V EXCEL SPARES AND EQUIPMENT PRIVATE LIMITED,VADODARA, GUJARAT vs. DEPUTY COMMISSIONER OF INCOME TAX- CIRCLE 3, THANE, THANE

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ITA 3372/MUM/2026Status: DisposedITAT Mumbai14 October 2026AY 2022-2333 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the assessee is, in principle, entitled to the exemption under Section 54G of the Act. The Tribunal acknowledged that the assessee had acquired land in Vadodara in 2012, constructed a factory building, purchased plant and machinery, and physically shifted its undertaking. It also noted that loans obtained for the Vadodara unit construction were repaid from the capital gains earned on the sale of urban properties. The Tribunal admitted the additional evidence furnished by the assessee, which established the utilization of loan amounts for construction and repayment of loans from capital gains. Citing the Supreme Court's decision in Commissioner of Income Tax v. Fibre Boards (P) Ltd., the Tribunal stated that since the assessee had made actual purchases, completed construction, repaid loans, and shifted the business, the case was even stronger than Fibre Boards where only advances were paid. The Tribunal restored the additional evidence to the AO for verification. Subject to this verification, the assessee's claim for exemption under Section 54G was allowed. The appeal of the assessee was allowed.

What were the facts?

The assessee, V Excel Spares and Equipment Private Limited, filed its return for Assessment Year 2022-23 declaring an income of Rs. 3,37,590/-. The Assessing Officer (AO) completed the assessment on 12.03.2024, determining the income at Rs. 6,48,97,503/- by disallowing an exemption of Rs. 6,45,59,913/- claimed under Section 54G of the Income Tax Act, 1961, on capital gains from the sale of an industrial undertaking. The AO's disallowance was based on the assessee's failure to provide details of property purchase for the holding period, documentary evidence for the new unit setup, and opening a Capital Gains Account. The assessee appealed to the CIT(A), who dismissed the appeal. The assessee then filed an appeal before the ITAT.

What were the issues?

1. Whether the assessee is eligible for exemption under Section 54G of the Income Tax Act, 1961, for capital gains amounting to Rs. 6,45,59,913/- arising from the sale of an industrial undertaking. Assessee's Contentions: - The assessee argued that all conditions of Section 54G(1) were satisfied. This included the purchase of new machinery and plant (Rs. 2,01,77,948/-), acquisition and construction of a factory building in Vadodara (funded by loans), physical shifting of assets, and utilization of capital gains for these purposes. - Reliance was placed on the Supreme Court's decision in Commissioner of Income Tax v. Fibre Boards (P) Ltd. (2004) 265 ITR 267 (SC), which held that even advances for assets qualify as utilization under Section 54G. - The assessee submitted that loan repayments of Rs. 5,19,41,166/- for the Vadodara unit construction, using sale proceeds, constituted direct utilization of capital gains. - The total investment of Rs. 7,21,19,114/- exceeded the capital gain. Revenue's Contentions: - The revenue, through the AO and CIT(A), contended that the assessee failed to submit required details regarding the purchase of properties to establish the three-year holding period, documentary evidence for the new unit setup, and the opening of a Capital Gains Account. - The CIT(A) noted that the assessee had not made written submissions and proceeded based on available records, stating that evidence to determine if costs exceeded capital gains was not submitted.

Which sections of the Income-tax Act were involved?

Section 54G,Section 143(3),Section 144B,Section 142(1),Section 143(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: CHALLA NAGENDRA PRASAD & SHRI MAKARAND VASANT MAHADEOKAR

Pronounced: 14/10/2026

PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER: This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi, dated 23.01.2026 for the assessment year 2022-23.

2. The assessee has raised the following grounds of appeal:-

“1. In the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) has erred in confirming the action of the learned Assessing Officer in disallowing the Appellant's claim of exemption under section 54G of the Income-tax Act, 1961 amounting to Rs.6,45,59,913/-, without properly appreciating the facts of the case and the evidences placed on record.” 3. Briefly stated the facts are the assessee is a private limited company and engaged in the business of manufacturing machinery parts and assembling, filed its return of income on 06.11.2022, declaring income of Rs. 3,37,590/-. The assessment was selected for scrutiny and the assessment was completed on 12.03.2024 u/s. 143 r.w.s. 144B of the Act, determining the income of the assessee at Rs.6,48,97,503/- by disallowing exemption claimed u/s. 54G of the Act on the capital gains earned on sale of industrial undertaking. In the course of assessment proceedings notice under section 143(2) was issued on 02.06.2023. Thereafter, notices under section 142(1) were issued on 07.08.2023 and 26.09.2023, calling for various details including financial statements, bank statements, details of properties sold, computation of capital gains, and eligibility of deductions claimed under section 54G. The assessee duly responded to all notices. The AO issued a Show Cause Notice dated 24.02.2024 proposing to disallow the

exemption of Rs. 6,45,59,913/- under section 54G on the following three grounds:

(a) The assessee had not submitted details regarding purchase of the properties sold, to establish the three-year holding period.

