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Facts
The assessee filed his return of income for AY 2013-14. A search was conducted, and the assessee filed a return under section 153A. The AO denied the claim of exemption under section 54B for investment in new asset as the purchase was beyond two years from the transfer of the original asset.
Held
The Tribunal held that the escrow agreement regarding the additional consideration was not properly verified by the lower authorities. Therefore, the matter is set aside to the AO to consider the document and allow deduction under section 54B after verification.
Key Issues
Whether the assessee is eligible for deduction under section 54B when the investment in a new asset was made beyond two years from the transfer date of the original asset, considering the additional sale consideration was contingent and handled through an escrow agent.
Sections Cited
153A, 143(3), 132, 54B, 48
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Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: DR. BRR Kumar & Shri T. R. Senthil Kumar
Shri Nitin R Shah, The DCIT, 1, Yogeshwar Park, Central Circle-2, Deluce Road, Vs Vadodara. Nizampura, Vadodara-390002. PAN: AEPPS0119B (Appellant) (Respondent) Assessee Represented: Shri Manish J Shah, Shri Rushin Patel & Shri Jimi Shah, ARs Revenue Represented: Shri Hargovind Singh, Sr.D.R. Date of hearing : 31-07-2025 Date of pronouncement : 02-09-2025 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against the appellate order dated 26.08.2019 passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 153A r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2013-14.
A.Y. 2013-14 Page No 2 Shri Nitin R Shah vs. DCIT
Brief facts of the case are that the assessee is an individual, filed his return of income for the Assessment Year 2013-14 declaring total income of Rs.28,18,740/-, comprising of income from business, capital gain and income from other sources. A search action u/s. 132 of the Act was conducted on 09.01.2013 in group cases the Shri Rashmikant Bhatt, which also included the case of the assessee. Pursuant to the search, the assessee filed his return of income u/s.153A of the Act on 08.03.2014, declaring the same total income of Rs.28,18,740/-. The assessee further claimed additional consideration of Rs.50,00,000/- received from sale of land and also claimed exemption u/s.54B of the Act amounting to Rs.38,50,000/-. The Assessing Officer held that the additional sale consideration received by the assessee after the execution of the registered sale dated 21.02.2010. As per the section 54B of the Act, the assessee was required to purchase a new asset within the two years from date of transfer of the original capital asset. Since the purchase was beyond the prescribed two years period, the claim of exemption u/s.54B of the Act was denied to the assessee.
Aggrieved against the Assessment Order, the assessee filed appeal before the Ld.CIT(A, who after considering the submission of the assessee, denied the benefit u/s. 54B of the Act by observing as follows:
“…6.7 In this regard from the careful perusal of the submissions of the appellant on the issue of taxation of Rs. 50,00,000/-in A.Y. 2013-14, I am of the considered opinion that the said amount of Rs.50,00,000/- is liable to be taxed in A.Y. 2013- 14 and the AO has also rightly not taken any remedial action to tax the said amount of Rs.50,00,000/-in A.Y. 2010-11 (or for that matter in any assessment year earlier to A.Y. 2013-14) The thrust of the appellant's submission is that as the amount of Rs.50,00,000/- is taxable in the A.Y. 2013-14 under the head 'capital A.Y. 2013-14 Page No 3 Shri Nitin R Shah vs. DCIT gains', the same should be considered accordingly for the purpose of deduction u/s 54B, however, the same is not at all alluded to by the said section. It is unambiguous from the section 54B that the period has to be counted from the date of transfer of the original asset to the date of purchase of the new asset. The original asset, the land at Bill has been transferred on 21/01/2010 and as per the charging provisions of capital gain specially section 48 the capital gain arose in that year irrespective of the fact that the consideration in full has been received or not. So even if the said amount of Rs. 50,00,000/- has been received in F.Y. 2012-13, in my considered view, the date of transfer of the original asset will remain 21/01/2010 only. And even if it is conceded that the new asset at Navapara has been purchased in April 2012, the said purchase of new asset is well beyond prescribed two years from the date of transfer of original asset. Thus the AO is found to be justified in disallowing the deduction claimed u/s 54B. The AO is further justified in questioning as to whether the new asset that is the agricultural land at Navapara can actually be held to have been acquired in April 2012 because the sale deed was not registered then (and in fact has not been registered even now). 6.7 On the strength of the reading of the provision of section 54B, the disallowance of deduction of Rs.38,50,000/- u/s.54B is found correct and has to be upheld. The addition is confirmed and the related grounds are rejected…”
