MEENU MALHOTRA,KANPUR vs. INCOME TAX OFFICER, NFAC, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, LUCKNOW BEFORE SHRI. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA No.59/LKW/2025 Assessment Year: 2013-14 Meenu Malhotra v. The Income Tax Officer 99, HIG, Ratan Lal Nagar Kanpur Kanpur (U.P) TAN/PAN:AFUPM0622H (Applicant) (Respondent) Applicant by: Shri Vikas Garg, Advocate Respondent by: Shri Amit Kumar, D.R. O R D E R This appeal has been preferred by the Assessee against the order dated 09.05.2024, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2013-14.

2.0 The brief facts of the case are that the assessee filed her original return of income for the year under consideration on 31.07.2013, declaring a total income of Rs.24,97,360/-. Subsequently, the assessee filed a revised return of income on 31.05.2014, declaring a total income of Rs.2,82,680/-. In the original return of income filed on 31.07.2013, the assessee offered Long Term Capital Gain for taxation. However, in the revised return of income filed on 31.05.2014, the assessee had claimed exemption under section 54F of the Income Tax Act, 1961 (hereinafter called “the Act’) amounting to Rs.23,59,223/-.

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The case of the assessee was selected for scrutiny and the Assessing Officer (AO) completed the assessment under section 143(3) of the Act, vide order dated 10.03.2016, assessing the total income of the assessee at Rs.26,55,070/-. While completing the scrutiny assessment, the AO denied the exemption claimed by the assessee of Rs.23,59,223/- under section 54F of the Act on the ground that the assessee did not deposit the Capital Gains in Capital Gains Accounts Scheme with specified banks before the due date of filing the return of income. Against this order, the assessee preferred an appeal before the Learned Commissioner of Income Tax (Appeals) [ld. CIT(A)], who dismissed the appeal of the assessee, vide order dated 15.06.2018. Being aggrieved by the order of the ld. CIT(A), the assessee preferred an appeal before the Tribunal, which, vide order dated 31.07.2019, set aside the order of the ld. CIT(A) and remitted the matter back to the file of the AO to reconsider the issue after giving proper opportunity to the assessee. In the set aside proceedings also, the AO disallowed the claim of exemption under section 54F of the Act of Rs.23,59,223/- and computed the total income of the assessee at Rs.26,55,070/- vide order dated 25.09.2021, passed under section 143(3) read with sections 254 and 144B of the Act.

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2.1 The AO also initiated penalty proceedings under sections 271(1)(c) and 271(1)(b) of the Act, separately.

2.2 Aggrieved, the Assessee preferred an appeal before the NFAC, which dismissed the appeal of the assessee and confirmed the order of the AO.

2.3 Now the assessee has approached this Tribunal challenging the order of the NFAC, by raising the following grounds of appeal:

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determinative for computing capital gains and exemption thereof under the Income Tax Act. 5. Because the Authorities below have failed to appreciate the facts and circumstances of the case and proceeded to arbitrarily and summarily disallow the exemption claimed under section 54F of the I.T. Act, 1961 amounting to Rs.23,54,375/-. 6. Because the authorities below have failed to appreciate that provision relating to capital gains under the Income Tax Act, 1961 are benevolent/ incentive giving provisions giving impetus to the housing industry and have to be construed and interpreted liberally. 7. The assessee firm craves leave to modify any grounds of appeal herein before or take additional ground(s) during pendency of this appeal. 8. Any other ground (s) or relief (s) as your kind honour may deem appropriate or fit under the given circumstnaces. 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there is a delay of 190 days in filing the appeal before the Tribunal. He further submitted that the assessee had filed an application dated 30.01.2025 for condonation of delay, duly supported by an Affidavit, stating therein that the impugned order passed by the ld. CIT(A) was uploaded on the Income Tax Portal account of the assessee, however, no e-mail, in this regard, was received by the assessee in her registered e-mail address. It was stated that assessee,

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being not familiar with the digital system, did not come to know about uploading of the order passed by the ld. CIT(A) on the Income Tax Portal. It was further stated that on the announcement of the Direct Tax Vivad Se Vishwas Scheme, 2024 by the Finance Act, 2024, the assessee had approached her Counsel, Shri Alok Pandey, C.A. on 26.12.2024 for applying under the said Scheme and it was only then that the assessee came to know that the ld. CIT(A) had already passed the order on 09.05.2024 and only then she filed the appeal before the Tribunal. The prayer of the Ld. A.R. was that the delay caused in filing the appeal was not deliberate and that it was beyond the control of the assessee, which may please be condoned and the appeal be heard on merits.

3.1 The Ld. Sr. D.R. objected to the delay being condoned.

3.2 In view of the prayer made by the Ld. A.R., I condone the delay in filing of the appeal and admit the appeal for hearing.

