CIT(A). The learned CIT(A), after considering the submissions made by the Printed from counselvise.com ITA No.549/Bang/2025 Page 3 of 10 assessee, observed that the assessee did not satisfy the condition of section 54F(2) and 54F(4) of the Act and he dismissed the appeal of the assessee. 4. Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel reiterated the submissions made before the lower authorities and submitted that the assessee received payment through cheque and it was deposited in the nationalized bank account and assessee filed return within the due date in terms of notice under section 148 of the Act. The assessee has invested money in the Financial Year 2018-19 towards construction of the house property and assessee is illiterate. She is not aware of the income tax proceedings. She has signed the document only using thumb impression which is also certified by the notary. Assessee invested towards purchase of agricultural land to which the AO has allowed under section 54B of the Act and assessee utilized the money withdrawn from the Bank towards construction of the house property. It will not make any difference whether the money was kept in capital account scheme or in savings bank account. Only difference is nomenclature. Assessee incurred construction expenditure of Rs.41 lakhs used by engaging labour contractors and for all the materials purchases like steel, wood and other items and he has issued cheque payment to the parties. Plot size was 132 sq.mtr and assessee has constructed a small house and details of the plot purchased and construction expenses were submitted. However, the AO has not pointed out any mistake. He has just observed that the assessee has not satisfied the condition of section 54F of the Act. Assessee has withdrawn cash from bank of Rs.12,74,040/- towards construction expenses for regular payment and paid through cheque of Rs.7,80,300/- and material expenses of Rs.20,54,324/- was also paid. Capital asset was sold on 25.01.2018 and sale consideration was deposited in the bank account. Being a house wife and illiterate person, she was unable to think about the deposit in CGAS. There is no doubt on the construction expenses Printed from counselvise.com ITA No.549/Bang/2025 Page 4 of 10 incurred by the assessee submitted before the AO. Accordingly, assessee is eligible for deduction under section 54F of the Act for the new asset as per decision of Hon’ble High Court of Karnataka in the case of CIT vs. Ramachandra Rao reported in (2015) 56 taxmann.com 163 (Karnataka). 5. On the other hand, learned DR relied on the Order of the lower authorities and submitted that she did not satisfy the condition prescribed under sections 54 and 54F of the Act. Assessee should have deposited the amount in CGAS within the due date of filing of return of income u/s 139(1) of the Act, but the assessee neither deposited the amount in CGAS nor filed return under section 139 of the Act. 6. Considering the rival submissions and on perusal of the entire material available on record and Orders of authorities below, we note that here the dispute is only regarding considering FMV and deduction not given to the assessee under section 54F of the Act. Assessee has raised a legal ground but did not argue therefore the legal ground raised by the assessee as per her grounds of appeal are dismissed as not pressed. We note that the FMV determined by the AO isof Rs.3,50,000/- per acre on the basis of compensation paid at the earlier stage but the enhancement of compensation which was determined at Rs.5 lakhs has not been considered by the AO. We direct the AO to adopt the FMV of Rs.5 lakhs on the basis of enhanced compensation. Accordingly, this ground is allowed. 7. Further, the next issue is with regard to deduction not granted to the assessee under section 54F of the Act. However, during the course of assessment proceedings, assessee has furnished documents in support of expenditure incurred towards construction of house but the AO ha not made any comment on the same. He observed that the assessee has not deposited Printed from counselvise.com ITA No.549/Bang/2025 Page 5 of 10 the amount in CGAS the amount is not utilized within the due date of filing of return of income under section 139 of the Act. We also noted that the assessee has been allowed under section 54B of the Act. The amount was kept in the nationalized bank and the assessee withdrew amount from the bank and incurred expenditure towards construction of the house property. This issue has been put to rest by the jurisdictional High Court of Karnataka in the case of CIT vs Ramachandra Rao Vs. , reported in (2015) 56 taxmann.com 163 (Karnataka) the relevant portion of the judgment is as follows : 1. As these four appeals are in respect of the same assessee and arise out of a non- residential asset, they are taken up for consideration together and disposed of by this common order. 2. The assessee sold certain converted lands in Laxmipura Village and Kalkere village, Jigani Hobli, Anekal Taluk on 17.12.2014 to Paramahamsa Foundation Trust\"-, for a consideration of Rs.2,87,28,750/-. In the returns filed under Section 153A of the Income-tax Act (for short hereinafter referred to as the Act) the assessee computed Long Term Capital Gains of Rs.2,87,28,750/- before claiming exemption under Section 54B and 54F of the Act. During the course of assessment proceedings the assessee's representative was asked to substantiate the claim made for exemption under section 54B and 54F of the Act. In reply the assessee stated in the year 2005 i.e. on 31.3.2005 a sum of Rs.31,00,000/- has been contributed towards house construction. Till that date a loan of Rs.2,10,00,000/- was taken from Bank which was also utilized for construction. Therefore to the extent of 1,36,00,000/- he claimed exemption for construction of the house. After considering the said reply the Assessing Authority held the assessee has admitted that the land sold is a capital asset. The assessee claimed exemption under Section 54F to the extent of 1,63,23,064/-. He also claimed that he has utilised 1,36,00,000/- for house construction. On the ground that the assessee has not furnished how much amount was in fact utilized for construction after the date of sale, the claim of the assessee for claiming exemption was not accepted. The assessee claimed to have utilized 14,00,000/- in the previous year towards house construction. It is not clear as to whether the amount of Rs. 1,36,00,000/- claimed to have been spent for house construction is inclusive of 14,00,000/- spent earlier. Further it was held the assessee ought to have deposited the unutilized sale consideration in a Bank account under the Capital Gains Accounts Scheme. It has not been done. He has not furnished any proof in this regard along with the return filed. Therefore, the assessee's claim for exemption under Section 54F was disallowed. Aggrieved by the said order the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Authority held the assessee's investment in construction subsequent to the date of sale and investment in the eligible project even after the project of the house is started beyond one year will be eligible for exemption under Section 54F. However investment is made prior to more than one year before the date of transfer is not Printed from counselvise.com ITA No.549/Bang/2025 Page 6 of 10 eligible for exemption. Accordingly, he granted exemption. The Revenue preferred an appeal challenging the said order. The Tribunal has affirmed the said order. It is against the said order the Revenue has preferred the said appeals. 