SRIDHAR REDDY BAYAPU,HYDERABAD vs. DCIT., CIRCLE-3(1), HYDERABAD

Facts

The assessee, Sridhar Reddy Bayapu, sold a residential property for Rs. 72.54 lacs and claimed exemption under Section 54 for long-term capital gains by investing in a new residential property (Villa No. 53). The Assessing Officer (AO) disallowed Rs. 70 lacs on the grounds that the amount was neither utilized for the new property nor deposited in the Capital Gains Account Scheme (CGAS) by the due date. The CIT(A) upheld the disallowance, noting that most payments for the new property were made prior to the sale of the old property, and no deposit was made into CGAS.

Held

The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, holding that investment in a new residential property made prior to the sale of the old property qualifies for Section 54 exemption. The Tribunal clarified that appropriation of the capital gain amount for the new asset, rather than the utilization of actual sale proceeds, fulfills the requirement for Section 54 exemption, supported by High Court precedents. The ITAT dismissed the Revenue's arguments regarding the assessee owning multiple properties or claiming under Section 54F instead of Section 54, as these were either beyond the scope of lower authorities' orders or had been rectified by the assessee.

Key Issues

1. Whether investment made in a new residential property *before* the sale of the old property qualifies for exemption under Section 54 of the Income Tax Act. 2. Whether the *actual sale proceeds* of the old residential property must be utilized for the new acquisition or if appropriation of the capital gain amount suffices for Section 54 exemption. 3. The correct section for claiming exemption (Section 54 vs. Section 54F) for the sale of a residential property.