4.0 The Ld. A.R. submitted that the only issue involved in this appeal relates to Long Term Capital Gains of Rs.23,59,223/- arising on sale of property, claimed by the assessee as exempt under section 54F of the Act. The Ld. A.R. submitted that the assessee was the owner of four commercial properties and was

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earning rental income. The Ld. A.R. furnished the details of the four properties, which are as under:

4.1 The Ld. A.R. further submitted that all these properties were commercial shops/establishments and none of them were being used for residential purposes and out of these, the assessee had sold one property, namely Quarter No. A-318 (Old) 124- A/124 (New) Block No.11, Govind Nagar, Kanpur for a consideration of Rs.23,81,000/-, vide Sale Deed dated 28.01.2013, and had invested the entire sale proceeds for purchase of residential house and had claimed exemption under section 54F of the Act. It was further submitted that before purchasing the said residential house, the net sale proceeds were invested in mutual funds for some time. The Ld. A.R. submitted that the AO was of the view that all the properties held by the assessee were residential properties and since the assessee had sold one property and was already in possession of two other residential properties, any new property purchased by the assessee would not be eligible for exemption under section 54F of

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the Act. The Ld. A.R. submitted that the observation of the AO that the assessee already had two residential properties was incorrect and the necessary evidences with respect to the said properties being commercial in nature had already been furnished before the Tribunal in the first round of proceedings and that the Tribunal had admitted the evidences and, accordingly, had restored the matter back to the file of the Assessing Officer. 4.2 The Ld. A.R. further submitted that the fact remains that the assessee did not use the sale proceeds for the purposes other than the purchase of immovable property (residential house) and the investment in mutual funds would be as good as investment in Capital Gains Accounts Scheme. It was further submitted that for enjoying exemption under section 54F of the Act without depositing the unutilized sale consideration into a Capital Gains Accounts Scheme, the assessee can utilize the same upto any time before the expiry of the time to file the return under section 139(4) of the Act. It was submitted that this view finds support and force from the legislative intent behind the enactment of section 54F which is to promote and encourage the low and middle income group for house construction. In this regard, the Ld. A.R. invited my attention to Memorandum to the Finance Act 1982, 134 ITR 128 (St) and CBDT Circular No. 346 dated

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30.06.1982 issued at the time of introduction of section 54F by the Finance Act, 1982 and prayed that the deduction as claimed by the assessee on account of Long Term Capital Gains be allowed. 4.3 The Ld. A.R. further submitted that in the newly purchased assets, the ground floor had three rooms, kitchen, toilet, verandah and a shop and the total floor area of the ground floor was 77.97 sq. mtrs., in which the shop was of 12.63 sq. mtrs only whereas the residential portion measured 65.34 sq. mtrs. Similarly, in the first floor, the property had two rooms, a store, verandah, kitchen, toilet, etc. and the total floor area was 90.42 sq. mtrs. – all residential and the second floor had a terrace having a room, and toilet and the total constructed area was only 15.16 sq. mtrs. of residential and, therefore, if the entire built up area is to be seen, then the total area is 183.73 sq. mtrs. and shop is only of 12.63 sq. mtrs., whereas the residential portion is measuring 171.10 sq. mtrs. Thus, the area of the shop was only 6.87% of the total area. It was submitted that, thus, the new assets was essentially a residential property eligible for deduction under section 54F of the Act. 4.4 That Ld. A.R., apart from the arguments, also filed a paper book containing judicial precedents in support of his

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contention which have been taken on record and will be duly considered. 5.0 Per contra, the Ld. Sr. D.R. placed reliance on the orders of both the authorities below and submitted that the provisions of section 54 of the Act were very much clear inasmuch as the assessee is bound to deposit the unspent amount of Capital Gains in a Scheme framed in this respect by the Central Government till the amount is actually invested for the purchase/construction of a new residential house if the amount of such Capital Gains earned, is not completely incurred on or before the due date for furnishing the return of income under section 139(1) of the Act. It was submitted that, undisputedly, in the present case, the Long Term Capital Gains were not deposited in the Capital Gains Accounts Scheme with a designated Bank before the due date of filing the return but were invested in Mutual Fund Scheme and, therefore, the assessee had not fulfilled the conditions laid down in section 54 of the Act and was, therefore, not entitled to claim the benefit of exemption from Capital Gains. The Ld. Sr. D.R. submitted that the AO had rightly disallowed the assessee’s claim and it was prayed that the appeal of the assessee be dismissed. 6.0 I have heard the rival submissions and have also perused the material on record. A perusal of the record before

