DEEPTI REDDY,CHENNAI vs. ITO, NCW-3(1), CHENNAI

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

The captioned two appeals, preferred by the assessee, are directed against separate orders passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as "CIT(A)"], relating to the

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 2 :: assessment years (AYs) 2020-21 dated 02.02.2026 and 2021-22 dated 27.01.2026 respectively. As both the appeals involve the same assessee and were heard together, they are being disposed of by this consolidated order for the sake of convenience, brevity and to avoid repetition. However, since the appeals emanate from separate assessment proceedings and involve different issues, they are considered and adjudicated independently for each assessment year, as set out hereunder. ITA No. 930/CHNY/2026 – Assessment Year 2020-21:

(i) The order of the NFAC, Delhi dated 02.02.2026 for the above-mentioned assessment year is contrary to law, facts and in the circumstances of the case. (ii) The NFAC, Delhi erred in confirming the assumption of jurisdiction u/s. 147 of the Act and consequently erred in confirming the passing of the re-assessment order u/s. 147 of the Act without assigning proper reasons and justification. (iii) The NFAC, Delhi failed to appreciate that the re- assessment order was passed out of time, invalid, passed without jurisdiction and not sustainable both onfacts and in law. (iv) The NFAC, Delhi failed to appreciate that the assumption of jurisdiction u/s. 147 of the Act was without sanction of law and ought to have appreciated that the consequential re-assessment order accordingly should be reckoned as bad in law.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 3 :: (v) The NFAC, Delhi failed to appreciate that having not followed the prescription of law/procedure for framing the re-assessment, the consequential re-assessment order passed should be reckoned as nullity in law for want of jurisdiction. (vi) The NFAC, Delhi failed to appreciate that the issuance of the notice u/s. 148/148A of the Act by the Jurisdictional Assessing Officer (JAO) as against the issuance of such notice by the Faceless Assessing Officer (FAO) would completely defy the prescription of law/procedure and hence ought to have appreciated that in the absence of a valid foundation for issuance of notice u/s. 148 of the Act, the consequential re-assessment should be considered as nullity in law. (vii) The NFAC, Delhi erred in sustaining the treatment of Rs. 64,80,000/- being the income received from letting out of the property under consideration to M/s PAC Consulting Private Limited as “Income from Other Sources” as against the reporting of such income as “Income from Business”, without assigning proper reasons and justification. (viii) The NFAC, Delhi failed to appreciate that there was no power in the hands of the Assessing Officer to shift the reporting of income under one head of income to another head of income, thereby vitiating the disputed addition made in its entirety. (ix) The NFAC, Delhi failed to appreciate that the mechanical action in shifting the reported head of income to “Income from Other Sources” should accordingly be reckoned as bad in law. (x) The NFAC, Delhi erred in sustaining the disallowance of the claim of depreciation to the tune of Rs. 18,39,235/- in consequence to the shifting of head of income from “Income from Business” to “Income from Other Sources”, without assigning proper reasons and justification. (xi) The NFAC, Delhi failed to appreciate that the claim of depreciation was correct on various facets, the asset having been put to use for the purpose of letting of the property under consideration, and hence the consequential disallowance is bad in law. (xii) The NFAC, Delhi failed to appreciate that in any event the appellant was eligible for the claim of depreciation quantifiable under the various provisions of the Act. (xiii) The NFAC, Delhi erred in sustaining the addition of Rs. 58,50,000/- being the value of the motor car purchased

