JUI NARAYAN SALGAONKAR,SINDUDHURG vs. ITO , KUDAL

PER R.K. PANDA, VP:

This appeal filed by the assessee is directed against the order dated

year 2016-17 has made large transactions totaling to Rs.1,30,00,000/- as under:

S.No. _| Description of Information Source Amount

Act, 1961 (hereinafter referred to as ‘the Act’) dated 20.03.2023 was passed with the above amount of Rs.1,30,00,000/- as escapement of income. Thereafter, notice u/s 148 of the Act was issued on 20.03.2023 which was duly served on the assessee. The assessee in response to the same filed his return of income on 05.05.2023 declaring Nil income. Statutory notices u/s 142(1) of the Act along with a questionnaire were issued and served on the assessee. The assessee in response to the same filed the following details of long term capital gain:

Sale consideration 1,30,00,000/- Expenses for road construction for access to plot condition | 33,00,000/- Net sale consideration 97,00,000/- Index cost 11,16,033/- Capital gain 85,83,967/-

accordingly determined the long term capital gain at Rs.1,18,83,967/- after deducting the indexed cost of acquisition of asset at Rs.11,16,033/- from the sale

consideration of Rs.1,30,00,000/-.

In appeal, the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer

by observing as under:

pe The Appellant has alleged that registration of agreement is not a requisite

condition for claiming deduction under Section 54F of the Act. The Appellant has relied on the decision of Hon'ble: Supreme Court in the case of Sh. Sanjeev Lal vs Commissioner of Income Tax to support its view. The said case is distinguishable on facts as in the said case, the agreement could not be registered on account of a court order. Therefore, the ratio laid down by the Hon’ble Supreme Court is not applicable to the facts of the present case.

“15. Therefore, a SA/GPA/WILL transaction does not convey any title nor create any interest in an immovable property. The observations by the Delhi High Court, in Asha M. Jain v. Canara Bank - 94 [2001] DLT 841, that the "concept of power of attorney sales have been recognized as a mode of transaction" when dealing with transactions by way of SA/GPAMWILL are unwarranted and not justified, unintendedly misleading the general public into thinking that SA/GPA/WILL transactions are some kind of a recognized or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognize or accept SA/GPA/WILL transactions as concluded transfers, as contrasted from an agreement to transfer, are not good law.

In view of the above decision of the Hon’ble Supreme Court and the detailed

discussion in the assessment order, Ground No. 1 is Dismissed.

NFAC.

He, therefore, rejected the claim of exemption u/s 54F of the Act.

held that even through the sale deed was entered into subsequently, there was no reason to reject the claim of the assessee. The relevant observations of the Tribunal read as under:

“23. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both the sides. We find the Assessing Officer in the instant case rejected the claim of exemption u/s 54F of the Act on the ground that (i) the assessee has not submitted a registered document to establish that she has purchased the residential house, (ii) MoU dated 21.08.2015 is un-registered, (iii) as per clauses of MoU, 1/4" right in the house property is disputed and a civil suit in this regard is still pending, (iv) which shows that Kumar Housing Corporation was not the owner of the property at the time of making MoU, (v) MoU is nothing but a colourable devise with the sole purpose of evading taxes, (vi) MoU dated 21.08.2015 is nothing but a document made with family members and related concern with the purpose to suit the assessee. We find the Ld. CIT(A) / NFAC on the basis of submissions made by the assessee, remand report of the Assessing Officer and rejoinder of the assessee to such remand report, allowed the claim of deduction u/s 54F of the Act, the reasons of which have already been reproduced in the preceding paragraphs.

“4. The Supreme Court in the case of CIT v. T N. Aravinda Reddy though in the context of a different factual background observed that the word "purchase" in section 54 has to be construed in a wider sense.

We find the Hon’ble Karnataka High Court in the case of CIT vs. Mrs.