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me shows that this is second round of appeal by the assessee before the ITAT. In this case, the original return for the captioned assessment year was filed by the assessee on 31.07.2013 declaring the total income at Rs.24,97,360/-. During this captioned assessment year, the assessee had sold a commercial property for an amount of Rs.23,81,000/- on which she had declared Capital Gains and had paid taxes. Thereafter, on 15.05.2014, the assessee purchased a residential house property for Rs.30.00 lakhs at Kanpur and on 31.05.2014, a revised return was filed declaring an income of Rs.2,82,680/- wherein the assessee had claimed deduction under section 54F of the Act to the extent of Rs.23,59,229/-. However, the AO did not accept the assessee’s claim of deduction under section 54F of the Act and passed an assessment order under section 143(3) of the Act after disallowing assessee’s claim of deduction under section 54F of the Act on the reasoning that the assessee already owned three properties other than the new assets purchased and that the assessee had failed to prove that she did not have more than one residential house on the date of transfer of the original assets. The AO also observed that the assessee had not deposited sale proceeds in the Capital Gains Accounts Scheme before the due date for filing of the return of income under section 139(1) of the Act and had instead invested the Capital

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Gains in the Mutual Funds. The AO also was of the opinion that the assessee had purchased new assets on 15.05.2014 which was not a residential property but was rather a semi-residential property which was having a shop within and, thus, the investment would not fall within the meaning of residential house. The Ld. First Appellate Authority confirmed the order of the AO and on appeal before the ITAT, the ITAT set aside the assessment for re-adjudication by the AO with the direction to examine (a) if the assessee demonstrates before the AO that the assessee had already invested the amount in the purchase of new property, then the need to place the funds into Capital Gains Accounts Scheme was not necessary and; (b) if the new property was a residential property, even though a part of it was used for commercial purposes. 6.1 Thereafter, on 25.09.2021, the AO passed a fresh assessment order under section 143(3) read with sections 254/144B of the Act wherein the AO accepted that the assessee did not own more than one residential house property at the time of purchase of new assets on 15.05.2014, but the claim of deduction under section 54F of the Act was again disallowed on the ground that the assessee had not deposited the sale proceeds in the Capital Gains Accounts Scheme maintained with the bank before the due date for filing of the return of income and further

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that new assets purchased was not a residential property but a semi-residential property having a shop within the premises. The Ld. First Appellate Authority also upheld the disallowance made by the AO and now the assessee has approached the ITAT for the second time. 6.2 A perusal of the records shows that the assessee had invested in purchase of new propertyi on 15.05.2014, i.e., within a period of two years from the sale of original assets which was sold on 28.01.2013 and further the assessee had invested the entire amount prior to the due date for filing of return under section 139(4) of the Act, that being on 31.03.2015. It is seen that there are numerous judicial precedents wherein it has been held that the disallowance under section 54F of the Act cannot be made where the purchase of a new assets has been completed before the due date of filing the return of income in terms of the provisions of section 139(4) of the Act. 6.3 The Hon'ble Madras High Court in the case of CIT vs. Smt. Umayal Annamali [2020] 273 taxmann 146 (Madras) has held that where the assessee had invested the sale proceeds of old assets in a new property before the due date of filing of belated return and had taken possession within three years, the assessee was entitled to exemption under section 54F of the Act though she had not invested the sale proceeds in Capital Gains

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Accounts Scheme before the due date of filing of return of income under section 139(1) of the Act. The Hon'ble Madras High Court observed that the provisions of section 54F of the Act were beneficial provisions and are to be considered liberally in the aspect of limitation period. The investment in residential property was a necessary requirement but where the assessee has proven with evidence the investment in residential property, the benefit has to be granted to the assessee. 6.4 Similarly, the Ahmedabad Bench of the ITAT in the case of Income Tax Officer vs. Jhaveri Sandeep Bipinchandra (HUF) in ITA No.805/Ahd.2023 and reported in [2024] 207 ITD 622 (Ahmedabad Trib.), has held that where the assessee had fulfilled the basic condition for claim of exemption under section 54F of the Act by investing the net consideration received on sale of original assets in a new assets/residential house within the prescribed period of two years from the sale of original assets, the exemption could not be denied merely for the reason that majority of investment was made subsequent to due date of filing of return of income under section 139(1) of the Act. 6.5 The ITAT Chandigarh Bench had also reached a similar conclusion in the case of Mrs. Seema Sabharwal vs. ITO, Ward (4) in ITA No.272/Chd/2017, vide order dated 05.02.2018.

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6.6 A similar finding was returned by the Bangalore Bench of the ITAT in the case of Ramaiah Dorairaj vs. Income Tax Officer, Ward 4(2)(2), Bangalore reported in [2021] 187 ITD 460 (Bangalore Trib.). 6.7 The crux of the above stated judicial precedents is that where the assessee had fulfilled the basic condition for claiming exemption under section 54F of the Act of investing net consideration received on sale of original assets in a new assets/residential house within the prescribed period of two years of the sale of original assets, having fulfilled this basic condition, it will be highly illogical to deny the claim of exemption merely for the reason that majority of the investment was made subsequent to the due date of filing of return of income under section 139(1) of the Act and which was not deposited in the Capital Gains Accounts Scheme of the prescribed Bank as required by law. Thus, it flows that the requirement to invest in Capital Gains Accounts Scheme is merely procedural and has been provided in the Statute as a safeguard for ensuring compliance with the basic condition that the entire net consideration received by the assessee is utilized for investment in a new assets within the prescribed time. 6.8 In this appeal before me, it is undisputed that the assessee has invested the amount earned through Capital Gains

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in the purchase of a new assets well within the prescribed period of two years and, therefore, respectfully following the above stated judicial precedents, I have no hesitation in holding that the assessee is eligible for granting of exemption in terms of section 54F of the Act and the assessee’s failure to deposit the amount in Capital Gains Accounts Scheme and the act of depositing in Mutual Funds would not bar the assessee’s right to claim exemption under section 54F of the Act. 6.9 The second contention of the Department, in this regard, is that the new assets purchased by the assessee would not be said to be purely residential inasmuch as the property also had a shop built within. In this regard, the assessee has submitted that the ground floor has three rooms, kitchen, toilet, verandah and a shop and the total floor area of the ground floor is 77.97 sq. mtrs., in which the shop is of 12.63 sq. mtrs whereas the residential portion measures 65.34 sq. mtrs. Similarly, in the first floor, the property has two rooms, a store, verandah, kitchen, toilet, etc. and the total floor area is 90.42 sq. mtrs. – all residential and the second floor is a terrace having a room, and toilet and the total constructed area is only 15.16 sq. mtrs. of residential and, therefore, if the entire built up area is to be seen, then the total area is 183.73 sq. mtrs. and shop is only of 12.63 sq. mtrs., whereas the residential portion is measuring 171.10

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sq. mtrs. Thus, the area of the shop was only 6.87% of the total area. It has also been argued by the Ld. A.R. that this new assets was never used for commercial purposes nor was ever let out for commercial purposes and he has also relied on the judgment of the Hon'ble High Court of Rajasthan in the case of Rajesh Surana vs. CIT [2008] 306 ITR 368 wherein the Hon'ble High Court of Rajasthan had held that the language of section 53 comprehends that the assets should be pre-dominantly residential building, and may have land appurtenant thereto, and not that it be a open plot of land, having some insignificant structure which might under some constrains, be used for residence or which might be actually used by some employee, as a person taking care of protection of the plot and, therefore, I am in total agreement with the contention of the assessee that the impugned property is to be considered a residential property only. 6.10 In this regard the Cochin Bench of the ITAT in the case of Kumar Madhavanpillai S Chandra Press & Book Depot vs. Income Tax Officer [2024] 168 taxmann.com 381 (Cochin Trib.) dealt with an identical issue where the assessee had purchased a property comprising of four units of which only one unit was residential property and claimed deduction under section 54F of the Act. The AO allowed deduction under section 54F only in

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respect of the residential unit. The Tribunal, while allowing the deduction under section 54F of the Act, placed reliance on the decision of the ITAT Delhi Bench in the case of Amit Gupta v. Deputy Commissioner of Income-tax [2006] 6 SOT 403 (Delhi) wherein the ITAT Delhi Bench held that if a property is capable of being used for the purpose of residence, then the requirement of the section 54F is satisfied. 6.11 Similarly, the Jaipur Bench of the ITAT in the case of ITO vs. Smt. Saroj Devi Agarwal [2017] 87 taxmann.com 23 (Jaipur Trib.), relying on the judgment of the Hon'ble Supreme Court in the case of CCE vs. Favourite Industries [2012] 7 SCC 153, has held that section 54F of the Act is a beneficial provision and is applicable to an assessee when the old capital assets is replaced by a new capital assets in form of a residential house. Once an assessee falls within the ambit of beneficial provisions, then the said provision should be liberally interpreted. 6.12 Therefore, on an overall view of the judicial precedents as stated above, it is seen that these precedents favour the case of the assessee in the present facts of the case and, therefore, I am of considered opinion that the second objection of the Department that the new assets having a shop within its premises would be the basis for denying the claim of the assessee for exemption under section 54F of the Act will not hold ground

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and the Departments’ contention on this ground also fails. Therefore, the grounds raised by the assessee are allowed and the order of the Ld. First Appellate Authority is set aside and the AO is directed to provide the benefit of deduction under section 54F of the Act to the assessee. 7.0 In the final result, the appeal of the assessee stands allowed.

Order pronounced in the open Court on 10/04/2026.

Sd/- [SUDHANSHU SRIVASTAVA] JUDICIAL MEMBER DATED:10/04/2026 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR By order Assistant Registrar/DDO