SATISHCHANDRA JAGDISHCHANDRA GUGALE,PUNE V. ITO WARD - 14(5), PUNE

ITA 1821/PUN/2025

AI Insights

The case involves Satishchandra Jagdishchandra Gugale, who appealed against the order of the CIT(A)/NFAC for the assessment year 2014-15, which confirmed the disallowance of a deduction claimed under section 54F of the IT Act. The assessee had sold a plot of land and purchased a residential flat, claiming a deduction under section 54F. However, the Assessing Officer disallowed part of the deduction because the entire sale consideration was not deposited in a specified capital gains account scheme before the return of income was filed. The Tribunal, referencing a decision by the Karnataka High Court, found in favor of the assessee, emphasizing the legislative intent of section 54F to encourage reinvestment of sale proceeds in residential property within the stipulated time frame.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 838356 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 30-07-2025
• Other Referred Cases: CIT vs. Ramchandra Rao [2015] 56 taxman.com 163 (Karnataka)
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY DHIVARE VIRTUAL
• Assessee Lawyers: NEELESH KHANDELWAL
• Keywords: Capital asset; Capital Gains; Principle of natural justice
• Section: 143(3); 142(1); 54F; 139

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.1821/PUN/2025 िनधाᭅरण वषᭅ / Assessment Year : 2014-15 Satishchandra Jagdishchandra Gugale, Plot No.3, Jalochi, Bhigwan Road, Baramati, Pune- 412201. PAN : AEQPG7878G Vs. ITO, Ward-14(5), Pune. Appellant Respondent आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 21.05.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2014-15. 2. The appellant has raised the following grounds of appeal :- “1. On facts and circumstance prevailing in the case and as per provisions and scheme of the Act, it be held that the Ld. AO framed the assessment order without issuing show cause notice Assessee by : Shri Neelesh Khandelwal Revenue by : Shri Sanjay Dhivare (Virtual) Date of hearing : 23.12.2025 Date of pronouncement : 19.02.2026 Printed from counselvise.com ITA No.1821/PUN/2025 2 to the Appellant is violation of principles of natural justice and not in accordance with the provisions of law. The assessment so framed shall be treated as null and void. Appellant be granted just and proper relief in this respect. 2. Without prejudice to the above, on facts and circumstances prevailing in the case and as per provisions & scheme of the Act it be held that the disallowance of deduction claimed under section 54F of the Act amounting to Rs.91,45,450/- is not in accordance with the provisions of the Act. The disallowance so made be deleted. Just & proper relief be granted. 3. The Appellant prays to be allowed to add, amend, modify, rectify, delete, and raise any grounds of appeal at the time of hearing.” 3. Facts of the case, in brief, are that the assessee is an individual and has furnished his return of income on 23.01.2015 declaring an income of Rs.17,18,490/-. The case was selected for scrutiny through CASS. Subsequently, notices u/s 143(2) and 142(1) respectively were issued to the assessee. The Assessing Officer found that the assessee has sold an immovable property being a plot of land for Rs.3,21,00,000/- on 18.03.2014 and purchased a flat on 25.02.2015 for Rs.4 crores & claimed deduction u/s 54F of the IT Act. However, the assessee failed to deposit whole of the consideration into specified capital gain account scheme before furnishing return of income and only deposited Rs.2,25,00,000/- in the specified bank account. Therefore, the Assessing Officer calculated capital gain of Rs.3,16,45,450/- & taxed Rs.91,45,450/- Printed from counselvise.com ITA No.1821/PUN/2025 3 (Rs.3,16,45,450/- minus Rs.2,25,00,000/-) being balance of capital gain not deposited in specified bank account before furnishing the return of income. Accordingly, the assessment was completed u/s 143(3) of the IT Act by determining total income at Rs.1,08,63,940/- as against the income of Rs.17,18,490/- returned by the assessee. The above assessed income includes addition of Rs.91,45,450/- as capital gain being disallowance of deduction u/s 54F of the IT Act. 4. Being aggrieved with the above assessment order, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assessee and confirmed the order passed by the Assessing Officer. 5. It is the above order against which the assessee is in appeal before this Tribunal. 