Shakuntala Devi (supra) has held that the utilization of capital gains in construction of residential house within a period of two years would suffice to claim exemption under section 54 irrespective of fact that neither sale transaction was concluded, nor registration had taken place within 2 years. The relevant observations of Hon’ble High Court read as under:

“11. A reading of the above Section would make it explicitly clear that proceeds of sale of the property is to be reinvested within a period of two years, which would not be chargeable to tax. The intention of Legislature was to encourage the investment in the acquisition of residential house or construction thereof. The condition precedent for claiming benefit under said provision is that the capital gains realized from sale of a capital asset should be reinvested either in purchasing a residential house or utilised for constructing a residential building. If it is established that consideration so received on alienation of property has been invested in either purchasing a residential building or spent on construction of residential building, an assessee would be entitled to the benefit flowing from Section 54 of the Act irrespective of the fact that transaction not being complete in all respects. In other words, it has to be examined or discerned from the facts of each case as to whether the assessee had undertaken such an exercise or not?

(i) Assessee should be an individual or a Hindu Undivided Family;

(ii) Capital assets should result from the transfer of a long term capital asset;

(iii) Capital gain must arise from transfer of building which is chargeable as ‘income from house property’;

(iv) Property should be a residential house;

(v) Assessee must have within a period of two years after that date purchased another property;

(vi) Property purchased must be residential;

(vii) Exemption would be available only to the extent the sale proceeds are utilized;

(viii) Where re-investment in a residential property is not made before due date for filing report, amount not so utilized till such date is required to be deposited in Capital Gain Account Scheme.

Thus, if the above conditions are satisfied, assessee is entitled to claim benefit of the provision of Section 54. 13. Facts on hand would disclose that assessee had owned a flat at Mumbai and sold the same on 04.02.2003 for a total consideration of * 1,70,00,000/- . Subsequent to such sale she entered into an agreement for purchasing another property for a total consideration of ~ 3,25,00,000/- by agreement dated 08.09.2003. Said agreement came to be entered into within six months from the date of sale i.e., 04.02.2003 and assessee had paid a total consideration of ‘2,40,00,000/- between April' 2003 to September’ 2003. After making the payment, a registered sale deed had not been executed in favour of the assessee before completion of two years period pursuant to Memorandum of Understanding dated 08.09.2003. The consideration received by her under sale dated 04.02.2003 has been paid by the assessee for purchasing another property and reinvestment has been made within two years as contemplated under Section 54 of the Act. These facts are not in dispute. Thus, long- term capital gains computed by virtue of sale deed stood adjusted by virtue of payment made by assessee for purchasing another property under Memorandum of Understanding dated 08.09.2003. As such, Tribunal has rightly held that date of purchase was to be taken as the basis for reckoning the period of two years prescribed under Section 54 of the Act for extending the benefit flowing therefrom. In the instant case consideration paid by assessee under Memorandum of Understanding dated 08.09.2003 would fully cover the consideration of capital gains portion for being eligible to claim exemption under Section 54 of the Act.

We find the Hon’ble Karnataka High Court in the case of CIT vs. Smt. B.S.

Shantakumari (supra) has held that once it is established by the assessee that she had invested entire net consideration in construction of residential house within stipulated period, it would meet requirement of section 54F and she would be entitled to get benefit of section 54F even if the construction was not completed within a period of three years. The relevant observations of Hon’ble High Court read as under:

“8. Section 54F of the Act is a beneficial provision which promotes for construction of residential house. Such provision has to be construed liberally for achieving the purpose for which it is incorporated in the statute. The intention of the legislature, as could be discerned from the reading of the provision, would clearly indicate that it was to encourage investments in the acquisition of a residential plot and completion of construction of a residential house in the plot so acquired. A bare perusal of said provision does not even remotely suggest that it intends to convey that such construction should be completed in all respects in three (3) years and/or make it habitable. The essence of said provision is to ensure that assessee who received capital gains would invest same by constructing a residential house and once it is established that consideration so received on transfer of his Long Term capital asset has invested in constructing a residential house, it would satisfy the ingredients of Section 54F. If the assessee is able to establish that he had invested the entire net consideration within the stipulated period, it would meet the requirement of Section 54F and as such, assessee would be entitled to get the benefit of Section 54F of the Act. Though such construction of building may not be complete in all respect "that by itself would not disentitle the assessee to the benefit flowing from Section 54F". In fact, appellate Commissioner has not only taken note of the judgment of the co-ordinate bench of this Court in Sambandam's Udaykumar case (supra), but had also taken note of the judgment of High Court of Madras in the case of CIT v. Sardarmal Kothari[2008] 302 ITR 286, which was on similar facts as obtained in Sambandam Udaykumar's case (supra) and as such in the instant case, Appellate Commissioner allowed assessee's appeal noting that the appeal filed by the revenue against the order of High Court of Madras before Apex Court in CC Nos.3953-3954/2009 had been dismissed on 06.04.2009. 9. That apart, co-ordinate bench of this Court in Sambandam Udaykumar's case (supra) referred to supra has examined similar issue and has held that the words used in Section 54F are 'purchased' or 'constructed' and held that the condition precedent for claiming benefit under such provision is the capital gain realized from sale of a Long-Term capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. It has also been held that if the assessee has invested money in constructing the residential house, merely because the construction was not complete in all respects or such building is yet to be completed fully or the building not being in a fit condition for being occupied, would by itself not be a ground for the assessee to be denied the benefit under Section 54F of the Act. It has been held by the co-ordinate bench as under:

"The intention of the legislature was to encourage investments in the acquisition of a residential house and completion of construction or occupation is not the requirement of law. The words used in the section are ‘purchased’ or ‘constructed’. For such purpose, the capital gain realized should have been invested in a residential house. The condition precedent for claiming benefit under the said provision is the capital gain realized from sale of capital asset should have been parted by the assessee and invested either in purchasing a residential house or in constructing a residential house. If after making the entire payment, merely because a registered sale deed had not been executed and registered in favour of the assessee before the period stipulated, he cannot be denied the benefit of Section 54F of the Act. Similarly, if he has invested the money in construction of a residential house, merely because the construction was not complete in all respects and it was not in a fit condition to be occupied within the period stipulated, that would not disentitle the assessee from claiming the benefit under Section 54F of the Act".

“9. We heard the rival submissions and perused the material on record. The solitary issue in the present appeal revolves round the entitlement of assessee for deduction u/s.54/54F of the Income-tax Act, 1961. From the perusal of the assessment order, it would reveal that the AO had denied the claim for deduction u/s.54/54F, firstly on the ground that no deduction u/s.54F/54F can be claimed simultaneously in respect of the new residential house and secondly, the new residential property was purchased before one year prior to the sale of original asset. Admittedly, the sale consideration was paid prior to the one year before the sale of original asset. There is no bar under law to claim deduction simultaneously u/s,.54 and u/s.54F in respect of the same asset. The crucial fact which needs to be determined in the present case is the date of purchase of the new residential property. It is settled position of law that the crucial date for the purpose of determination is when the property is purchased for the purpose of section 54 and the date when the possession and control of the property is given to the purchaser’s hands. Reliance can be made to the decision of Hon’ble 173 ITR 397 and also the decision of Hon’ble Bombay High Court in the wherein the Hon’ble High Court afier referring to the decision of Hon’ble 46 and the decision of Hon’ble Andhra Pradesh High Court in the case of “purchase” employed in sub-section (2) of section 54, is not used in the sense of legal transfer and therefore, the holding of a legal title within a period of one year is not a condition precedent for availing deduction u/s.

“6. Taking into consideration the letter as well as the spirit of section 54 and the word "towards" used before the word "purchase" in sub-section (2) of section 54, it seems to us that the said word is not used in the sense of legal transfer and, therefore, the holding of a legal title within a period of one year is not a condition precedent for attracting section 54. In the instant case, the whole consideration was paid, possession of the flat was obtained and it was actually put to use for dwelling within four months, as a result exemption contemplated under section 54 was clearly attracted.