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 4 :: by the appellant, under the head “Income from Other Sources”, without assigning proper reasons and justification. (xiv) The NFAC, Delhi failed to appreciate that the appellant had substantiated the source of purchase of the motor car through the gift received from the appellant’s mother (Mrs. Anuradha Reddy) by placing on record the documentary evidences in support thereof, and hence the consequential addition made in this regard should be reckoned as bad in law. (xv) The NFAC, Delhi failed to appreciate that having not independently examined the nature and source of the motor car purchased by the appellant, the consequential addition of the entire value of the motor car under the head “Income from Other Sources” was erroneous, invalid, unjustified and not sustainable both on facts and in law. (xvi) The NFAC, Delhi failed to appreciate that the entire re- computation of taxable total income was wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law. (xvii) The NFAC, Delhi failed to appreciate that having not adhered to the prescription of the faceless regime, the consequential re-assessment and appellate order passed should be reckoned as bad in law. (xviii) The NFAC, Delhi failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles of natural justice would be a nullity in law. (xix) The appellant craves leave to file additional grounds/arguments at the time of hearing.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 5 :: National Faceless Assessment Unit u/s. 147 read with section 144B of the Act, whereby the total income of the assessee was determined at Rs.84,13,145/-. 5. In the reassessment order, the Assessing Officer In short ‘AO’) made additions aggregating to Rs.76,89,235/- over and above the returned income of Rs.7,23,910/-. The adjustments comprised of (i) treating the receipts of Rs. 64,80,000/- arising from sub-letting of property to M/s Indian PAC Consulting Private Limited, originally returned by the assessee under the head "Income from Business", as "Income from Other Sources"; (ii) disallowing the consequential claim of depreciation amounting to Rs. 18,39,235/-; and (iii) adding a sum of Rs.58,50,000/-, representing the cost of a motor car acquired during the year, as unexplained investment assessable under the head "Income from Other Sources". Consequently, the assessed income was computed at Rs. 84,13,145/-. 6. Aggrieved with the reassessment order, the assessee preferred an appeal before the ld.CIT(A). By the impugned appellate order dated 02.02.2026, the ld.CIT(A) rejected the jurisdictional challenge raised by the assessee and upheld all the additions and disallowances made by the AO, resulting in dismissal of the appeal. The assessee has, therefore, preferred the present appeal before the Tribunal. 7. At the threshold, the ld. Authorised Representative ("AR") questioned the very assumption of jurisdiction for reopening the assessment. It was submitted that the notice issued u/s. 148 of the Act dated 31.03.2024, along with the proceedings u/s.148A, had been issued by the Jurisdictional Assessing Officer (JAO) instead of a Faceless Assessing Officer through the automated allocation system, allegedly in violation of section 151A of the Act read with the "e-

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 6 :: Assessment of Income Escaping Assessment Scheme, 2022" notified by the CBDT on 29.03.2022. According to the ld. AR, section 144B(1), being couched in a non obstante form, mandates that the entire reassessment process, including issuance of notice u/s. 148, must be carried out only through the faceless assessment mechanism. It was argued that issuance of the notice by the JAO vitiates the proceedings and renders both the notice and the consequential reassessment order void ab initio. In support of the said proposition, reliance was placed upon Hexaware Technologies Ltd. v. ACIT (464 ITR 430) (Bom.), Kankanala Ravindra Reddy v. ITO (156 taxmann.com 178) (Telangana), Ram Narayan Sah v. Union of India (163 taxmann.com 478) (Gauhati), Sushila Sureshbabu Malge v. ITO (164 taxmann.com 633) (Bom.), Jatinder Singh Bhangu v. Union of India (165 taxmann.com 115) (P&H), Pravina Jagdish Patel v. ITO (164 taxmann.com 659) (Bom.), Jasjit Singh v. Union of India (165 taxmann.com 114) (P&H), as well as the decisions of the Hon'ble Bombay High Court in Samp Furniture Pvt. Ltd. v. ITO (W.P. No. 3290 of 2024) and Kairos Properties Private Limited v. ACIT (W.P. (LODG) No. 22686 of 2024). The ld. AR further submitted that the Hon'ble Madras High Court, in W.A. No. 781 of 2025 dated 24.06.2025, has reaffirmed the legal position enunciated by the Hon'ble Bombay High Court in Hexaware Technologies Ltd. (supra), and that the operation of the judgment of the ld. Single Judge rendered in favour of the Revenue in W.P. Nos. 25223 and 25227 of 2024 dated 20.12.2024 has since been stayed by the Division Bench. 8. The ld. AR further contended that the reassessment proceedings are liable to fail even on merits of additions, since both the receipts from sub-letting and the investment made in the motor car had