(b) No documentary evidence had been submitted regarding the setup of the company at the new place (Vadodara).

(c) The assessee had not opened a Capital Gains Account and deposited the capital gain amount.

4.

The assessee filed a detailed reply on 29.02.2024 and 01.03.2024, enclosing asset transfer bills for FY 2021-22, electricity bills of the Thane unit (showing reduced consumption post-sale), machinery purchase invoices, rent ledger of the Thane rented unit, and GST login screenshot showing Vadodara as an additional place of business. The assessee specifically explained that:

(a) It had two units at Thane - one rented (B-79, Wagle Estate) and one owned (Plot No. A-42, MIDC, Thane).

(b) The rented unit was shifted to Vadodara in FY 2019-20.

(c) The owned unit was sold in FY 2021-22 and the assets were transferred to the Vadodara unit, with the shifting completed by end of May 2021.

(d) Electricity bills of the owned unit showed reduced consumption in FY 2021-22 after the sale.

(e) Employee salary at Thane became NIL post-shifting.

5.

Thereafter, a further detailed submission was filed on 11.03.2024 with an online acknowledgement, containing additional documentary evidence regarding the section 54G claim.

6.

The Assessing Officer passed assessment order under section 143(3) read with section 144B on 12.03.2024 - just one day after the assessee’s detailed submission dated 11.03.2024. The AO disallowed the entire exemption of Rs.6,45,59,913/- claimed u/s. 54G of the Act on the following grounds:

(a) The assessee had not submitted details regarding purchase of the properties sold to fulfill the clause of three years to claim exemption under section 54G.

(b) No documentary evidence had been submitted regarding the setup of the company at the new place. 4

(c) The assessee had not opened a Capital Gains Account and deposited the capital gain amount.

7.

Being aggrieved by the assessment order dated 12.03.2024, the Appellant filed an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi on 10.04.2024, challenging the disallowance of exemption claimed under section 54G of the Act at Rs.6,45,59,913/- by the AO.

8.

Before the Ld. CIT(A), the Appellant submitted copies of invoices for purchase of plant and machinery and copies of loan applications made before TJSB Sahakari Bank Ltd. A detailed reply was also filed on 12.01.2026 containing a comprehensive working of the utilization of capital gains, showing that the total investment of Rs. 6,62,88,093/- (loan repayments of Rs. 5,53,00,000/- + fixed asset additions of Rs. 1,02,38,093/- + transfer expenses of Rs. 7,50,000/-) exceeded the capital gain of Rs. 6,45,59,913/-. The acknowledgement of this submission is annexed in the Paper Book (Pages 361-363) submitted before us. However, the Ld. CIT(A) dismissed the appeal by order dated 23.01.2026 and held as follows:

(a) The Appellant had submitted copies of invoices for plant and machinery and loan applications to TJSB Sahakari Bank Ltd., but observed that 'the Appellant has not made any written submissions' and proceeded to pass the order 'based on details and evidences on records.'

(b) The Appellant had not submitted evidence to determine whether the costs incurred under clauses (a) to (d) were greater than, equal to, or less than the capital gain earned.

9.

Before us, the Ld. Counsel for the assessee submitted that the assessee has fulfilled all conditions of section 54G(1) of the Act. It is submitted that section 54G(1) of the Act provides for exemption of capital gains arising from the transfer of a capital asset used for the purposes of the business of an industrial undertaking situated in an urban area, effected in the course of or in consequence of the shifting of such undertaking to any area other than an urban area. Ld. Counsel submitted that the conditions to be satisfied within a period of one year before or three years after the date of transfer are:

(a) Purchase of new machinery or plant for the purposes of the business of the industrial undertaking in the area to which the undertaking is shifted;

(b) Acquisition of building or land or construction of building for the purposes of the business in the said area;

(c) Shifting of the original asset and transfer of the establishment to the said area; and

(d) Incurring of expenses on such other purpose as may be specified in a scheme framed by the Central Government.

9.1 Ld. Counsel submitted that all the above conditions of section 54G(1) have been duly satisfied:

(a) - Purchase of new machinery/plant:

The Appellant purchased new plant and machinery worth Rs.2,01,77,948/- for the Vadodara unit during FY 2020-21 to FY 2023-24, which falls within the statutory window of one year before and three years after the transfer dates (30.04.2021 and 15.07.2021). Invoices for all such purchases are annexed in the Paper Book (Pages 155-239).