3. The two substantial questions of law which arise for consideration in these batch of appeals are as under :— \"(1) Whether the assessee is entitled to the benefit conferred under Section 54F when the sale consideration is utilized for construction of a residential house on a site which is owned by him within one year from the date of transfer? (2) When the assessee invests the entire sale consideration construction of a residential house within three years from the date of transfer can be denied exemption under Section 54F on the ground that he did not deposit the said amount in capital gains account scheme before the due date prescribed under Section 139(1) of the IT Act?\" 4. Re.Point No. 1 Section 54(F) deals with capital gains on transfer of certain capital assets not to be charged in case, of investment on house. It reads as under: 54F. Capital gain on transfer of certain capital assets not to be charged income of investment in residential house.— (1) [Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,— (a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45; (b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45: Provided that nothing contained in this sub-section shall apply where — (a) the assessee, — (i) owns more than one residential house, other 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 Printed from counselvise.com ITA No.549/Bang/2025 Page 7 of 10 (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 chargeable under the head \"Income from house property\", other than the new asset, 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 such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head \"Capital gains\" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, 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 such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head \"Capital gains\" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset 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 the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then, — (i) the amount by which — Printed from counselvise.com ITA No.549/Bang/2025 Page 8 of 10 (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), exceeds (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.' Section 54F(1) provides, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long term capital asset, not being a residential house and the assessee within a period of one year before or two years after the date on which the transfer took place, : purchased or has within a period of three years after that date constructed a residential house, the capital gain shall be dealt with in accordance with the said provision. This is subject to the provisions of Sub-section (4). Sub-section (4) stipulates if the amount of net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which transfer of the original asset took place or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under Section 139 of the Act shall be deposited by him before furnishing such return in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under Section 139(1) of the Act in an account in any such bank or institution as specified and utilized in accordance with any scheme which the Central Government may, by notification in the official gazette framed in this behalf. Sub-section (4) is attracted only to a case where the sale consideration is not utilized either for purchase or for construction of a residential house. It has no application to a case where the assessee invests the sale consideration derived from the transfer either in purchasing the property or constructing the residential house within the period stipulated in Section 54F(1). The proviso to Section 54F puts an embargo on the application of Section 54F to cases which are mentioned in the said proviso. That is to be eligible for the benefit under Section 54F(1) the assessee should not be owning more than one residential house other than the new asset acquired or he should not purchase any residential house other than the new asset within a period of one year after the date of transfer of residential asset or constructs any residential house other than the new asset within a period of three years after the date of transfer of the residential asset. In the entire scheme there is no prohibition for the assessee putting up construction out of sale construction received by such transfer of a site which is owned by him as is clear from the language used. It is open for the assessee to put up a residential construction or to purchase a residential house. It is not the requirement of law that he should purchase a residential site and then putup Printed from counselvise.com ITA No.549/Bang/2025 Page 9 of 10 construction. Therefore, in the instant case admittedly the assessee has purchased a vacant site pri-31.3.2001. He sold the original asset on 27.8.2003 on which date he was already owning a site. In fact even before sale of the original asset he had started construction on such site by availing loan from the Bank. In terms of Section 54F(1) all investments made in the construction of the residential house of the said site within a period of one year prior to 27.8.2003 would be eligible for exemption under Section 54F(1). Similarly all investments in the said construction after 27.8.2003 within a period of three years therefrom is also eligible for exemption. Therefore, the argument that such investment in putting up a residential construction cannot be made on a site owned by him to be eligible for exemption is without any substance. Both the Appellate Authorities have rightly extended the benefit to the assessee and there is no error committed by them which calls for interference. 4.1 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 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. 8. Respectfully following the above judgment, we allow deduction claimed under section 54F of the Act. Printed from counselvise.com ITA No.549/Bang/2025 Page 10 of 10 9. In the result, appeal filed by the assessee is partly allowed. Pronounced in the open court on the date mentioned on the caption page. Sd/ Sd/- Sd/- (SOUNDARARAJAN K) (LAXMI PRASAD SAHU) Judicial Member Accountant Member- Bangalore. Dated: 28.08.2025. /NS/* Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR,ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. Printed from counselvise.com "