KATRAGADDA BHAVANI SHANKAR,COIMBATORE vs. ITO, NCW-1(1), COIMBATORE

आयकर अपीलीय अधिकरण, ‘बी’ न्यायपीठ, चेन्नई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI श्री एबी टी वर्की, न्याययर्क सदस्य एवं श्री एस. आर. रघुनाथा, लेखा सदस्य के समक्ष BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.4064/Chny/2025 निर्धारण वर्ा / Assessment Year: 2023-24 Katragadda Bhavanishankar The Income Tax Officer 37, Race Course vs. Non-Corporate Ward – 1(1), Coimbatore – 641 018. Coimbatore. [PAN:ALTPB6312J] (अपीलधर्थी/Appellant) (प्रत्यर्थी/Respondent)

अपीलधर्थी की ओर से/Appellant by : Shri. H.Yeshwanth Kumar, Advocate प्रत्यर्थी की ओर से/Respondent by : Ms.Gouthami Manivasagam, Addl.CIT सुिवधई की तधरीख/Date of Hearing : 13.05.2026 घोर्णध की तधरीख/Date of Pronouncement : 08.06.2026 आदेश /O R D E R PER S. R. RAGHUNATHA, AM : This appeal of the assessee arises from the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) [in short ‘ld.CIT(A)’] dated 19.11.2025 for the assessment year 2023- 24 against the order of the Assessing Officer [in short ‘AO’] passed u/s.143(3) r.w.s 144B of the Income Tax Act, 1961 (in short ‘the Act’) dated 05.03.2025.

:-2-: ITA. No:4064/Chny/2025. 2. The grounds raised by the assessee are as follows:

Denial of Exemption u/s.54F

Levy of interest u/s.234B and 234C

PRAYER

:-3-: ITA. No:4064/Chny/2025. For these grounds raised and such other grounds that may be raised, may be altered, amended or modified, with the leave of the Hon’ble Tribunal before or during the hearing of the appeal, it is most humbly prayed that the Hon’ble Tribunal may be pleased to:

a) Quash the order passed u/s.143(3) r.w.s.144B and / or

b) Direct the Assessing Officer to allow the exemption u/s.54F as claimed by the appellant and / or c) Pass such other orders as the Hon’ble Tribunal may deem fit.

:-4-: ITA. No:4064/Chny/2025. 6. Aggrieved by the order of the ld.CIT(A), the assessee filed an appeal before this Tribunal. 7. At the outset, the ld.AR submitted that the solitary issue in this appeal is with regards to the satisfaction of the basic conditions involving invocation of the provisions of section 54F of theAct, i.e., especially with respect to transfer of a capital asset and consequent reinvestment of the sale proceeds in purchase or construction of a residential house within the stipulated time period. 8. In this connection, the ld.AR submitted that the assessee entered into a joint development agreement with Ashok Constructions dated 27.02.2019 for development of a residential project under the banner “KBS Apartments” wherein the assessee transferred land (Transfer of Long Term Capital Asset not being a residential house) for development and construction of flats wherein the following arrangement was agreed to between the assessee and the developer: • Total 15 flats to be constructed by the developer under this project, out of which 60% (9 Flats) would be allotted to the assessee in lieu of transfer of land and the remaining balance of 40% (6 flats) would be taken by the developer.

:-5-: ITA. No:4064/Chny/2025. 10. It was also submitted by the ld.AR that the construction of the remaining 5 Flats [Flat Nos.202, 302, 401, 501 & 502] were completed during FY 2022-23 (AY 2023-24) and capital gains u/s.45(5A) was admitted in respect of such unsold flats in the ROI filed for AY 2023-24. In support of the above facts stated by the ld.AR, the occupancy certificate (completion certificate) issued by the Vijayawada Municipal Corporation, Town Planning Department and also the statement of computation of total income of the assessee for the year under consideration wherein the assessee has duly admitted capital gains u/s.45 and 45(5A) of the Act respectively, as the case may be, was filed before this Tribunal during the course of hearing.

• Flat No.202 – Sold on 03.06.2023 STCG on subsequent sale admitted in AY 2024-25 Flat No.401 – Sold on 28.07.2023

• Flat No.502 – Sold on 12.04.2024 – STCG on subsequent sale admitted in AY 2025-26

• Flat No.302 – Construction was not fully completed during the course of assessment and was anyway earmarked for sale by the assessee to third party buyer.

• Flat No.501 – Retained by the assessee for own residential use in respect of which exemption u/s.54F was claimed during the AY 2023-24, the year under consideration in this appeal.

:-6-: ITA. No:4064/Chny/2025. respect of which exemption u/s.54F of the Act was claimed during the year under consideration, out of the total 9 flats that came to him as a result of the Joint Development Agreement. In other words, it was submitted by the ld.AR that the assessee in lieu of transfer of land being a long term capital asset other than a residential house has in return invested the consideration in the form of construction of one residential flat (Flat No.501) in respect of which exemption u/s.54F of the Act is claimed by the assessee.

“5.2.1 The contention of appellant is not acceptable on merit. In the present case, the appellant being land owner entered into joint development agreement with Ashoka Constructions registered on 27.02.2019. As per terms and conditions of JDA, the appellant was allotted 9 flats being land owner under JDA-KBS Mark Apartments. Out of these 9 flats, he sold 4 flats [flat No. 101,103,303 & 403] during F.Y.2022-23 and admitted capital gain u/s 45 on sale of these 4 flats. The remaining 5 flats [flats No. 202, 302 ,401,501 & 502] were completed during F.Y.2022-23 and for them, appellant admitted deemed capital gain u/s 45(5A) of the Act. Till this stage, there is no issue as per provisions of the Act. …………. Therefore, for availing benefit under section 54F, there has to be two transactions firstly, transfer of Long Term Capital Asset other than residential house and second-purchase or construction of a new asset within the specified period as mentioned in section 54F. These two transactions are mutually independent transactions. However, in the present case, the flat on which appellant has claimed deduction u/s 54F was part of Flats received by him on completion pf project under JDA and thus, receipt of this flat constitutes part of first transaction, on which capital gain has arisen to him u/s 45(5A) as the same was allotted to the appellant under JDA for being land owner. For being able to claim deduction u/s 54F, the appellant should have fulfilled second part of condition to the effect that he should have invested the amount of net consideration in purchasing/ constructing new property, which he has not done as is clear from the facts of the case.” (Emphasis supplied)

:-7-: ITA. No:4064/Chny/2025. provisions of section 54F of the Act in the right manner while dismissing the appeal of the assessee. 15. Given the above facts, it was submitted by the ld.AR that the lower authorities have failed to appreciate the true essence of a JDA transaction and corresponding claim of exemption u/s.54F of the Act and also submitted that the assessee has indeed satisfied all the conditions stipulated in section 54F of the Act with respect to transfer of a capital asset other than not being a residential house and consequent reinvestment of the sale proceeds in the construction of a residential house, in the form of a flat in the instant case, thereby rightly making the assessee eligible to claim the exemption in the instant case. 16. On the other hand, the ld.DR in response relied upon the findings of the lower authorities. 17. We have heard the rival contentions and perused all the material available on record before us and gone through the orders of the lower authorities. We note that the crux of the issue in this appeal is with regards to the satisfaction of the basic conditions involving invocation of the provisions of section 54F of the Act, i.e., especially with respect to transfer of a capital asset and consequent reinvestment of the sale proceeds in purchase or construction of a residential house within the stipulated time period. 18. Before adverting to the correctness of the claim of exemption u/s.54 of the Act, we find it relevant to refer to the provisions of section 54F of the Act which reads as under: “Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house. 54F. (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

:-8-: ITA. No:4064/Chny/2025. after that date constructed, one residential house in India (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

(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":” 19. On a plain reading of the above provisions, for availing benefit u/s.54F of the Act, we are of the view that there has to be two transactions firstly, transfer of Long Term Capital Asset other than residential house and secondly, purchase or construction of a new asset within the specified period as mentioned in section 54F of the Act.

:-9-: ITA. No:4064/Chny/2025. 21. Considering the facts of the case and also the transaction under question in respect of which exemption u/s.54F of the Act has been claimed by the assessee, we are of the view that the assessee has duly satisfied the conditions of section 54F of the Act in the following manner: • Firstly, the condition stipulated u/s.54F of the Act pertaining to transfer of long term capital asset not being a residential house has been fulfilled since the assessee under the Joint Development agreement has agreed to transfer land which is a long term capital asset not being a residential house and

• Secondly, the assessee has invested the consideration from the transfer of land towards construction of one residential flat (Flat No.501, one of the flats allotted to the assessee) in respect of which exemption u/s.54F of the Act is claimed during the year under consideration.

“12. Now coming to the issue of exemption under Section 54F of the Act, the assessees entrusted the construction of the building to the builder in lieu of 60% of the landed area transferred to the builder. Therefore, the assessees, from the date on which the transfer was made by entering into agreement for joint development, are in the process of constructing the residential house. Therefore, this Tribunal is of the considered opinion that the assessees are entitled for exemption under Section 54F of the Act. Now the objection of the Department is that the assessees got multiple flats, almost eight flats each, in lieu of the land transferred to the builder. The question arises for consideration is when the assessees received eight flats/residential units from the builder in lieu of cost of the land transferred to the builder, whether the assessees are entitled for exemption under Section 54F of the Act? We have gone through the judgment of Madras High Court in Smt. V.R. Karpagam (supra). In this case, the assessee obtained five independent flats in a multi-storied construction and claimed exemption as independent unit under Section 54F of the Act. The Madras High Court, after referring to the amendment made with effect from 1.4.2015, found that the assessee is eligible for exemption under Section 54F of the Act. In view of the judgment of the Madras High Court, this Tribunal is of the considered opinion that

:-10-: ITA. No:4064/Chny/2025. the assessees are eligible for exemption even though multiple flats were allotted to them in lieu of cost of 60% of the land allotted to the builder.”

:-11-: ITA. No:4064/Chny/2025. amongst all other flats allotted to him under the JDA and thus we are of the considered view that the assessee is eligible to claim exemption u/s.54F of the Act in respect of 1 residential flat since the assessee has duly fulfilled all conditions stipulated therein. Accordingly, we direct the AO to allow the exemption as claimed u/s.54F of the Act in the return of income filed by the assessee for the year under consideration by allowing the grounds of appeal filed by the assessee. 28. In the result the appeal of the assessee is allowed.

Order pronounced in the court on 08th June, 2026 at Chennai.

Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुिधर्थध) (ABY T VARKEY) (S. R. RAGHUNATHA) न्याययर्क सदस्य/Judicial Member लेखधसदस्य/Accountant Member चेन्िई/Chennai, ददिधंक/Dated, the 08th June, 2026. Devadas आदेश की प्रनतललपप अग्रेपर्त/Copy to: 1. अपीलधर्थी/Appellant 2. प्रत्यर्थी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. पवभधगीय प्रनतनिधर्/DR 5. गधर्ा फधईल/GF

DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.06.10 15:16:22 +05'30'