(b) - Acquisition/construction of building:

The Appellant acquired land at Vadodara on 29.05.2012 and constructed a factory building thereon over the years. The construction was funded by loans from TJSB Sahakari Bank

Ltd. sanctioned specifically for this purpose. The loan sanction letters (Paper Book Pages 2-21), loan disbursement working with construction invoices (Paper Book Pages 51-124), and financial statements (Paper Book Pages 240-341) evidencing the building construction are part of paperbook.

(c) - Shifting of original asset and transfer of establishment:

The Appellant physically shifted its machinery and assets from the Thane units to the Vadodara unit. Asset transfer invoices for FY 2019-20 (shifting of rented unit) and FY 2021-22 (shifting after sale of owned unit) are annexed (Paper Book Pages 125- 154). The cessation of operations at Thane is evidenced by NIL electricity consumption post-sale, NIL employee salary at Thane, and the GST registration showing Vadodara as the place of business.

10.

The Ld. Counsel submitted that the legislative intent behind Section 54G is to encourage the shifting of industrial undertakings from urban to non-urban areas, not to compel the assessee to shut down its business in the interim.

Section 54G(1) provides a window of one year before or three years after the date of transfer for utilising capital gains. Construction of a factory building, especially one involving structural work, construction, fabrication, electrification, and installation of plant and machinery, is a time-intensive process. It would have been physically and practically impossible for the Appellant to sell the Thane properties first and then complete the entire construction and setup of the Vadodara unit within three years, particularly given the scale of the project and the time required for sanctioning and disbursing loans, obtaining building permissions, executing construction, and installing machinery.

11.

The Ld. Counsel for the assessee further submitted that the assessee could not file the additional evidence before the Ld. Assessing Officer as well as the Ld. CIT(A) during the course of proceedings before them. The assessee is now filing additional evidence in the form of loan statements, a copy of the working of loan disbursement for building construction, along with copies of invoices for fixed asset purchases for the Vadodara unit during 2023-24 which are placed at pages 22 to 20, pages 51 to 124 and pages 205 to 239 of the paper book. The L. Counsel submitted that the above documents could not

be submitted before the Ld. Assessing Officer and Ld. CIT(A) as post transfer of business from Thane to Vadodara. These records were not readily available with the assessee. These documents go to the very root of the matter and establish the genuineness of the transaction of repayment of loans by the assessee from the sale proceeds of the units that were sold and shifted to Vadodara. The assessee prays to admit the additional evidences as the same substantiate the merits of the case and the genuineness of the case of the assessee. Ld. Counsel placed reliance on the decisions of the Hon’ble Bombay High Court in the case Prabhavati Shah vs. CIT, 231 ITR 1 (Bom.) Tribunal order in the case of Abhay Kumar, 36 ITD 144 (Patna-Trib.) for admission of additional evidences.

12.

Therefore, Ld. Counsel for the assessee submitted that the same may be admitted and the matter may be remitted to the Assessing Officer for the limited purpose of examining these documents vis-à-vis the claim made by the assessee u/s. 54G of the Act.

13.

The Ld. Counsel for the assessee strongly relied on the decision of the Hon’ble Supreme Court in the case of Fiber Boards Private Limited v. CIT, (2015) 376 ITR 596 and

submitted that the said decision is squarely applicable to the facts of the assessee’s case.

14.

The Ld. Counsel for the assessee referring to the said decision submitted that the assessee in that case had an industrial unit at Thane, which is a notified urban area. As the assessee was required to shift its industrial undertaking from an urban area to a non-urban area at Pimpalgaon village, it sold its land and building situated at Thane and the resultant capital gain was invested/paid by way of advances to various persons for the purchase of land and machinery, construction of the factory building, etc. The assessee claimed exemption u/s. 54G of the Act on the entire capital gain earned from the sale proceeds of its industrial undertaking situated in Thane, in view of the advances so made being more than the capital gain earned by the assessee.

15.

The Ld. Counsel submitted that on these facts the Hon’ble Supreme Court, after analyzing the memorandum explaining the provisions in the Finance Bill, 1987, which provides for shifting an industrial undertaking from an urban area to a non- urban area, held that the assessee was entitled to exemption u/s. 54G of the Act. The Hon’ble Supreme Court held that a reading

of section 54G makes it clear that the assessee is given a window of three years after the date on which the transfer has taken place to purchase new machinery or plant or acquire a building or land. Therefore, the Ld. Counsel submitted that the Hon’ble Supreme Court clearly held that for the relevant assessment year in question all that is required for the assessee to avail the exemption contained in the section is to utilize the amount of capital gain for the purchase and acquisition of new machinery or plant and building or land. It was held that once it is undisputed that the entire amount claimed in the assessment year in question has been so utilized for the purchase and/or acquisition of new machinery or plant and land or building, the assessee is entitled to exemption u/s. 54G of the Act.