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 7 :: been fully disclosed in the return of income as well as in the financial statements accompanying the return. According to ld.AR, the income alleged to have escaped assessment had already been subjected to tax. It was argued that the reopening is founded merely upon a fresh appraisal of material that was already available on record and, therefore, amounts to an impermissible review or change of opinion. In support of this contention, reliance was placed on CIT v. Kelvinator of India Ltd. (320 ITR 561) (SC), Tenzing Match Works (419 ITR 338) (Mad.), ACIT v. Indian Syntans Investments Pvt. Ltd. (W.A. No. 220 of 2021 dated 19.06.2025) (Mad.), and Dr. Mathew Cherian v. ACIT (450 ITR 568) (Mad.). 9. Addressing the issues on merits, the ld. AR submitted that the assessee carries on business as the proprietrix of M/s Rajya, which is engaged in real estate activities and the business of providing rental services. It was explained that the assessee had taken on lease the property situated at No. 215, F Block, 1st Street, Anna Nagar East, Chennai–600 040 from Mrs. Anuradha Reddy under a lease agreement dated 23.07.2019 and thereafter granted the premises on leave and licence to M/s Indian PAC Consulting Private Limited under an agreement dated 26.08.2019. It was, therefore, submitted that the receipts generated from such activity had rightly been offered under the head "Income from Business". Reliance was placed upon the decisions of the Hon'ble Supreme Court in Chennai Properties & Investments Ltd. v. CIT (373 ITR 673), Raj Dadarkar& Associates v. ACIT (81 taxmann.com 193), and Sultan Bros. (P) Ltd. v. CIT (51 ITR 353), besides the order of the jurisdictional Bench of this Tribunal in ITA Nos. 2267 to 2270/CHNY/2019 dated 03.11.2021. It was further argued that the AO was not justified in reclassifying the business receipts under a different head of income

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 8 :: and that the consequential denial of depreciation amounting to Rs.18,39,235/- cannot survive. Insofar as the addition relating to the motor car is concerned, it was submitted that the investment was fully explained by the gift of Rs.2,74,40,000/- received from the assessee's mother, Mrs. Anuradha Reddy, which had been duly reflected in the financial statements and was corroborated by the relevant bank statements forming part of the paper book. 10. The ld. Departmental Representative ("DR"), on the other hand, supported the findings recorded by the AO as well as the ld.CIT(A). It was contended that the reassessment proceedings had been validly initiated on the basis of specific information indicating escapement of income and that the order passed u/s.148A(d) had been made only after considering the assessee's objections and obtaining the requisite approval from the competent authority. The ld. DR further submitted that the assessee had merely let out a single property to one tenant for an agreed consideration and had failed to establish that such activity constituted a systematic business operation. It was also argued that the assessee had not produced satisfactory contemporaneous evidence establishing the financial capacity of the donor and, therefore, the source of investment in the motor car remained unproved. 11. We have carefully considered the rival submissions, examined the assessment records, the orders passed by the authorities below and the paper book comprising 1-135 pages placed before us by the assessee. On a consideration of the grounds urged, we find that the controversy essentially falls into two distinct categories. The first relates to the legality of the reassessment proceedings, namely, whether the notice issued u/s. 148 by the Jurisdictional Assessing Officer (JAO), instead of through the faceless mechanism

