YASH ASHITBHAI VASHI,AHMEDABAD V. THE INCOME TAX OFFICER, WARD-1, INTERNATIONAL TAXATION, AHMEDABAD

ITA 1476/AHD/2024

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The case involves Yash Ashitbhai Vashi, who appealed against the decision of the Commissioner of Income Tax (Appeals) which upheld the disallowance of a deduction under Section 54 of the Income Tax Act, 1961. The deduction was initially disallowed by the Income Tax Officer because the new property was registered in the name of the assessee's mother, not in the assessee's own name. The CIT(A) agreed with the AO's decision, citing that the property must be in the assessee's name to qualify for the exemption under Section 54. The Tribunal found that crucial facts regarding the ownership and transmission of the property were unclear and required further investigation.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29683 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Other Referred Cases: Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC), Ganta Vijaya Lakshmi v. ITO (AP HC), D. Devadass v. ITO (Chennai ITAT), Prakash v. ITO (Bom. HC), Ponds India Ltd. v. Jt. CTT (2008)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: WAGHE PRASAD RAO
• Keywords: Set aside; Residential status
• Section: 147; 54; 54B; 54F

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद \u0011ायपीठ “डी“,अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD \u0016ी टी.आर. से\u001a\u001bल क ुमार, \u0011ाियक सद\u001d एवं \u0016ी मकरंद वसंत महादेवकर, लेखा सद\u001d क े सम#। ] ] BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA No.1476/Ahd/2024 िनधा \u000fरण वष\u000f /Assessment Year : 2018-19 Yash Ashitbhai Vashi E/1, Pranav Apartment Shreyas Tekra Ambawadi Ahmedabad – 380 015 बनाम/ v/s. The Income Tax Officer Ward-1, International Taxation Ahmedabad-380 014 \u0013थायी लेखा सं./PAN: AIIPV 9386 Q (अपीलाथ&/ Appellant) ('( यथ&/ Respondent) Assessee by : None (Written Submission) Revenue by : Shri Waghe Prasadrao, Sr.DR सुनवाई की तारीख/Date of Hearing : 24 /02/2025 घोषणा की तारीख /Date of Pronouncement: 26 /02/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Ahmedabad [hereinafter referred to as \"CIT(A)\"] dated 28.06.2024 for the Assessment Year (AY) 2018-19, wherein the CIT(A) upheld the disallowance of deduction under Section 54 of the Income Tax Act, 1961 [hereinafter referred to as \"the Act”] made by the Income Tax Officer, Ward 1, International Taxation, Ahmedabad [hereinafter referred to as \"AO] vide his order dated 26-04-2023 passed under section 147 r.w.s.144C(3) of the Act. ITA No.1476/Ahd/2024 Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 2 Facts of the Case: 2. The assessee was a 1/3rd co-owner of an immovable property sold for ₹55,00,000 with his share of sale consideration amounting to ₹18,33,333. After applying indexation, the Long Term Capital Gain (LTCG) was computed at ₹14,62,660, for which the assessee claimed deduction under Section 54 of the Act on the grounds of reinvestment in a new property. The AO disallowed the deduction, noting that the new property was registered solely in the name of the assessee’s mother, Smt. Heenaben Vashi, and not in the assessee’s own name. The AO observed that Section 54 of the Act mandates that the new property must be purchased in the name of the assessee to qualify for exemption. Although the assessee transferred ₹17,68,000 to his mother’s account, and she paid for the property, mere transfer of funds does not establish ownership. The assessee relied on the judgment in the case of Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC), where Section 54B of the Act exemption was granted even when the new property was purchased in the spouse’s name. However, the AO distinguished this case, stating that Sections 54B and Section 54 of the Act have different conditions, and Section 54 does not allow exemption if the new property is not in the assessee’s own name. The assessee also failed to provide any documentary evidence proving co-ownership or investment in his own name. In light of these findings, the AO disallowed the deduction of ₹14,62,660 under Section 54 and added it to the assessee’s taxable LTCG. Additionally, penalty proceedings under Section 270A(9) of the Act for misreporting of income were initiated. ITA No.1476/Ahd/2024 Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 3 3. The assessee preferred an appeal before CIT(A). The CIT(A) upheld the disallowance of deduction under Section 54, as the new property was registered solely in the name of the assessee’s mother, Smt. Heenaben Vashi, and not in his own name. The AO was asked to submit a remand report through the ITBA system but failed to do so, leading the CIT(A) to decide the matter based on the available records. The assessee contended that he had invested ₹17,68,000 from his bank account in purchasing the new house and that the purchase was made in his mother’s name for sentimental reasons. However, the CIT(A) rejected this argument, noting that mere transfer of funds does not establish ownership, and the assessee failed to furnish any documentary evidence proving joint ownership or a legal right over the property. The CIT(A) distinguished the case of Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC), relied upon by the assessee, stating that it pertained to Section 54B of the Act, which allows exemption when property is purchased in a spouse’s name, whereas Section 54 strictly requires the property to be in the assessee’s own name. The CIT(A) referred to judicial precedents, including Ganta Vijaya Lakshmi v. ITO (AP HC), D. Devadass v. ITO (Chennai ITAT) and Prakash v. ITO (Bom. HC), which categorically held that exemption under Section 54 or 54F of the Act is available only if the new property is in the assessee’s name. The CIT(A) also cited the Supreme Court’s decision in the case of Ponds India Ltd. v. Jt. CTT (2008), emphasizing that legislative provisions must be adhered to strictly. Given the clear requirement under Section 54 that the new property must be owned by the assessee, the CIT(A) concluded that the assessee was not eligible for the deduction. Accordingly, the addition of ₹14,62,660 as taxable LTCG was confirmed, and the appeal was dismissed. ITA No.1476/Ahd/2024 Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 4 4. Aggrieved by the order of CIT(A), the assessee is in appeal before us with following grounds of appeal: 1) The learned CIT (A) grossly erred in not allowing the claim of deduction u/s. 54 for Rs.14,62,660/- being his share of investment in purchase of new house merely because the new house was purchased in the name of his mother Smt. Heenaben Vashi, as discussed in para 4 of the CIT (A) order. 2) The appellant reserves the right to add, alter and withdraw any grounds of appeal. 5. During the course of hearing before us, we observe that the assessee has made a written submission before us, we note that the assessee is assessed by the Income Tax Officer, International Taxation, and his residential status is Non-Resident. The CIT(A) had called for a remand report from the AO through the ITBA system, but the AO failed to submit any response. The CIT(A), therefore, proceeded to decide the matter based on the material available on record. Upon review, the CIT(A) upheld the AO’s findings and confirmed the disallowance of deduction under Section 54 of the Act, on the grounds that the new property was registered in the name of the assessee’s mother, Late Smt. Heenaben Vashi, and not in the assessee’s own name. The AO, in his order, specifically mentioned that the assessee invested the amount in the name of his Late mother, raising further concerns about the legal ownership and ultimate succession of the property. However, neither the AO’s order nor the CIT(A)’s order clearly establishes whether the mother was also a co-owner of the sold property, whether the property was inherited, or who the other co-owners were. These critical facts remain unclear from the orders of both authorities. ITA No.1476/Ahd/2024 Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 5 5.1. The assessee has relied on various judicial precedents where deduction under Section 54 of the Act was allowed when the property was purchased in the name of a wife or daughter. While we appreciate the substance of this argument, the reason why the assessee decided to purchase the property in the name of his mother, who is no more, and its implications on the ultimate ownership of the property remain unanswered. The CIT(A)’s order acknowledges that the assessee purchased the property in his mother’s name for sentimental reasons, but it is crucial to examine what happened to the property after the mother’s demise. Specifically, it is necessary to determine whether the property was transmitted to the assessee or to other legal heirs. The ultimate ownership of the property is an essential aspect in determining whether the assessee effectively complied with the conditions of Section 54 of the Act. 6. In our opinion, when the property is purchased in the name of wife or daughter, the courts have decided in favor of the assessees primarily identifying the concept of family and the importance of Class I legal heirs. However, in the present case, the property was purchased in the name of the assessee’s mother, who is no more, and the subsequent transmission of ownership remains unclear. This aspect is crucial, as the final ownership of the property plays a significant role in determining the applicability of Section 54 exemption. 6.1. Given the incomplete factual findings and lack of clarity on crucial aspects, we deem it fit to set aside the order of the CIT(A) and restore the matter back to the file of the AO for deciding the matter afresh. The AO is directed to conduct further inquiries regarding the ownership structure, the ITA No.1476/Ahd/2024 Yash Ashitbhai Vashi vs. The ITO Asst. Year : 2018-19 6 inheritance details and the ultimate transmission of the property and pass a fresh order after providing the assessee with an adequate opportunity of being heard. 6.3. Considering the lack of clarity on material facts, the failure of the AO to submit a remand report, and the necessity to determine the final ownership of the property, we find it appropriate to set aside the order of the CIT(A) and restore the matter back to the AO for fresh adjudication. The AO is directed to examine all relevant aspects, including the inheritance status of the property and its ultimate ownership, and pass a fresh order after affording due opportunity to the assessee. 7. In the result, the appeal of the assessee is allowed for statistical purposes. pronounced in the Open Court on 26th February, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER अहमदाबाद/Ahmedabad, िदनांक/Dated 26/02/2025 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की \"ितिलिप अ#ेिषत/Copy of the Order forwarded to : 1. अपीलाथ$ / The Appellant 2. \"%थ$ / The Respondent. 3. संबंिधत आयकर आयु& / Concerned CIT 4. आयकर आयु& ) अपील ( / The CIT(A)-Ahmedabad-13 5. िवभागीय \"ितिनिध , अिधकरण अपीलीय आयकर , राजोकट/DR,ITAT, Ahmedabad, 6. गाड\u000f फाईल / Guard file. आदेशानुसार/ BY ORDER, स%ािपत \"ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad "