THE ACIT, ANAND CIRCLE, ANAND vs. SHRI DHARMENDRABHAI JAYANTIBHAI PATEL, ANAND

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ITA 5/AHD/2021Status: DisposedITAT Ahmedabad27 May 2026AY 2017-1810 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the CIT(A) was not justified in allowing deduction under Section 54F as the conditions regarding timing of investment were not satisfied. The issue of unexplained investment was restored to the AO for fresh adjudication.

What were the facts?

The Revenue appealed an order where the CIT(A) deleted additions made by the AO regarding unexplained investment and disallowed deduction under Section 54F. The assessee claimed deductions under Section 54B and 54F based on investments made.

What were the issues?

Whether the conditions for claiming deduction under Section 54F were met, and whether the AO properly examined evidence for unexplained investment.

Which sections of the Income-tax Act were involved?

Section 54B,Section 54F,Section 69

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD

Before: DR. B.R.R. KUMAR, VICE- & SHRI T.R. SENTHIL KUMAR

For Appellant: Shri Amit Pratap Singh, Sr. DR
For Respondent: Shri Mehul K. Patel, AR
Hearing: 10.03.2026Pronounced: 27.05.2026

PER DR. B.R.R. KUMAR, VICE-PRESIDENT:

- Delay Condoned.

This appeal has been filed by the Revenue against the order passed by the Ld. Commissioner of Income-tax (Appeals-4), Vadodara (hereinafter referred to as "CIT(A)" for short), dated 22.09.2020, under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2017-18. 2. The Revenue has raised the following grounds:-

“1. Whether on the facts and circumstance of the case and in law, the Ld. CIT(A) has erred in law by not deciding the issues of appeal on merits without appreciating the facts that the Banakhat which was an unregistered document and the facts remains that the entire consideration was given to developers prior to the sale of the land as against the time period of one year from the date of sale of land as envisaged in section 54F. Asst. Year : 2017-18 - 2–

2.

Whether on the facts and circumstance of the case and in law, the Ld CIT(A) has erred in law by deleting the unexplained investment made in land bearing survey No. 701 which was in excess of sale consideration received in respect of land bearing survey No.45 and fund received in bank account.

3.

Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has erred by not providing opportunity to the AO to verify and examine the fresh evidence produced during the appellate proceedings as per sub rule (3) of Rule 46a of Income tax Rule.

4.

The appellant craves leave to add, modify, amend or alter any grounds of appeal at the time of, or before, the hearing of appeal.

3.

The brief facts of the case are that the assessee, an individual, is a Civil Contractor and derives income from business and other sources. The assessee has e-filed his return of income for the AY 2017-18 on 25.03.2018 declaring total income at Rs.36,39,420/-. The case was selected for Limited scrutiny. The assessee had claimed deduction u/s 54B and 54F based on the investment made by him. Assessment order u/s 143(3) of the I.T. Act was finalized on 27.09.2019, determining total income at Rs.2,67,00,915/-. Deduction u/s 54B was disallowed to the extent of Rs.88,17,491/-. Addition of Rs.83,35,250/-was made on account of unexplained investment u/s 69 of the Act. Deduction u/s 54F was disallowed to the extent of Rs.56,40,000/-.

4.

Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Ld. CIT(A) who partly allowed the appeal. The disallowance u/s. 54B was sustained, whereas the disallowance u/s 54F of the Act and the addition made u/s 69 were deleted. The relevant findings of the Ld. CIT(A) in this regard are as under:-

“6.1 The appellant is Civil Contractor and derives income from business and other sources. Regarding ground of appeal number 1, during the course of assessment proceedings, it was noticed by the A.O Asst. Year : 2017-18 - 3–

that the assessee sold two agricultural pieces of land located at Survey No.17 Valasan on 20.03.2017 for Rs.1,90,14,000/- and Survey No.4, Valasan on 10.08.2016 for Rs.1,04,10,000/-. Out of the total sale proceeds of Rs.2,94,24,000/- the assessee had claimed deduction of Rs.1,87,45,250/- u/s.54B on account of investment in agriculture land situated at survey No.701, at Mogri on 21,10.2016. From the above it is clear that the assessee has purchased new agricultural land before the sale of original agricultural land. The A.O has further mentioned that as per section 54B of the I.T. Act, 1961, the deduction on long term capital gains from sale of old agricultural land is allowable if the long term capital gains is invested by the assessee in another land (being used for agricultural purposes) within 2 years after the date of transfer of original land (sold land). From the above, it is clear that in order to claim deduction u/s.54B, the new asset has to be acquired within 2 years from the date of sale of agricultural land. Therefore AO has restricted the claim of deduction u/s.54B to Rs.99,27,759/-. On this issue, Hon'ble ITAT, Ahmedabad has delivered its judgment which is squarely applicable to the facts of the present case. ITAT. Ahmedabad, in case of Paras Chinubhai Jani Vs. Principal Commissioner of Income-tax, Ahmedabad reported in 177 ITD 91, held that the eligibility of deduction u/s. 54B of the Act in respect of land acquired prior to transfer of capital asset is clearly opposed to the plain provision of the Act and thus apparently not sustainable having regard to express the provision of the statute. The legislature in its own wi om has used the expression before the transfer of long term asset as well as after the transfer of capital asset at appropriate places viz. Section 54 of the Act. The intention of the legislature is thus quite clear. In the case of Mathur Lal Vs. ITO, reported in 174 ITD 44 Hon'ble ITAT, Jaipur, has held that the purchase prior to the sale of the existing land would not be allowable for deduction u/s.54B of the Act.

6.

2 Since issue stands covered by the decision of juri ictional ITAT cited supra, I have no option but to uphold the addition made by the AO. Disallowance of deduction u/s 54B to the extent of Rs 88,17,491/- is sustained. Ground of appeal number 1 is dismissed.

7.

Appellant had made investment of Rs.60,00,000/- and claimed deduction of Rs.56,40,000/- u/s 54F. It was noticed by the Assessing Officer that the appellant had sold urban land at Valasan on 20.03.2017 for Rs.1,90,14,000/-. Appellant had purchased residential flat at Moje, Bakrol. Purchase deed was executed on 28.03.2019. Cheque of Rs.60,00,000/- was given to developer on 26.03.2015. Assessing Officer opined that appellant has not fulfilled the conditions laid out in section Asst. Year : 2017-18 - 4–

54F. AO held that sale proceeds of the said urban land were not utilized for purchase of the flat either one year before the sale of agricultural land or two years after the sale of agricultural land. Against this addition, appellant has filed ground of appeal number 2. 7.1 It is clear that the purchase deed for the flat was signed on 28.03.2019 i.e. after expiry of eight days from the period specified u/s 54F i.e. 2 years from the date of sale of urban land, which is 20.03.2017. Further the payment for purchase of flat was made on 25.03.2015 which is more than one year prior to the date of sale of urban land.

7.

2 Regarding the payment for flat made more than one year prior to date of sale of urban land, appellant claims that the issue stands covered by the decision of Hon'ble ITAT, Delhi (ITA No 2630/Del/2015 dt 30.04.2019) in the case of Kapil Kumar Agarwal. Hon'ble ITAT has relied on the decision of Hon'ble Delhi High Court in the case of Bharti Mishra (Income Tax Appeal No. 567/2013 Dated 18.12.2013) these cases it has been held that deduction u/s 54F is allowable even when construction of the house had started before the sale of shares.

7.

3 From the perusal of section 54F and case laws cited above it is clear that investment in new asset should not necessarily be made out of sale consideration received from sale of land. If that is the case then the condition were in deduction u/s 54F is allowed for purchase of new asset one year prior to the date of sale of land will be rendered unworkable.

7.

4 Assessing Officer has further argued that purchase deed of new flat was signed more than two years after the sale of urban land. Thus, condition specified in section 54F is not fulfilled. 1 find this to be factually incorrect. Assessing Officer has not taken cognizance of the fact that appellant had entered into agreement with the developer regarding purchase of flat. The said banakhat was executed on 25.03.2017 Banakhat has been notarized and contains complete details of flat to be purchased and the fact that total sale consideration paid by the appellant for purchase of the flat is Rs.65,00,000/-. Assessing Officer has considered date of purchase of flat as on 28.03.2019 when the sale deed was registered. He has ignored the said banakhat wherein all transactions details have been mentioned which have been honored by appellant and the developer. Appellant had stated that he tried his best to get the sale deed register immediately after entering into banakhat with the developer. However, the developer kept on postponing the registration on account of some internal dispute amongst the partners. Appellant had submitted photocopy of the said banakhat and original Asst. Year : 2017-18 - 5–

banakhat for my perusal. While examining the facts of the case, presence of this banakhat cannot be ignored. Banakhat was entered into well within the time prescribed in section 54F and the same has been duly honoured by both appellant and developer Assessing Officer has chosen not to discuss this banakhat at all in the assessment order.

7.

5 Looking at the facts of this case as mentioned in the preceding paragraphs, I am convinced that appellant has fulfilled all the conditions prescribed in section 54F. I proceed to delete addition made by the Assessing Officer on account of disallowance made u/s54F. Appellant succeeds with regard to ground of appeal number 2. 8. In ground of appeal number 3 appellant has disputed addition of Rs.83,35,250/- u/s 69 of the IT Act, 1961. Assessing Officer noticed that appellant had purchased agricultural land at Mogre on 21.10.2016 for Rs. 1,87,45,250/-, Further, appellant had sold agricultural land at Survey No.45, Valasan on 10.08.2016 for Rs. 1,04,10,000/- Assessing Officer held that Rs.83,35,250/- (Rs. 1,87,45,250 Rs. 1,04,10,000) was invested from unexplained sources. Thus, addition of Rs 83,35,250/- was made u/s 69 of the IT Act.

8.

1 I have perused assessment order and the submissions of the appellant Conveyance deed filed by the appellant shows the amount paid in respect of various co owners of the land. Appellant had submitted bank account and the payment made for the purchase of the land at Mogri was out of the said bank account. Date wise details of payment made for purchase of land alongwith cheque numbers has been furnished by the appellant. Assessing Officer has not examined the bank statement of the appellant and the fact that he had sufficient resources to make payment for purchase of land at Mogri. Assessing Officer has simply concentrated on date of sale of land at Valasan (10.08.2016) and date of purchase of land at Mogri (21.10.2016) and concluded that sale consideration of land sold at Valasan was not sufficient to purchase land at Mogri. He has not examined the sources available with the appellant for purchase of land at Mogri. It is not understandable as to how it is necessary for the appellant to only make use of sale consideration of land sold at Valasan to purchase and land at Mogri. AO has also not examined the books of accounts of the appellant to establish whether source of purchase of land at Mogri is explained or not. In my opinion appellant has discharged his onus of explaining source of investment in land at Mogri. AO is directed to delete the addition of Rs.83,35,250/- made u/s 69 of the IT Act. Appellant succeeds with regard to ground of appeal number 3.” Asst. Year : 2017-18 - 6–

5.

Aggrieved by the order of the Ld.CIT(A), the Revenue is now in appeal before the Tribunal.

6.

Before us, the Ld. DR relied upon the assessment order and submitted that the Ld. CIT(A) erred in granting relief without appreciating the statutory conditions prescribed u/s 54F of the Act. The Ld. DR contended that the Ld. CIT(A) accepted the claim of the assessee on the basis of an unregistered banakhat and other evidences which were not properly examined by the Assessing Officer, thereby violating the provisions of Rule 46A. With regard to the deletion of addition u/s 69 of the Act, it was submitted that the Ld. CIT(A) accepted the explanation of the assessee without proper verification of sources.

7.

The Ld. AR, on the other hand, reiterated the submissions made before the lower authorities. The Ld. AR submitted that the assessee had received advances against sale of agricultural land much prior to the execution of the sale deeds and such advances were utilized for purchase of new agricultural land. With regard to the deduction u/s 54F of the Act, it was submitted that the assessee had entered into an agreement within the prescribed time and the delay in registration of the sale deed was beyond the control of the assessee. The Ld. AR further submitted that the source of investment in the property was fully explained through banking channels and the addition u/s 69 was made merely on conjectures and surmises.

8.

We have heard the rival submissions and perused the material available on record.

8.

1 Issue: Allowability of deduction u/s 54F of the Act. The Assessing Officer disallowed the deduction on the ground that the assessee had neither invested the sale consideration within one year prior to the date of transfer nor within two years after the date of transfer, as stipulated u/s 54F of the Act. The Assessing Officer observed that the payment for purchase of the flat was made on 25.03.2015, which is beyond the permissible period of one year Asst. Year : 2017-18 - 7–

prior to the date of sale of the original asset i.e. 20.03.2017 and the registered sale deed was executed on 28.03.2019, which is beyond the period of two years prescribed under the Act. The CIT(A), however, allowed the claim of the assessee by taking into consideration the banakhat dated 25.03.2017 and holding that the assessee had complied with the conditions prescribed u/s 54F of the Act. Having considered facts of the case and material available on record, we find that the statutory requirement u/s 54F of the Act clearly prescribes a time limit within which the investment in the new residential house is required to be made. For the sake of ready reference, section 54F of the Act is reproduced hereunder:-

“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 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". Explanation.—For the purposes of this section,— "net consideration", in relation to the transfer of a capital asset, means the full value of the consideration received or accruing as a result of the Asst. Year : 2017-18 - 8–

transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. (2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or constructs, within the period of three years after such date, any residential house, the income from which is chargeable under the head "Income from house property", other than the new asset, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such residential house is purchased or constructed. (3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause (b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such new asset is transferred. (4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset : Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,— (i) the amount by which— (a) the amount of capital gain arising from the transfer of the original asset not charged under section 45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause (b) of sub-section (1), exceeds (b) the amount that would not have been so charged had the amount actually utilised by the assessee for the purchase or construction of the new asset within the period specified in sub-section (1) been the cost of the new asset, shall be charged under section 45 as income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and (ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid…..” Asst. Year : 2017-18 - 9–

In the present case, it is an undisputed fact that the substantial payment towards purchase of the new asset was made on 25.03.2015, which is more than one year prior to the date of transfer of the original asset. The registered sale deed has been executed on 28.03.2019, which is beyond the period of two years from the date of transfer. The reliance placed by the assessee on various judicial pronouncements is distinguishable on facts inasmuch as in those cases there was substantial compliance within the prescribed period or the issue related to commencement of construction prior to the date of transfer. In the present case, both the conditions regarding timing of investment are not satisfied. The mere execution of a banakhat, particularly when it is unregistered, cannot be equated with completion of purchase within the statutory period in the absence of other supporting compliance. The factum that the amounts utilized for purchase of the subsequent assets from the amounts received from the purported sale of previous assets has to be examined in detail. In view of the absence of above fact, we are of the considered opinion that the Ld. CIT(A) was not justified in allowing the deduction u/s 54F of the Act. Accordingly, the order of the CIT(A) on this issue is set aside and restored to the Assessing Officer for examination of flow of amounts.

Accordingly, this ground of the Revenue is allowed for statistical purposes.

8.

2 The next issue relates to deletion of addition of Rs.83,35,250/- made u/s 69 of the Act on account of unexplained investment. The Assessing Officer made the addition by comparing the investment made in purchase of agricultural land with the sale consideration received from one of the properties and treated the difference as unexplained. The Ld. CIT(A) deleted the addition by observing that the assessee had made payments through banking channels and had sufficient funds available. The Ld. CIT(A) also observed that the Assessing Officer had not properly examined the bank statements and other evidences. On perusal of the record, we find that the assessee has claimed that all payments were made through bank accounts and that sufficient documentary evidence in the form of bank Asst. Year : 2017-18 - 10–

statements and payment details was furnished. However, the assessment order does not reflect any detailed examination of such evidences. At the same time, it is also not clear whether all these evidences were duly furnished before the Assessing Officer or were produced for the first time before the Ld. CIT(A). Therefore, in the interest of justice, we deem it appropriate to restore this issue to the file of the Assessing Officer for fresh adjudication. The Assessing Officer shall examine the bank statements, sources of funds, books of account and all relevant evidences and decide the issue afresh in accordance with law after providing adequate opportunity of being heard to the assessee.

Accordingly, this ground of the Revenue is allowed for statistical purposes.

9.

In the result, the appeal of the Revenue is allowed for statistical purposes.

The order is pronounced in the open Court on 27.05.2026. (T.R. SENTHIL KUMAR) VICE-PRESIDENT Ahmedabad; Dated 27.05.2026 **btk आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : अपीलाथ" / The Appellant

1.

""थ" / The Respondent. 2. संबंिधत आयकर आयु" / Concerned CIT 3. 4. आयकर आयु"(अपील) / The CIT(A)- 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER,सहायक पंजीकार (Dy./Asstt.

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