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 9 :: contemplated u/s. 151A read with the "e-Assessment of Income Escaping Assessment Scheme, 2022", vitiates the proceedings, and whether the reopening is based merely on a change of opinion (Ground Nos. 2 to 6 and 17). The second category concerns the additions made on merits, namely: (i) the proper head under which the receipts of Rs. 64,80,000/- from sub-letting are assessable; (ii) the consequential disallowance of depreciation of Rs. 18,39,235/-; and (iii) the addition of Rs. 58,50,000/- representing the source of investment in the motor car. 12. We shall first examine the issue relating to the head under which the rental receipts are assessable. The material available on record shows that the assessee is carrying on business in the name and style of M/s Rajya and is engaged in real estate activities, including the business of providing rental services. The property situated at No. 215, F Block, 1st Street, Anna Nagar East, Chennai was taken on lease from Mrs. Anuradha Reddy under a lease agreement dated 23.07.2019 (Paper Book, page 44) and was thereafter licensed to M/s Indian PAC Consulting Private Limited under a leave and license agreement dated 26.08.2019 (Paper Book, page 49) for a stipulated monthly licence fee. The records further reveal that the assessee is registered under the Goods and Services Tax law and has filed GSTR-1 returns in respect of the said activity (Paper Book, page 58). Thus, the receipts have arisen from the commercial exploitation of leasehold property. A reading of the leave and license agreement further indicates that, apart from granting possession of the premises, the assessee undertook to provide several ancillary facilities, including the services of a front desk manager, a housekeeping staff member and a security guard, besides amenities such as internet connectivity and up to 100

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 10 :: printouts. The arrangement, therefore, was not one of mere letting of immovable property but involved the provision of integrated and composite commercial services to the licensee. 13. The legal position governing the issue is well settled. Where the activity of letting out properties constitutes the business of the assessee, the income arising therefrom is liable to be assessed under the head "Profits and Gains of Business or Profession". Whether a particular receipt is to be regarded as business income or otherwise has to be determined on the facts of each case, viewed from the perspective of a prudent businessman, so as to ascertain whether the property is being commercially exploited in the course of business or merely enjoyed as an owner. In Chennai Properties & Investments Ltd. v. CIT (373 ITR 673), the Hon'ble Supreme Court held that where the dominant source of the assessee's income was the business of letting out properties, such receipts were assessable as business income. Likewise, in Sultan Bros. (P) Ltd. v. CIT (51 ITR 353) and Raj Dadarkar& Associates v. ACIT (81 taxmann.com 193), the Hon'ble Supreme Court observed that the same receipt may, in appropriate circumstances, fall under different heads of income and that its true character must be determined having regard to the factual matrix and the principles evolved through judicial precedents. A similar issue also came up for consideration before the jurisdictional Bench of this Tribunal in ITA Nos. 2267 to 2270/CHNY/2019 dated 03.11.2021, wherein income earned from sub-leasing of leasehold premises was held to be assessable as business income. 14. Examining the facts of the present case in the light of the above principles, we find that the assessee had taken the premises on lease and commercially exploited the same by granting it onlicence

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 11 :: with the objective of carrying on a profit-oriented business activity. The fact that only one property was licensed to a single occupant does not, by itself, determine the character of the income. The decisive factor is the nature of the activity undertaken by the assessee. As already noticed, the arrangement was not confined to mere licensing of the premises but also involved the provision of various ancillary and support services, thereby constituting a composite commercial activity. In such circumstances, the receipts cannot be divorced from the business operations of the assessee. We also find merit in the contention that the Assessing Officer could not have, without any cogent material disproving the assessee's claim, simply reclassify the receipts under the head "Income from Other Sources". Accordingly, we hold that the sum of Rs.64,80,000/- received from sub-letting of the premises is rightly assessable under the head "Income from Business", as originally returned by the assessee. The action of the AO in re-characterising the income is, therefore, set aside. Ground Nos. 7 to 9 stand allowed. 15. The disallowance of depreciation amounting to Rs.18,39,235/- was admittedly made only as a consequence of treating the rental receipts as income assessable under the head "Income from Other Sources". Even the ld.CIT(A) has observed that the disallowance was merely a consequential outcome arising from the change in the head of income and not an independent adjustment. Since we have held that the receipts from sub-letting are chargeable as business income and that the relevant asset was used for the purposes of the assessee's business, the very foundation of the disallowance no longer survives. The assessee is, therefore, entitled to the claim of

