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Facts
The assessee's case was reopened, and they filed a revised return declaring income, including capital gains. The Assessing Officer (AO) noted discrepancies in the declared sale consideration and the property's fair market value. The assessee claimed deduction under Section 54 for a residential property purchased in his wife's name, funded by his own money.
Held
The Tribunal held that the CIT(A) did not properly consider the judicial precedents that allow for Section 54 exemption even if the property is purchased in the spouse's name, provided the funds are from the assessee. The Tribunal set aside the CIT(A)'s order and restored the matter for fresh adjudication.
Key Issues
Whether exemption under Section 54 can be denied solely because the new residential property was purchased in the spouse's name, despite the investment being made from the assessee's own funds.
Sections Cited
143(3), 147, 148, 54, 50C(2), 54F, 271F, 271(1)(c), 234A, 234B, 80C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
1. This appeal by the assessee is directed against the order dated 30.06.2025 passed by the Commissioner of Income Tax, National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “CIT(A)”] for the Assessment Year 2012-13, arising from the assessment order passed under section 143(3) read with section 147 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] by the Assessing Officer, Ward 1(2)(2), Vadodara [hereinafter referred to as “Assessing Officer or AO”], dated 22.11.2019.
Facts of the Case 2 2.1 The brief facts of the case as emanating from the record are that the assessee is an individual deriving income from house property, capital gains and income from other sources. The return of income for the year under consideration was not originally filed. Subsequently, the case was reopened by issue of notice under section 148 of the Act on 26.03.2019, and in response, the assessee filed return of income on 29.04.2019, declaring total income of Rs.15,24,000/-, which included income from house property at Rs.15,54,000/- and showing capital gains at NIL after claiming indexed cost of acquisition.
2.2 During the course of assessment proceedings, the Assessing Officer noted that the assessee had sold immovable property situated at Kasba RS No. 685/1, PCS Sheet No. 142, VV-4 CS 2895/1/A, Manjalpur, Vadodara, for a declared sale consideration of Rs.90,00,000/-.
2.3 Against this, the assessee claimed indexed cost of acquisition aggregating to Rs.1,16,06,585/-, thereby declaring NIL capital gain. On verification of the sale deed, the AO observed that stamp duty of Rs.14,72,900/- had been paid on the transaction, and as per jantri value, the fair market value of the property worked out to Rs.3,00,58,895/-, as against the consideration of Rs.90,00,000/- shown by the assessee.
2.4 The AO issued notices under sections 143(2) and 142(1), calling for necessary details, and also issued show-cause notices drawing attention to discrepancies in the computation. The AO examined the details of indexed cost claimed by the assessee. The assessee had claimed land cost at Rs.34,30,674/- in F.Y. 2004-05, whereas on verification of purchase records, the actual cost of land including purchase price, stamp duty, registration and incidental expenses 3 aggregated to Rs. 27,67,465/- with purchase date being 07.07.2006. Similarly, construction cost claimed at Rs.37,64,113/- across different years (F.Y. 2005-06 to 2008-09) was not fully substantiated with supporting evidence. Show-cause was issued proposing restriction of indexed cost. In respect of claim of deduction under section 54, the assessee had claimed exemption of Rs. 53,78,500/- on investment in purchase of a residential property in the name of his wife, Smt. Shreya Rajesh Patel. The AO noted that although the assessee had made the payment, the property was not purchased in his own name, and hence, as per the plain reading of section 54, the claim was not admissible.
2.5 On assessee’s objection to adoption of jantri value, the matter was referred to the Departmental Valuation Officer under section 50C(2). The Valuation Officer determined the value of the property at Rs.1,67,82,104/-. Thereafter, the AO recomputed the long-term capital gain as under:
Particulars Amount (Rs.) Sale consideration (as per Valuation Report) 1,67,82,104/- Less: Indexed cost of acquisition 1,05,21,962/- (after restricting land cost to Rs. 27,67,465/-) Long Term Capital Gain 62,60,142/- 2.6 The AO disallowed the claim of deduction under section 54 and treated the entire amount of capital gain as taxable. In the course of assessment, the AO also verified the bank statements and noticed interest income of Rs. 91,168/- which was not offered for taxation by the assessee. The same was added under the head “Income from Other Sources”.
Particulars Amount (Rs.) Income from House Property 15,54,000/- Long Term Capital Gain 62,60,142/- Income from Other Sources 91,168/- Gross Total Income 79,05,310/- Less: Deduction u/s 80C 30,000/- Total Income Assessed 78,75,310/- 2.8 Penalty proceedings under sections 271F and 271(1)(c) were separately initiated, and interest under sections 234A and 234B was charged.
2.9 Being aggrieved, the assessee carried the matter in appeal before the CIT(A). Before the CIT(A), the assessee reiterated that while he accepted the working of capital gain at Rs. 62,60,142/-, he was entitled to deduction under section 54 since the investment in residential property, though made in the name of his wife, was wholly funded by him. Reliance was placed on decisions of judicial authorities including High Courts and ITAT holding that purchase in spouse’s name with assessee’s own funds does not disentitle exemption. Written submissions were filed on the ITBA portal on 24.03.2021 and 27.06.2025, along with purchase deed and construction details of the new house.
2.10 The learned CIT(A), however, did not find merit in the assessee’s claim. The appellate authority observed that the language of section 54 is clear that the assessee must himself purchase or construct the residential house to claim exemption. Placing reliance on the ratio laid 5 down by the Hon’ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Dileep Kumar & Co. [Civil Appeal No. 3327 of 2007, dated 30.07.2018], the CIT(A) held that exemption provisions must be strictly construed, and any ambiguity in exemption clauses should be interpreted in favour of the Revenue. It was held that since the new property was not purchased in the name of the assessee and there was no evidence of joint ownership, the conditions of section 54 were not satisfied. Accordingly, the AO’s action of disallowing deduction under section 54 was upheld, and the sole ground of appeal raised before CIT(A) was dismissed.
2.11 Aggrieved by the said order of the CIT(A), the assessee has come up in further appeal before us raising following grounds:
The impugned re-assessment order passed u/s 143{3) read with section 147 of the ITA passed by the AO without satisfying with the requirement of law is bad in law.
2. The learned NFAC (CIT(A)) has erred in law and in fact in confirming the disallowance of claim of deduction I exemption u/s 54 of the ITA without appreciating the provision of law and facts in proper perspective.
The learned CIT(A) ought to have set-aside the order of AO and allowed the relief to the Appellant by holding that mere purchasing of the new property in the name of the spouse of the Appellant does not debar the taxpayer. 4. Your Appellant craves the right to add to or to alter, amend, substitute, delete or modify all or any of the above grounds of appeal
3. When the appeal was called for hearing, none appeared on behalf of the assessee nor was any application for adjournment filed. The appeal was, therefore, taken up for hearing ex-parte qua the assessee, and is being disposed of after hearing the learned Departmental Representative and perusing the material available on record.
The learned Departmental Representative strongly supported the orders of the lower authorities. He submitted that the Assessing Officer had correctly denied the claim of deduction under section 54 of the Act, since the new residential property was not purchased in the assessee’s own name but in the name of his wife. It was argued that section 54 requires strict compliance and does not permit exemption unless the new asset is purchased by the assessee himself. The learned DR further pointed out that the Commissioner of Income Tax (Appeals), while dealing with the issue, has given a detailed and reasoned finding in paragraphs 6.1 to 6.4 and 7.5 of the appellate order. The CIT(A) has elaborately considered the assessee’s contention, examined the statutory provisions, and after placing reliance on the judgment of the Hon’ble Supreme Court in Commissioner of Customs (Import), Mumbai vs. Dileep Kumar and Company & Ors [Civil Appeal No. 3327 of 2007, order dated 30.07.2018], has held that the provisions granting exemption must be strictly construed and that any ambiguity in an exemption clause must be interpreted in favour of the Revenue.
4.1 The learned DR accordingly submitted that the CIT(A) has correctly upheld the action of the Assessing Officer in disallowing deduction under section 54, as the assessee failed to satisfy the foremost condition of the section, namely that the new asset should be purchased by the assessee. He thus urged that the order of the CIT(A) deserves to be sustained, and the appeal of the assessee be dismissed.
We have carefully considered the material placed on record as well as the submissions advanced by the learned Departmental Representative. The grievance of the assessee is that the claim of 7 deduction under section 54 has been denied merely on the ground that the new residential property was purchased in the name of the assessee’s wife, although the entire investment was made from assessee’s own funds.
5.1 It is seen from the assessment order that the assessee had accepted the computation of long-term capital gain at Rs.62,60,142/- but pressed for deduction under section 54. In support, written submissions were filed before the first appellate authority on 24.03.2021 and again on 27.06.2025, accompanied by purchase deed and construction details of the new property, wherein reliance was placed upon various judicial precedents, including decisions of different High Courts and Benches of the Tribunal, holding that exemption under section 54/54F is admissible where the investment is made by the assessee, even though the purchase deed is in the name of the spouse.
5.2 We note that the learned CIT(A), while adjudicating the matter, has extensively relied upon the principle of strict interpretation of exemption provisions and referred to the judgment of the Hon’ble Supreme Court in Commissioner of Customs (Import), Mumbai v. Dileep Kumar and Company & Ors [Civil Appeal No. 3327 of 2007, order dated 30.07.2018]. Based on such principle, the learned CIT(A) held that since the property was not purchased in the assessee’s name, the benefit of section 54 could not be extended.
5.3 However, we also note that the learned CIT(A) has not specifically discussed or dealt with the judicial authorities cited by the assessee in his written submissions. This aspect assumes importance, as several High Courts have indeed taken a consistent view that for the purpose of section 54/54F, where the investment in 8 the new residential property is made by the assessee from his own funds, the mere fact that the property is purchased in the name of the spouse does not disentitle the assessee from exemption. For instance, in CIT v. Kamal Wahal [2013] 351 ITR 4 (Del.), the Hon’ble Delhi High Court held that exemption under section 54F could not be denied merely because the house was purchased in the name of the assessee’s wife. Similar ratio has been adopted in CIT v. V. Natarajan [2006] 287 ITR 271 (Mad), and several other decisions of coordinate Benches.
5.4 Thus, while the principle of strict construction of exemption provisions is well established, the interpretation of section 54 in the context of purchase in the name of spouse has been directly addressed by various High Courts in favour of the assessee. The learned CIT(A) has not reconciled or distinguished these binding judicial precedents while dismissing the assessee’s appeal.
5.5 In view of the above, the controversy before us narrows down to whether the assessee’s case is covered by the ratio of the above High Court judgments or by the stricter interpretation adopted by the CIT(A). Since the precedents of High Courts directly on section 54 are binding and have consistently allowed such claim, subject to the condition that the investment has flown from the assessee’s own funds, the issue requires fresh consideration. Since the assessee had specifically relied upon judicial precedents of different High Courts and coordinate Benches, the learned CIT(A) was obliged to consider those authorities and pass a reasoned and speaking order either following them or distinguishing them with cogent reasons. Failure to do so renders the order of the CIT(A) unsustainable in law.
9 5.6 We accordingly set aside the impugned order of the CIT(A) on this issue and restore the matter back to his file for de novo adjudication. The CIT(A) shall examine the claim of the assessee in the light of the judicial precedents relied upon and pass a speaking order dealing with each authority cited by the assessee. He shall also afford reasonable opportunity of hearing to the assessee before passing such order.
We make it clear that we have not expressed any opinion on the merits of the claim and all issues are left open for adjudication by the CIT(A).
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 9th October, 2025 at Ahmedabad.