16.

Ld. Counsel submitted that the AO and CIT(A) have both failed to appreciate that the sale proceeds received from the transfer of the Thane and Bhiwandi properties were directly utilized by the Appellant to repay the loans that had been specifically obtained for the construction and setup of the Vadodara unit. The loans from TJSB Sahakari Bank Ltd. were sanctioned specifically for construction of the factory building at Plot No. 37, Shiv Industrial Infrastructure Park, Village

Lamdapura, Taluka Savli, Vadodara, and for purchase of plant and machinery for the Vadodara unit.

17.

The loan sanction letters (Paper Book Pages 2-21) clearly establish that the loans were taken for the express purpose of building and equipping the new industrial undertaking at Vadodara. When the Appellant sold its urban properties and used the sale proceeds to repay these very loans, the capital gains were effectively and directly utilized for the purposes specified in clauses (a) and (b) of section 54G(1).

18.

The Hon'ble Supreme Court in Fibre Boards decision (supra) has held that the expression 'utilize' in section 54G(2) is of wide amplitude and includes advances paid for the purpose of purchase and acquisition of assets. A fortiori, repayment of loans taken for the construction and acquisition of the new asset is an even stronger form of utilization, since the actual construction and acquisition have already been carried out with the loan funds.

19.

Section 54G is a beneficial provision enacted to encourage industries to shift from congested urban areas to non-urban areas, thereby promoting decongestion of urban areas and balanced regional growth. The legislative intent is evident from

the Budget Speech introducing the provision, which stated: 'Concentration of industries in many of our urban areas poses serious problems of congestion, pollution and hazards. In order to encourage industries to shift out of such areas, I propose to exempt capital gains made on the sale of land and buildings in such areas provided these are reinvested in approved relocation schemes.

20.

The Hon'ble Supreme Court in Fibre Boards decision (supra) has emphasized that the provisions of section 54G must be interpreted in a manner that gives effect to the legislative intent of encouraging shifting of industrial undertakings. A narrow and rigid interpretation would defeat the very purpose of the provision. In the present case, the Appellant has demonstrated a genuine and complete shifting of its industrial undertaking from Thane (urban area) to Vadodara (non-urban area). The entire chain of events clearly establishes that the conditions of section 54G have been met in substance and in form.

21.

The assessee therefore respectfully submits that it has fully utilised the entire capital gains for the purposes mentioned in section 54G within the prescribed period and hence exemption

under section 54G may be allowed in principle as claimed by the Appellant in its Return of Income. For the limited purpose of verifying the additional evidences in the form of invoices and loan sanction and repayment and utilisation details, the matter may be remanded back to the Assessing Officer as the said additional evidences could not be submitted at the time of assessment proceedings due to shifting of its entire industrial undertaking from Thane to Vadodara.

22.

The Ld. Counsel for the assessee submitted that, in the assessee’s case, the assessee had obtained loans for setting up an industry in Vadodara and constructed the factory in Vadodara by utilizing the loan amounts. Such loan amounts were repaid by selling the units in the urban area as part of shifting the factory to a non-urban area, i.e., Vadodara. Therefore, the assessee fulfilled all the conditions specified u/s. 54G of the Act and is thus entitled to exemption u/s. 54G of the Act.

23.

On the other hand, Ld. DR strongly supported the order of the authorities below.

24.

Heard rival submissions, perused the orders of the authorities below and examined the evidence furnished before

us. The only grievance in the appeal of the assessee is whether the assessee is entitled to exemption u/s. 54G of the Act in the given circumstances of the case. The additional evidences filed by the assessee which are going to the very root of the issue of shifting of industrial undertaking from urban area to non-urban area and emanated from the post shifting of industrial undertaking and is going to the very root of the claim made by the assessee u/s.54G of the Act. Thus, additional evidences filed by the assessee are admitted following the decision of the Hon’ble Bombay High Court in the case of Smt. Prabhavati Shah vs. CIT (supra).

25.

Coming to the merits, the assessee, M/s. V-Excel Spares and Equipment Private Limited is a private limited company engaged in the business of manufacturing machinery parts and assembly. The Appellant was originally operating its industrial undertaking from Thane, Maharashtra. The Appellant had two units at Thane: (a) a unit at Plot No. A-42, MIDC, Thane Industrial Area; and (b) a unit at 524, Bhoomi Industrial Estate, Pimpalgarh, Kalyan - Bhiwandi Rd, Pimpalgaon.