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 12 :: depreciation, and the disallowance of Rs. 18,39,235/- is directed to be deleted. Consequently, Ground Nos. 10 to 12 are allowed. 16. We now turn to the addition of Rs.58,50,000/- made towards the investment in the motor car by treating the same as unexplained. The explanation offered by the assessee is that the investment was financed out of a gift received from her mother, Mrs. Anuradha Reddy. The material placed before us shows that a gift amounting to Rs.2,74,40,000/- from the assessee's mother stood duly reflected in the financial statements pertaining to the relevant previous year, and the investment in the motor car is well within the amount so received. The corresponding flow of funds is also evidenced by the HDFC Bank statements placed in the paper book at pages 65, 71 and 97. In our considered view, by disclosing the gift in the financial statements and producing the relevant banking records, the assessee discharged the primary burden cast upon her to establish the nature and source of the investment. If the AO entertained any doubt regarding the genuineness of the transaction or the financial capacity of the donor, it was incumbent upon him to carry out appropriate enquiries or verification before drawing an adverse conclusion. No such exercise appears to have been undertaken. Further, before us, the financial capacity of the assessee's mother has also been satisfactorily demonstrated. Having regard to the entirety of the evidence on record, we are of the considered view that the source of the investment in the motor car stands adequately explained. The addition of Rs.58,50,000/- made as unexplained investment is, therefore, deleted. Ground Nos. 13 to 15 are allowed.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 13 :: 17. Since the appeal has been allowed on the substantive issues, the challenge to the validity of the reassessment proceedings has become purely academic in the facts of the present case. We, therefore, consider it unnecessary to adjudicate upon the jurisdictional grounds and refrain from expressing any opinion thereon. Those issues are accordingly left open to be urged and decided in an appropriate case where such determination becomes necessary. 18. In the result, the appeal filed by the assessee in ITA No. 930/CHNY/2026 for the assessment year 2020-21 is allowed on merits. The jurisdictional grounds relating to the validity of the reassessment proceedings are left open, having become academic in view of our findings on the substantive issues. ITA No. 931/CHNY/2026 – Assessment Year 2021-22: 19. The present appeal in ITA No. 931/CHNY/2026 has been preferred by the assessee against the order dated 27.01.2026 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, u/s. 250 of the Income Tax Act, 1961, for the assessment year 2021-22. The impugned appellate order emanates from the assessment order dated 29.12.2022 passed by the National Faceless Assessment Centre, Assessment Unit (AO), u/s. 143(3) read with section 144B of the Act. 20. The grievances projected by the assessee in the present appeal substantially relate to the following issues: (i) confirmation of the disallowance of deduction claimed u/s.54F amounting to Rs.5,13,14,741/-; (ii) denial of the indexed cost of acquisition of Rs.3,25,79,877/-, indexed cost of improvement of Rs.8,38,247/- and transfer-related expenditure of Rs.15,93,000/- while recomputing the long-term capital gains; (iii) the addition of