6. We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book & copy of case laws furnished by the assessee. In this regard, we find that admittedly the assessee has invested the whole of the sale proceeds of Rs.3,21,00,000/- received on 14.03.2014 in purchase of Printed from counselvise.com ITA No.1821/PUN/2025 4 residential flat for Rs.4 crores on 25.02.2015. Apparently, the assessee is entitled to claim deduction u/s 54F of the IT Act. However, according to Ld. DR it is the case of the Assessing Officer that as per section 54F of the IT Act the assessee was required to deposit whole of the consideration in capital gain account scheme before furnishing return of income, and since the assessee only deposited Rs.2,25,00,000/- in the above capital gains account scheme and failed to deposit Rs.91,45,450/- in capital gain account scheme the deduction of above amount cannot be allowed and therefore Ld. CIT(A)/NFAC also confirmed the order passed by the Assessing Officer. In this regard, we find that the claim of the assessee is that since whole of the consideration of Rs.3,21,00,000/- has already been invested within one year from the sale of the original asset, in purchase of residential flat valuing for Rs.4 crores, the real intention of the legislature is fulfilled and the deduction u/s 54F needs to be allowed. In this regard, the assessee relied on judgement passed by Hon’ble High Court of Karnataka in the case of CIT vs. Ramchandra Rao [2015] 56 taxman.com 163 (Karnataka) and also relied on various decisions passed by coordinate benches of this Tribunal wherein deduction u/s 54F was allowed to the assessee Printed from counselvise.com ITA No.1821/PUN/2025 5 under identical facts. In this regard, we find that Hon’ble Karnataka High Court dismissed the appeal filed by the Revenue and confirmed the order passed by the Tribunal wherein deduction u/s 54F of the IT Act was allowed to the assessee even in the absence of depositing the whole of the consideration in specified capital gain account scheme by observing as under :- “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 Printed from counselvise.com ITA No.1821/PUN/2025 6 (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 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 subsection (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 Printed from counselvise.com ITA No.1821/PUN/2025 7 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 — (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 Subsection (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. Printed from counselvise.com ITA No.1821/PUN/2025 8 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 construction. Therefore, in the instant case admittedly the assessee has purchased a vacant site pri31.3.2001. 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 Printed from counselvise.com ITA No.1821/PUN/2025 9 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.” 7. Respectfully following the above decision passed by Hon’ble Karnataka High Court in the case of K. Ramchandra Rao (supra), we are of the considered opinion that the real intention of the legislature is to get the amount of sale consideration invested in purchase of residential house within the prescribed period and not to get the amount deposited in capital gain accounts scheme. Admittedly, in the instant case the whole of the sale consideration was invested by the assessee in purchase of residential house within a period of one year from the date of sale of original asset therefore in the light of above judgement passed by Hon’ble Karnataka High Court in the case of K. Ramchandra Rao (supra), the assessee is entitled to get deduction u/s 54F of the IT Act. Accordingly, in view of above discussion, we set-aside the order passed by Ld. CIT(A)/NFAC and direct the Assessing Officer to allow the Printed from counselvise.com ITA No.1821/PUN/2025 10 deduction of Rs.91,45,450/- claimed by the assessee u/s 54F of the IT Act. Thus, the ground no.2 raised by the assessee is allowed. Since alternate ground no.2 has been allowed, ground no.1 becomes infructuous and is therefore not adjudicated. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced on this 19th day of February, 2026. Sd/- Sd/- (MANISH BORAD) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; ᳰदनांक / Dated : 19th February, 2026. Sujeet आदेश कᳱ ᮧितिलिप अᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The Pr.CIT concerned. 4. िवभागीय ᮧितिनिध, आयकर अपीलीय अिधकरण, “B” बᱶच, पुणे / DR, ITAT, “B” Bench, Pune. 5. गाडᭅ फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune. Printed from counselvise.com "