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Facts
The assessee sold a property for Rs. 5 crores and claimed exemption under Section 54 of the Income Tax Act, 1961. A portion of the sale proceeds was deposited in a capital gains account scheme, but the entire amount was not utilized for reinvestment within the prescribed period.
Held
The Tribunal held that the Assessing Officer was incorrect in adding the entire capital gains to the assessee's total income. Only the unutilized amount of capital gains should be added back for taxation.
Key Issues
Whether the entire unutilized capital gains amount, not reinvested within the stipulated period, should be taxed as capital gains, or only the portion exceeding the amount actually spent on the new asset.
Sections Cited
54, 142(1), 143(2), 144, 271(1)(C), 45, 54EC, 54F
AI-generated summary — verify with the full judgment below
This appeal by the assessee is directed against the order of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) [in short, the ld. CIT(A)] dated 13/06/2025 for the Assessment Year (AY) 2015-16 as per ground of appeal on record.
The facts of the case in brief are that the information was received from I & CI Wing of the Income Tax Department that during the A.Y. 2012-13, the assessee had sold a property in Perambur Barracks, Chennai-12 for a consideration of Rs. 5.00 crores and had claimed exemption under Section 54 of the Income Tax Act, 1961 (in short, the Act). Several notices under Section 142(1) and 143(2) were issued from time to time to substantiate the claim of deduction made U/s 54 of the Act. However, the assessee did not reply to the said notices despite giving
2 ITA1909/Chny/2025 Mohamed Akbar Vs ITO several opportunities. The Assessing Officer, therefore, passed the assessment order under Section 144 of the Act and denied the exemption under Section 54 of the Act and added the same to the total income of the assessee under the head capital gains. The Assessing Officer also initiated penalty under Section 271(1)(C) of the Act for concealment of income. Subsequently, the penalty order under Section 271(1)(c) of the Act was passed on 18/01/2022 for the assessment year under consideration. During the penalty proceedings under Section 271(1)(c) of the Act, it was noted by the Assessing officer as under:
“4. As per Faceless penalty scheme, which was notified and published in official gazette on 12.01.2021, further penalty proceedings were to be carried by National Faceless Penalty Scheme. In the light of above notification, the office of undersigned issued and served the Show Cause Notice to assessee on 22.10.2021 giving an opportunity of being heard, before imposing penalty by this order. Further, in conformity with the Principles of Natural Justice and following SOP issued by NaFAC, the assessee's case was also referred to the Verification Unit (VU) of the Department who have served a physical copy of Show Cause Notice on the assessee through Indian speed post vide tracking ID No.ET107713896IN on 03.11.21. In response, the assessee on 02.11.2021 has submitted as under :- "The issue which arise in the assessment was with regard to the non utilisation of amount blocked under Capital gains scheme. I was planning to buy two Flats but due to dispute with the builder I was unable to buy the second flat. The amount unutilised was lying in the Capital gains scheme account and I have not utilised the same for any other purpose. It remains in the said account till 2021. I am not aware of the deeming fiction. As I am alone after my mother's death, I was not in a frame of mind to go to the auditor and clarify. I did not have knowledge of the 3 years rule before which I should utilise. However I would only submit that I have not misused the said funds nor withdrawn for the same. It was kept blocked in the said account. Further Ihave paid the entire tax due with penalty of Rs. 76,55,257 on 2710/2021. There is no suppression of income or providing in accurate particulars. It is only a deemed income for which due to my interest in further investment and not knowing the cut off limit the error has happened. I have now paid the entire tax with interest itself amounting to Rs.36.68 Lakhs (which is 77% of the total tax). When I have suffered the damage for my error, levying additional penalty on me would cripple my
3 ITA1909/Chny/2025 Mohamed Akbar Vs ITO finances. I request your goodselves that as I am a genuine taxpayer and the genuinity is proved by my payment of taxes in full on knowing the demand and not going on appeal against the order and there is no suppression of income/providing inaccurate particulars, the proceedings may kindly be dropped."
The reply of the assessee is considered but the same is found to be devoid of any merit. The assessee had entered into sale of immovable property of a huge amount of Rs.5 crores. Since the assessee claims to be a regular tax payer, certainly he must have taken professional guidance before entering into the sale transactions and the tax implications on the capital gains so earned on sale of the immovable property. With such guidance only, the assessee decided to deposit the amount of Rs 2.5 crores in the Capital Gain Accounts Scheme. Law is very clear that if the assessee does not utilize the amount deposited for the purchase or construction of a residential house within the specified period, the amount not so Utilized shall be charged as Capital Gains of the year in which the period of 3 years is completed from the date of the sale of the original asset and it will be Long Term Capital Gain of that financial year. Since in this case, the assessee had not utilized the amount of Rs.1,74,14,620/- within the prescribed period of 3 years, kept in Capital Gain Accounts Scheme, the amount is to be treated as the Long term capital gains in the hands of the assessee. The A.O. had rightly taxed as such. Further, assessee's contention of not filing further appeal and payment of the income taxes genuinely are no ground for relief from penalty.
6. It is also worthwhile to mention here that the above arrangement by the assessee in respect of which addition has been made was detected only during the course of the reopening assessment proceedings which otherwise would have escaped assessment and this amounts to concealing the particulars of income.
7. From the above facts observed in the case of the assessee, it is quite apparent that the assessee had concealed the particulars of his income as discussed above in the preceding paras. Had it not been the assessment proceedings u/s. 147 r.w.s.144 of the I.T. Act, the fact that the assessee had unitilised income in his Capital Gains Accounts Scheme would have gone unnoticed. Therefore, this is a case of concealment of income by the assessee and hence, attracts penalty u/s 271(1)(c) of the I.T. Act.” The Assessing Officer also placed reliance on the decision of Hon’ble Delhi High Court in the case of CIT Vs Zoom Communication (P) Ltd. (2010) (191 Taxman
4 ITA1909/Chny/2025 Mohamed Akbar Vs ITO 179 (Delhi) and the decision of the Hon’ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors & ors. Reported in 306 ITR 277 (SC).
The Assessing Officer thereafter imposed penalty of Rs. 39,46,200/- being 100% of tax sought to be evaded.
3. Aggrieved by the penalty order, the assessee preferred before the ld. CIT(A), who vide the impugned order, dismissed the appeal of the assessee.
4. Aggrieved by the order of ld. CIT(A), this appeal has been preferred before this Tribunal. During the appellate proceedings before us, the ld. AR of the assessee has submitted as under:
“1. The Assessee had sold his inherited property at 38, Krishnadoss street, Perambur barracks road, Chennai 600 012 on 7th July 2011. The Consideration was Rs.5 Crores.
2. He had claimed two deductions. Deduction under Section 54EC for Rs.50.00 lakhs and Section 54 proposed investment in residential house property. A sum of Rs.2.50 Crores was deposited in an earmarked capital gain scheme account within the due date of filing the return.
Hence the deduction claimed in the Asst year 2012-13 is in order as the preconditions for the deduction has been satisfied.
However, he was not able to utilize the entire amount earmarked for reinvestment. The flat was purchased from the builder to whom he had sold the entire land. He had originally planned to buy two flats adjacent to each other and combine the same as one flat. Due to certain disputes with the builder, he had not been allotted two flats and only one flat was allotted (Flat No. C 102). The sale deed for the said fiat was executed on 31/03/2014, He had spent a sum of Rs.1,19,27,424 for the said flat. The unutilized portion is Rs. 1,30,72,576.
5. As the amount was not utilized in full, as per the Provisio to Section 54, the amount not utilized shall be charged under Section 45 as the income of the previous year in which the period of 3 years from the date of the transfer of the original asset expire.
5 ITA1909/Chny/2025 Mohamed Akbar Vs ITO
6. The 3 years from the transfer of the original asset expire on 7th July 2014 (relevant to Asst year 2015-16). Hence the shortfall is deemed to be income under the head capital gains in Asst year 2015-16.
7. As the amount in capital gains cannot be used for any other purpose other than for construction, the assessee has not been able to pay the taxes.
The amount is still available in the capital gains scheme account.
The assessee is ready to discharge the tax in full along with the interest. If there is a letter from the tax authorities directing the bank to release the amount to the extent of the tax due with interest he would pay the amount immediately.” 5. On the other hand, the ld. Sr.DR for the revenue has relied on the orders of the lower authorities.
We have considered the rival submissions and it is found that the assessee has already admitted this fact that the capital gains arose from the said transaction has not fully utilized and has offered unutilized amount for taxation. It was submitted by the ld. AR that the Assessing Officer was not correct to add the entire capital gains to the total income of the assessee and should have added only unutilized amount for the purpose of computation of deduction under Section 54F of the Act. We find that the Assessing Officer was not correct in adding the entire capital gains, only unutilized amount should be added in the total income of the assessee and not the entire amount.
In the result, this appeal of the assessee is partly allowed.
Order pronounced in the open court on 26/09/2025.