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 14 :: Rs.1,15,95,000/- u/s. 68 read with section 115BBE of the Act in respect of a gift stated to have been received from the assessee's mother, Mrs. Anuradha Reddy, including the contention that such addition falls outside the scope of the limited scrutiny for which the case was selected; and (iv) the general grounds alleging violation of the principles of natural justice as well as challenging the validity of the assessment proceedings. 21. The assessee, an individual engaged in the business of providing workspaces on rent, filed her return of income for the assessment year 2021-22 on 27.12.2021 declaring a total income of Rs.24,05,250/-. The return was selected for scrutiny through the Computer Assisted Scrutiny Selection (CASS) mechanism on the limited issue relating to the claim of deduction in respect of capital gains. Pursuant to the issuance of notices u/s. 143(2) and 142(1) of the Act and after considering the material furnished by the assessee, the Assessment Unit (AO) completed the assessment u/s. 143(3) read with section 144B of the Act determining the total income at Rs.10,03,26,115/-. 22. Broadly, two categories of additions were made in the assessment order. Firstly, the AO recomputed the long-term capital gains by denying the deductions claimed u/s.48 towards indexed cost of acquisition, indexed cost of improvement and expenditure incurred in connection with the transfer, besides rejecting the exemption claimed u/s.54F of the Act. Secondly, the AO treated the amount of Rs.1,15,95,000/-, stated to have been received by the assessee from her mother, Mrs. Anuradha Reddy, as an unexplained cash credit u/s. 68 of the Act and subjected the same to tax in accordance with section 115BBE. It is pertinent to note that the amount of Rs.8,93,25,000/- received from Shri P.V.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 15 :: Kalyanasundaram was accepted by the AO as forming part of the sale consideration after due verification, and no addition was made in that regard. 23. The facts relating to the transfer of the capital asset are largely undisputed. The property was initially acquired by Mr. P. Amarnath Reddy through Document No.6355 of 2005 dated 09.11.2005. Subsequently, by way of a registered settlement deed bearing Document No.5266 of 2020 dated 15.09.2020, the property was settled in favour of his sister, Mrs. Anuradha Reddy, along with other beneficiaries. Thereafter, Mrs. Anuradha Reddy settled her one-third undivided share in favour of the assessee under a registered settlement deed dated 21.10.2020 bearing Document No.5400 of 2020. The assessee later transferred her one-third share in the property to Shri P.V. Kalyanasundaram for a total consideration of Rs.9,00,00,000/-. Out of the sale proceeds, the assessee acquired a villa site through a registered sale deed bearing Document No.3264 of 2021 dated 30.03.2021 and, simultaneously, entered into a registered construction agreement with A.R. Builders and Developers Pvt. Ltd. vide Document No.3263 of 2021 of the same date for construction of a residential villa, on the strength of which exemption u/s.54F was claimed. 24. While completing the assessment, the AO rejected the claim u/s. 54F on the ground that the investment had been made only in a vacant plot and not in a residential house. The claims towards indexed cost of acquisition, indexed cost of improvement and transfer expenses were also disallowed on the premise that the supporting evidence produced by the assessee consisted merely of self-serving documents. Insofar as the amount received from the assessee's mother was concerned, the AO concluded that the

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 16 :: assessee had failed to establish the identity of the donor, her financial capacity and the genuineness of the transaction, and accordingly invoked section 68 of the Act. In appeal, the ld.CIT(A) upheld the denial of exemption u/s.54F and affirmed, in principle, the computation of long-term capital gains. However, the ld.CIT(A) directed the AO to verify the evidence relating to the indexed cost of acquisition, cost of improvement and transfer expenses and allow the same to the extent found admissible while giving effect to the appellate order. On that basis, the appeal was treated as partly allowed. Still aggrieved, the assessee has carried the matter in further appeal before the Tribunal. 25. The ld. Authorised Representative ("AR") submitted that both the AO and the ld. CIT(A) had proceeded on an erroneous assumption that the assessee had invested only in a vacant plot. Inviting our attention to the registered sale deed and the registered builders' agreement, both executed on 30.03.2021 as part of a single composite transaction, the ld.AR contended that the investment was in a residential villa comprising both the land and the construction thereon. It was argued that the expression "a residential house" occurring in section 54F necessarily includes the land appurtenant thereto and that the provision itself contemplates investment either by purchase or by construction of a residential house. It was further pointed out that the builders' agreement, particularly Schedule 'C', as well as the assessment records of the Greater Chennai Corporation describing the property as residential, clearly establish the nature of the asset acquired. With regard to the computation of capital gains, it was submitted that the cost of acquisition is traceable to the registered purchase deed of 2005 and the subsequent registered settlement deeds executed in 2020, and

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 17 :: that, in terms of section 49 of the Act, the assessee is entitled to adopt the cost to the previous owner. According to the ld. AR, registered conveyance deeds cannot be discarded as self-serving documents. In respect of the addition u/s. 68, it was argued, firstly, that the issue fell completely outside the scope of the limited scrutiny for which the assessment had been selected and, secondly, that the identity of the donor, her creditworthiness and the genuineness of the gift transaction had been conclusively established by producing the donor's PAN and Aadhaar, copies of her Income Tax returns for the preceding three assessment years, statements of net wealth, ledger accounts, gift confirmations and the bank statements of both the donor and the assessee evidencing transfer of funds through normal banking channels. 26. Per contra, the ld. Departmental Representative ("DR") relied upon the orders of the AO and the ld.CIT(A). It was submitted that the assessee had failed to produce satisfactory documentary evidence during the course of the assessment proceedings. According to the ld. DR, the material available before the AO disclosed only an agreement relating to the purchase of a villa site, which, by itself, represented vacant land, and there was no evidence demonstrating completion of the residential construction within the period prescribed under the Act. Insofar as the addition u/s. 68 is concerned, it was contended that, in the absence of the donor's bank statements during the assessment proceedings, the genuineness of the gift remained unsubstantiated and, therefore, the addition was rightly made. The ld.DR, however, fairly conceded that the authenticity of the registered documents produced before us was not in dispute.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 18 :: 27. We have given our thoughtful consideration to the rival submissions and have carefully examined the assessment records, the orders passed by the authorities below, the paper books comprising two volumes filed by the assessee and the judicial precedents cited at the Bar. At the outset, it is pertinent to observe that the controversy essentially revolves around a series of registered instruments, namely, the original sale deed executed in the year 2005, the settlement deeds executed in 2020, the sale deed executed in favour of the purchaser of the original asset and the sale deed together with the builders' agreement executed in 2021 in respect of the new asset. Being registered documents, these constitute reliable contemporaneous evidence and form the foundation for adjudication of the issues arising in the present appeal. 28. The principal reason assigned by the AO for rejecting the claim u/s. 54F is that the assessee had invested only in a vacant plot and not in a residential house. In our considered view, this conclusion is founded upon an incomplete appreciation of the documentary evidence available on record. The investment made by the assessee cannot be viewed by isolating the registered sale deed relating to the villa site (Document No.3264 of 2021). Simultaneously with the acquisition of the land, the assessee entered into a registered builders' agreement with A.R. Builders and Developers Pvt. Ltd. bearing Document No.3263 of 2021, executed on the very same date, providing for construction of a residential villa on the said site. These two registered instruments constitute integral parts of one composite transaction intended for acquisition of a residential house. Section 54F expressly grants exemption not only where a residential house is purchased but also where it is constructed. The

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 19 :: cost incurred towards acquisition of the land forming the site of the residential house is inseparable from, and forms an integral component of, the overall investment in the residential house itself. 29. The residential character of the new asset is further corroborated by the builders' agreement, wherein the property has been specifically described as a residential villa, as well as by the records of the Greater Chennai Corporation assessing the property as residential. These documents formed part of the material available before the lower authorities as well as before us. The AO, however, confined his attention only to the sale deed relating to the land and failed to consider the contemporaneous construction agreement and the supporting material evidencing the nature of the asset. Consequently, the conclusion that the investment was confined merely to vacant land cannot be sustained. 30. Another reason weighed with the ld.CIT(A) was the alleged non- completion of the residential house within the prescribed period. In this regard, the ld. AR drew our attention to the property tax assessment and allied recordsevidencing that the villa had been assessed by the municipal authorities as a completed residential property. We also find from the record that the payments towards acquisition and construction of the new residential asset had been made within the statutory period contemplated u/s. 54F. In these circumstances, we find no justification for denying the exemption on the ground that the residential house was not completed within time. 31. Our conclusion also receives support from the manner in which the Revenue itself has dealt with an identical claim made by one of the co-owners of the very same property. It is an admitted position that Mrs. Anuradha Reddy settled the property in equal shares and

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 20 :: that another co-owner, Mrs. Sanjana Reddy, similarly invested her share of the sale consideration by executing a registered sale deed (Document No.3239 of 2021) together with a registered builders' agreement (Document No.3238 of 2021), both dated 30.03.2021, relating to the very same project. The return of the said co-owner for the assessment year 2021-22 was also selected for scrutiny and, by an order passed u/s. 143(3) of the Act dated 20.12.2022, placed at pages 134 to 144 of Volume II of the paper book, the AO accepted the claim of deduction u/s. 54F. Significantly, the said assessment was completed only a few days prior to the assessment presently under consideration. In our view, once the Revenue has accepted an identical claim arising out of the same transaction, involving the same project and substantially identical documentation, it cannot adopt a contrary stand in the case of another co-owner without any distinguishing feature. Such inconsistent treatment militates against the well-recognised doctrine of consistency and the settled principle that similarly placed assessees ought to receive similar treatment. On this ground also, the denial of exemption to the present assessee cannot be sustained. 32. In view of the foregoing discussion, we hold that the assessee has fulfilled the requirements prescribed u/s. 54F of the Act and is, therefore, entitled to the exemption claimed amounting to Rs.5,13,14,741/-. The AO is directed to allow the deduction and delete the corresponding addition. 33. The ld. AR further submitted that, pursuant to the directions issued by the ld.CIT(A), the AO has already passed a consequential order giving effect to the appellate directions, wherein substantial relief has been granted in respect of the indexed cost of acquisition,

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 21 :: indexed cost of improvement and transfer-related expenditure. Having regard to our conclusion allowing the claim u/s. 54F, the surviving dispute relating to the computation of deductions u/s.48 assumes only academic significance. We, therefore, do not consider it necessary to adjudicate the said issue and leave it open. 34. We shall now consider the addition made u/s. 68 in respect of the gift received from the assessee's mother. We find that the facts governing this issue are substantially identical to those considered by us while disposing of the appeal for the assessment year 2020- 21. It is well settled that, for the purposes of section 68, the assessee is required to establish the identity of the creditor, the creditor's financial capacity and the genuineness of the transaction. In the present case, the identity of the donor, Mrs. Anuradha Reddy, stands established by her PAN and Aadhaar particulars, and the relationship between the donor and the assessee is undisputed. The financial capacity of the donor is evidenced by her Income Tax returns for assessment years 2019-20, 2020-21 and 2021-22 together with the statements of net wealth for the period ending 31.03.2018 to 31.03.2021, all of which demonstrate sufficient financial resources. The genuineness of the gift is supported by the ledger account, confirmation letters, gift declarations and the bank statements of both the donor and the assessee, which disclose that the aggregate amount of Rs.1,15,95,000/- was transferred through thirteen identifiable banking transactions from the donor's HDFC (NRO) account. In the light of this contemporaneous documentary evidence, a gift received from the assessee's mother through recognised banking channels cannot be regarded as an unexplained cash credit. We, therefore, direct the AO to delete the addition made u/s. 68.

ITA No 930 & 931/Chny/2026 (AYs 2020-21 & 2021-22) SA 109 & 110/Chny/2026 AY 2020-21 & 2021-22 Deepti Reddy Vs ITO, NCW 3(1) :: 22 :: 35. In the result, both the appeals preferred by the assessee, namely ITA No.930/CHNY/2026 relating to the assessment year 2020-21 and ITA No.931/CHNY/2026 relating to the assessment year 2021-22, are allowed in terms of the findings and directions contained in the foregoing paragraphs. 36. SA 109 & 110 /Chny/2026: In view of the appeals having been decided on merits, the stay petitions have become infructuous. Order pronounced in the open court on the 06th day of July 2026.

Sd/- Sd/- (प�ावती एस) (मनु कुमार िग�र) (PADMAVATHY S) (MANU KUMAR GIRI) लेखा सद)या/ACCOUNTANT MEMBER �या�यक सद)य/JUDICIAL MEMBER चे�नई/Chennai, *दनांक/Dated: 16th July, 2026. SNDP, Sr. PS आदेश क ��त+ल,प अ-े,षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF SANDE Digitally signed by SANDEEP EP KUMAR Date: 2026.07.08 KUMAR 10:16:43 +05'30'