26.

With the specific objective of shifting its industrial undertaking from an urban area (Thane) to other than an urban

area, the Appellant purchased a plot of land on 29.05.2012 at Plot No. 37, Shiv Industrial Infrastructure Park, Village Lamdapura, Taluka Savli, Vadodara, Gujarat. Vadodara is an area outside the limits of any municipal corporation or municipality declared as an urban area for the purposes of section 54G of the Act. The Appellant's intention was to relocate its entire manufacturing operations from the congested urban area of Thane to non-urban area of Vadodara in compliance with section 54G of the Income Tax Act, 1961.

27.

After purchasing the plot at Vadodara in the year 2012, the Appellant commenced construction of a factory building and related infrastructure on the said plot. The construction was carried out progressively over the years. It was practically impossible for the Appellant to first sell the urban properties at Thane and Bhiwandi and thereafter commence construction of the new industrial undertaking at Vadodara, as the Appellant's industrial undertaking at Thane was an ongoing, operational manufacturing unit. The machinery, employees, customers, and supply chain were all located at and centred around the Thane unit. If the Appellant had sold the Thane properties before constructing and setting up the Vadodara unit, its entire manufacturing operations would have come to a complete halt

for several years during the construction period. There would have been no premises to carry on business, no factory building to house the machinery, and no infrastructure to manufacture goods. The Appellant would have been rendered non-functional and would have suffered irreparable loss of business, customers, and goodwill.

28.

Given the above constraints, the Appellant adopted the only practical and commercially viable approach available, it first acquired land at Vadodara in 2012 and progressively constructed factory building and infrastructure. To fund the construction and setup of the new industrial undertaking at Vadodara, the Appellant obtained various loans from TJSB Sahakari Bank Ltd. over the intervening years (Paperbook Page No. 2-21). The loans were specifically sanctioned for the purpose of construction of the factory building and purchase of plant and machinery for the Vadodara unit. The relevant loan sanction details are as follows:

Sr. Date of Loan Account Amount Paperbook No. Sanction (Rs.) Reference

1 31.12.2016 Property Loan 3,65,00,000 Page 2 3 31.10.2018 Property Loan 68,00,000 Page 9 4 27.08.2019 Property Loan 1,20,00,000 Page 17

29. These loans were secured against the Vadodara property and were utilized entirely for the construction and setup of the new industrial undertaking at Vadodara. The loan disbursement working, invoices, and bank statements evidencing the utilization of loan proceeds are annexed in the Paper Book.

Sale of Urban Properties at Thane

30.

During the previous year relevant to Assessment Year 2022-23 (Financial Year 2021-22), the Appellant sold its existing properties situated in the urban area of Thane, as part of the shifting of its industrial undertaking:

a) Property at MIDC, Thane was sold on 30.04.2021 for consideration of Rs. 7,85,00,000/-.

Name of Buyer Date of Amount (Rs.) Total (Rs.) Receipt

Kumar Process 25-01-2021 50,00,000 Consultants Chemical 30-01-2021 30,00,000 01-02-2021 10,00,000 10-02-2021 45,00,000 11-02-2021 45,00,000 12-02-2021 45,00,000 20-02-2021 45,00,000 22-02-2021 40,00,000 23-02-2021 2,00,000,00 15-03-2021 2,00,000,00 7,10,00,000 10-04-2021 40,00,000 17-07-2021 35,00,000 75,00,000 Total: 7,85,00,000 b) Property at Bhiwandi, Thane was sold on 15.07.2021 for consideration of Rs. 66,50,000/-.

Date of Name of Buyer Amount (Rs.) Total (Rs.) Receipt

Precihole Arms Arm 16-07-2021 63,00,000 Pvt Ltd 16-07-2021 3,50,000 66,50,000

The total long-term capital gain arising from these two transfers was Rs. 6,45,59,914/-, computed as follows (Paperbook Page No. 1):

Particulars Thane(Rs.) Bhiwandi Total (Rs.) (Rs.)

Sale consideration 7,85,00,000 66,50,000 8,51,50,000 Less: Indexed cost of (1,43,28,440) (62,61,646) (2,05,90,086) acquisition Long Term Capital Gain 6,41,71,560 3,88,354 6,45,59,914 The Appellant claimed exemption under Section 54G of the Act on the entire capital gain of Rs. 6,45,59,914/- in its return of income filed on 06.11.2022.

(v) Utilization of Sale Proceeds for Repayment of Loans

31.

The sale proceeds received from the transfer of the Thane and Bhiwandi properties were directly utilized by the Appellant to repay the loans that had been specifically obtained for the construction and setup of the Vadodara unit. The loan repayment details are as follows:

Loan Number Date of Amount (Rs.) Paperbook Repayment Reference

ADVHYP-M/267 18-05-2022 79,35,214 Page 28 ADVHYP-M/288 10-02-2021 43,19,137 Page 31 23-02-2021 1,10,00,000 Page 38 PRLN-M/146 16-03-2021 70,00,000 Page 38 13-05-2022 87,80,499 Page 39 PRLN-M/160 11-02-2021 14,49,684 Page 44 Express/6 22-02-2021 1,14,56,632 Page 48 Total: 5,19,41,166

32. The sale proceeds thus flowed directly into the repayment of loans that had financed the construction and setup of the Vadodara unit. The total loan repayment of Rs. 5,19,41,166/- alone exceeds 85% of the total capital gain of Rs. 6,45,59,914/-

Purchase of Fixed Assets for Vadodara Unit

33.

In addition to the building construction funded through loans, the Appellant also purchased new plant and machinery for the Vadodara unit. The total purchase of fixed assets from FY 2020-21 to FY 2023-24 was Rs. 2,01,77,948/-, as follows:

Financial Year Amount (Rs.) Paperbook Pages

FY 2020-21 31,88,409 155-179 FY 2021-22 29,92,310 180-194 FY 2022-23 13,61,174 195-204 FY 2023-24 1,26,36,055 205-239 TOTAL 2,01,77,948

34.

These purchases fall within the period of one year before and three years after the date of transfer of the original assets (30.04.2021 and 15.07.2021), as prescribed under section 54G(1) of the Act.

Total Investment in New Asset Exceeds Capital Gain:

35.

The total investment made by the Appellant towards the cost of the new asset, being the new industrial undertaking at Vadodara, is as follows:

Particulars Amount (Rs.)

(A) Repayment of loans taken for 5,19,41,166 construction/building and plant & machinery at Vadodara (B) Purchase of new plant and machinery (FY 2,01,77,948 2020-21 to FY 2023-24) TOTAL INVESTMENT (A+B) 7,21,19,114 Total Capital Gain 6,45,59,914

36.

Thus, the total investment of Rs. 7,21,19,114/- made by the Appellant towards the new asset at Vadodara exceeds the total capital gain of Rs. 6,45,59,914/-. Under section 54G(1)(ii), where the cost of the new asset is equal to or exceeds the capital gain, the entire capital gain is exempt from charge under section 45 of the Act.

37.

We observed that the Hon'ble Supreme Court in Fibre Boards (P.) Ltd. v. Commissioner of Income-tax, Bangalore [2015] 376 ITR 596 (SC), decided on 11.08.2015 has

authoritatively interpreted section 54G of the Act. The factual matrix in that case is remarkably similar to the present case.

38.

In Fibre Boards case, the assessee was a private limited company that had an industrial unit at Majiwada, Thane (a notified urban area). With a view to shift its industrial undertaking from the urban area of Thane to a non-urban area at Kurukumbh Village, Pune District, it sold its land, building and plant and machinery at Thane for Rs. 1.20 crores and earned a capital gain of Rs. 1.08 crores. The assessee paid advances amounting to Rs. 1.11 crores for purchase of land, plant and machinery, and construction of factory building, and claimed exemption under section 54G on the entire capital gain.

39.

The Assessing Officer in that case denied the exemption on grounds that are virtually identical to the present case: (a) the assessee had only given advances and had not actually purchased the assets; and (b) the assessee had not deposited the capital gains in the Capital Gains Deposit Scheme. The High Court reversed the Tribunal's order in favour of the assessee and held that the expression 'purchase' in section 54G cannot be equated with the expression 'towards purchase' and that since

the assets had not been purchased in the assessment year in question, the exemption had to be denied.

40.

The Hon’ble Supreme Court in Fibre Boards case (supra) extensively examined the legislative background and intent behind the introduction of section 54G. The Finance Minister, in the Budget Speech introducing the Finance Bill, 1987, stated as follows (as quoted by the Supreme Court at paragraph 9 of Fibre Boards decision):

“83. Concentration of industries in many of our urban areas poses serious problems of congestion, pollution and hazards. In order to encourage industries to shift out of such areas, I propose to exempt capital gains made on the sale of land and buildings in such areas provided these are reinvested in approved relocation schemes.” 41. The Notes on Clauses to the Finance Bill, 1987 (referred to by the Supreme Court at paragraph 10 of Fibre Boards decision) stated as follows:

"Clause 24 seeks to insert two new sections 54G and 54H in the Income- tax Act. The new section 54G provides for exemption of capital gains on transfer of assets in cases of industrial undertaking shifting from urban area. Sub-section (1) provides that if an assessee transfers a long-term capital asset in the nature of machinery, plant, building or land used for the purposes of the business of the industrial undertaking situated in an urban area in connection with the shifting of such undertaking to a non-urban area, and within a period of one year before or three years after the date of transfer, purchases new machinery or plant and acquires land or building or constructs building for the purposes of his business in the area to which the undertaking is shifted or incurs expenses on shifting the original asset and transferring the 25

establishment of the undertaking to such area and incurs expenses on such other purposes as may be specified in a scheme framed by the Central Government, the capital gain shall be exempt to the extent such gain has been utilized for the aforesaid purposes." 42. Crucially, the Memorandum explaining the provisions of the Finance Bill, 1987 (referred to by the Supreme Court at paragraph 11 of Fibre Boards decision) stated as follows:

"34. Under the existing provisions of section 280ZA of the Income-tax Act, any company owning an industrial undertaking situated in an urban area, is entitled for a tax credit certificate with reference to the amount of the tax payable on capital gains arising from the transfer of its machinery, plant, etc., to any other area. These provisions have not proved to be very effective. With a view to promoting decongestion of urban areas and balanced regional growth, the Bill seeks to exempt capital gains arising on transfer of long-term capital assets in the nature of machinery, plant, building or land used for the purposes of the business of the industrial undertaking situated in an urban area in connection with the shifting of such industrial undertaking from an urban area to a non-urban area. Accordingly, capital gains arising in such cases will be exempt to the extent they are utilized within a period of one year before or three years after the date of transfer, for the purchase of new machinery or plant or acquiring land and building, etc., for the purpose of the business in the area to which the undertaking is shifted or incurs expenses on shifting the original asset and transferring the establishment of the undertaking to such area and incurs expenses as may be specified. As a consequential measure, section 280ZA of the Income-tax Act is proposed to be omitted. These amendments will take effect from 1st April, 1988, and will, accordingly, apply in relation to the assessment year 1988-89 and subsequent years." 43. The legislative intent discerned from the Budget Speech, Notes on Clauses, and the Explanatory Memorandum (as

discussed in Fibre Boards decision) reveals the following principles directly applicable to the present case:

(a) Section 54G replaced the earlier section 280ZA scheme which 'had not proved to be very effective', with a more accessible and beneficial exemption — not one intended to impose additional restrictions. (b) The express purpose was 'to promote decongestion of urban areas and balanced regional growth', warranting a purposive and liberal interpretation. (c) The Legislature used 'utilization' — not 'purchase' simpliciter — deliberately encompassing all forms of applying capital gains towards the specified purposes, as held by the Supreme Court in paragraphs 36 and 38 of Fibre Boards decision. (d) The exemption is available 'to the extent [the capital gains] are utilized' — the focus is on end-use, not on the source of initial funding. Repaying loans taken for the Vadodara unit out of sale proceeds constitutes full 'utilization' under section 54G(1). 44. The interpretation adopted by the AO and CIT(A) runs directly counter to this legislative intent. Denying the exemption on the ground that construction was loan-funded, would frustrate the very object of encouraging the shifting of industrial undertakings from urban to non-urban areas.

45. The Hon'ble Supreme Court allowed the assessee's appeal and held at paragraphs 36 and 38:

"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." (Para 36) "Under sub-section (1), the assessee is given a period of three years after the date on which the transfer takes place to purchase new machinery or plant and acquire building or land or construct building for the purpose of his business in the said area. If the High Court is right, the assessee has to purchase and/or acquire machinery, plant, land and building within the same assessment year in which the transfer takes place. Further, the High Court has missed the key words "not utilized" in sub-section (2) which would show that it is enough that the capital gain made by the assessee should only be "utilized" by him in the assessment year in question for all or any of the purposes aforesaid, that is towards purchase and acquisition of plant and machinery, and land and building. Advances paid for the purpose of purchase and/or acquisition of the aforesaid assets would certainly amount to utilization by the assessee of the capital gains made by him for the purpose of purchasing and/or acquiring the aforesaid assets. We find therefore that on this ground also, the assessee is liable to succeed." (Para 38) 46. The Hon'ble Supreme Court's ruling applies directly and with full force to the present case. In Fibre Boards case, the

assessee had merely paid advances for purchase of land, plant and machinery, and construction of factory building, and the Supreme Court held that even advances amounted to 'utilization' of capital gains. In the present case:

(a) The Appellant has not merely paid advances but has actually purchased land (in 2012), constructed a factory building (over the years, funded by loans), purchased plant and machinery worth Rs. 2,01,77,948/- (FY 2020-21 to FY 2023-24), and physically shifted assets from Thane to Vadodara.

(b) The Appellant has repaid loans of Rs. 5,19,41,166/- that were specifically taken for the construction of the Vadodara unit, using the sale proceeds of the Thane and Bhiwandi properties. This constitutes direct utilization of the capital gains for the purposes specified in section 54G(1).

(c) The total investment of Rs. 7,21,19,114/- exceeds the capital gain of Rs. 6,45,59,914/-.

47.

The Hon'ble Supreme Court in Fibre Boards case held that paying advance for purchase of assets qualifies as "utilization" under section 54G, then the present case is even stronger because here, actual purchases were made, construction was

completed, loans were repaid, and the business was physically shifted to Vadodara.

48.

We observed that in the case of the assessee, the assessee had acquired land at Vadodara in 2012 and started constructing the factory building and infrastructure with a view to shifting its industrial undertaking from an urban area to a non-urban area. To fund the construction and setting up of the new industrial undertaking at Vadodara, the assessee obtained various loans from TSGB and Sahalakshmi Bank Limited over a period of time. The loans were specifically sanctioned for the purpose of construction of the factory building and purchase of plant and machinery for the Vadodara unit, and the relevant loan sanction details are evident from the paper book furnished by the assessee.

49.

We observed that these loans were secured against the Vadodara property and were utilised entirely for the construction and setting up of the new industrial undertaking at Vadodara. The loan disbursement working, invoices and bank statements evidencing the utilisation of the loan proceeds are placed at pages 2 to 24 of the paper book for the previous year relevant to the assessment year 2022-23.

50. The assessee sold its existing properties situated in the urban area at Thane as part of shifting its industrial undertaking and received sale consideration of ₹7,85,085 lakhs from the sale of the property at MIDC, Thane, and ₹66,50,000/- from the sale of the property at Bhiwandi, which resulted in long-term capital gains arising from these two transfers amounting to ₹6,45,59,914/-. The assessee claimed exemption u/s. 54G of the Act on the entire capital gain of ₹6,45,59,914/- in the return filed for the assessment year 2022-23 on 06.11.2023.

51.

As per the provisions of section 54G(1)(a)(ii), where the cost of the new asset is equal to or exceeds the capital gain, the entire capital gain is exempt.

52.

In the case of Fiber Boards (supra), the Hon’ble Supreme Court held that the assessee is entitled to exemption u/s. 54G of the Act on the capital gains earned by the assessee in the process of shifting an industrial undertaking from an urban area to a non-urban area. Therefore, the principle and ratio of the decision apply to the facts of the assessee’s case.

53.

However, we observed that in the case of the assessee, instead of directly utilising the capital gains for the construction of a new industrial undertaking in a non-urban area, the assessee

had initially obtained loans for the construction of the factory building and the purchase of plant and machinery, and such loans were repaid from out of the capital gains earned by the assessee on the sale of the industrial undertaking situated in urban areas.

54.

Therefore, in principle, we agree with the assessee that it is entitled to exemption u/s. 54G of the Act. However, since the assessee had not furnished the documents (additional evidences) before the Assessing Officer for verification, we admit the additional evidence furnished by the assessee, which establishes that the assessee utilised the loan amounts for the construction of the factory building at Vadodara and that the loans were repaid from out of the capital gains earned by the assessee on the sale of the industrial undertaking in the urban area at Thane and Bhiwandi, we restore this additional evidences to the file of the Assessing Officer for the limited purpose of examining them vis-à-vis the claim of the assessee, which is otherwise allowable u/s. 54G of the Act. Subject to verification of these additional pieces of evidence by the Assessing Officer, the assessee’s claim for exemption u/s. 54G of the Act is allowed.

55.

In the result, the appeal of the assessee is allowed, as indicated above.

Order pronounced in the open court on 14/10/2026

Sd/- Sd/-

MAKARAND VASANT MAHADEOKAR CHALLA NAGENDRA PRASAD ACCOUNTANT MEMBER JUDICIAL MEMBER

Mumbai Dated: 14/10/2026 Prabhat

Copy to:

V EXCEL SPARES AND EQUIPMENT PRIVATE LIMITED, PLOT NO. 37, SHIV INDUSTRIAL 1 INFRASTRUCTURE PARK, LAMDAPURA, SAVLI, VADODARA-391775, GUJARAT DEPUTY COMMISSIONER OF INCOME TAX- CIRCLE 3, THANE, 2 QURESHI MANSION, GOKHALE ROAD, THANE, THANE-400602, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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