“36. A reading of Section 54G makes it clear that the assessee is given a window of three years after the date on which transfer has taken place to “purchase” new machinery or plant or “acquire” building or land. We find that the High Court has completely missed the window of three years given to the assessee to purchase or acquire machinery and building or land. This is why the expression used in 54G(2) is “which is not utilized by him for all or any of the purposes aforesaid....”. It is clear that for the assessment year in question all that is required for the assessee to avail of the exemption contained in the Section is to “utilize” the amount of capital gains for purchase and acquisition of new machinery or plant and building or land. It is undisputed that the entire amount claimed in the assessment year in question has been so “utilized” for purchase and/or acquisition of new machinery or plant and land or building.

“31. The word ‘purchase’ is not defined under the Act and therefore, has to be construed in the commercial sense. In many dictionaries, the word ‘purchase’ means the acquisition of property by party’s own act as distinguished from acquisition by act of law. In the context in which the expression issued by the Legislature requires first to be understood and interpretation that suits the context requires to be adopted. Exemption of capital gains under Section 54G of the Act can be claimed on transfer of assets in cases of shifting of industrial undertaking from urban area to any other non- urban area. This exemption may be claimed if the capital gains arising on transfer of any of assets of existing industrial unit is utilized within one year or three years after the date on which the transfer took place for purchase of new machinery or plant for the purposes of the business of the industrial undertaking in the area to which the said undertaking is shifted. The Legislature consciously has not used the expression ‘towards the purchase of plant and machinery’ as in Section 54(4) of the Act in contrast to Section 54(2) of the Act wherein the words ‘towards’ is used before the word ‘purchase’. The expression ‘purchased’ used in sub-clause (a) of section 54G of the Act requires to be understood as the domain and control given to the assessee. In the present case, it is not in 31. dispute that the assessee has paid advance amount for acquisition of land, plant, building and machinery, etc., within the time stipulated in the Section, but it is not the case of the assessee that after such payment of advance amount, it has taken possession of land and building, plant and machinery. In our view, if the argument of the learned Senior Counsel for the assessee is accepted, it would defeat the very purpose and object of the Section itself. By merely paying some amount by way of advance towards the cost of acquisition of land for shifting its industrial unit from urban area to non-urban area, an assessee cannot claim exemption from payment of tax on capital gains. This cannot be the intention of the Legislature and an interpretation, which would defeat the very purpose, and the object of the Act requires to be avoided.” (at para 31 of the impugned judgment).

In view of the above discussion and in the light of the various decisions

cited (supra) and considering the fact that the assessee has admittedly entered into MoU and paid an amount of Rs.10.60 crores to M/s. Kumar Housing Corporation, which finds mention in the sale deed executed subsequently, therefore, merely because the assessee and his family members are the shareholders in KUD and that the sale deed has been executed after a period of two years, the assessee in our opinion cannot be denied the benefit of deduction u/s 54F of the Act. We

accordingly uphold the order of the Ld. CIT(A) / NFAC and the grounds raised by the Revenue are dismissed.”

Order pronounced in the open Court on 12" June, 2026. (ASTHA CHANDRA) (R. K. PANDA) JUDICIAL MEMBER VICE PRESIDENT

yr Pune; fea Dated : 12" June, 2026

GCVSR se . Gajjala Chinna Chinna Venkata Subba Venkata Subba Reddy

Date: 2026.06.12 18:17:49

Reddy +05'30'

omext at ofaferft 3ifia/Copy of the Order is forwarded to:

ater / The Appellant; verelf / The Respondent

DR, ITAT, ‘A’ Bench, Pune

STSRITAR/ BY ORDER,

//// Assistant Registrar SAGX Betcha sifYereor Yl / ITAT, Pune S.No. | Details Date Initials | Designation 1 Draft dictated on 08.06.2026 Sr. PS/PS 2 Draft placed before author 09.06.2026 Sr. PS/PS Draft proposed & placed before 3 the Second Member JM/AM Draft discussed/approved by 4 Second Member AM/AM Approved Draft comes to the 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS 9 Date on which the file goes to the Office Superintendent 10 Date on which file goes to the AR. 11 Date of Dispatch of order