Aggrieved against the appellate order, assessee is in appeal before us raising the following Grounds of Appeal : “…On the Facts and in the circumstances of the Appellant's case and in law, the Honorable Commissioner of Income Tax (Appeal)-12, Ahmedabad has erred in confirming disallowance made by Id.AD of an amount of investment of Rs. 38,50,000/- u/s 548 made in agricultural land in Navapura vide Banakhat dated 28.04.2012 of the Act on the ground that investments in new assets were not made within the period of two years from the date of transfer. Appellant submits that, receipt of additional sale consideration of Rs.50,00,000/- was contingent at the time of original sale deed executed on 21.01.2010 and hence the appellant has rightly claimed exemption u/s 548 of the Act by investing out of the additional consideration after the same became actually due and was received, both in AY 2013-14. Appellant further submits that charge of Income tax is always on real income and not on contingent income Le. there cannot be a tax on an income which may or may not come or which is not due at all. In the case of the appellant, the additional consideration may have not actually been received at all. It is not a case of deferred payment of agreed consideration. It is a case of contingent consideration which may not be received at all. Appellant would not have A.Y. 2013-14 Page No 4. Shri Nitin R Shah vs. DCIT
known while filings return for A.Y. 2010-11 when and whether such consideration will be actually received. Appellant having invested in new land within 2 years of receipt of contingent additional consideration, he should have been allowed deduction u/s 548 as claimed. Your Appellant prays before Your Honor to hold so now and kindly delete the disallowance…”
The Ld.Counsel for the assessee submitted before us a paper book containing various details, including the supplementary agreement to sale dated 15.05.2010 for contingent of additional consideration, confirmation from Purchaser as well as the escrow agent regarding payment of additional consideration in April 2012. The Ld.Counsel submitted that though the above documents were placed before the Lower Authorities, they failed to appreciate the contents of the same and denied the benefit of deduction u/s.54B of the Act. The Ld.Counsel further submitted that the additional consideration credited was paid by the Purchaser in the event of Title of the property is cleared by the seller (i.e the assessee herein) to the satisfaction of the Purchaser. Accordingly, the amount was deposited with an escrow agent Shri Pranav Trivedi and all the encumberances and clearances relating to the said land were cleared, thereafter the additional consideration payable to the assessee. This arrangement was entered on 04.04.2012 and additional sale consideration deposited with Shri Pranav Trivedi as an escrow agent. The assessee could clear all the encumberances of land and received the additional consideration during the Financial Year and thereby entitled to claim deduction u/s.54B of the Act. The assessee is having reinvested in new land within two years A.Y. 2013-14 Page No 5 Shri Nitin R Shah vs. DCIT from the date of receipt of contingent additional consideration, the deduction u/s.54B of the Act should be allowed.
6. The Sr. DR appearing for the Revenue, supported the orders passed by the Lower Authorities and requested to confirm the disallowance made thereon.
We have given our thoughtful consideration and perused the material available on record. From perusal of the Assessment Order and Appellate Order, it is observed that the agreement entered between the seller of land and an escrow agent regarding payment of additional consideration was not properly verified by the Assessing Officer. The relevant extract of the agreement is reproduced below:
“…However, since the amount of additional consideration of Rs.1,00,00,000 was to be paid in cash, Shri Nitin Shah & Shri Surendra Shah requested that since they had already executed the registered sale deed is our favour, they wanted some security that they will get the payment of the additional consideration due to them if and when we got all the clearances to our satisfaction.
In order to alleviate this concern, it was mutually agreed that this additional consideration of Rs. 1,00,00,000/- would be kept with an individual person, akin to an escrow account, who would hold the amount as a security, and later, if and when the matters were cleared, the same would be handed over by him to Shri Nitin Shah and Shri Surendra Shah or returned back to us 7. Further, it was mutually agreed that Mr. Pranav Trivedi (PAN ADNPT3980C) residing at 9 ATULPARK SOCIETY NEAR ANAVIL BHAVAN ARYA KANYA ROAD KARELIBAG VADODARA GUJARAT would perform the role of the escrow.
Accordingly, we handed over the sum of Rs. 1,00,00,000 to the said Mr. Pranav Trivedi with the understanding that the same will be paid over to Shri Nitin Shah and Shri Surendra Shah, if any only when, all matters and clearances relating to the said land were completed to our satisfaction.
A.Y. 2013-14 Page No 6 Shri Nitin R Shah vs. DCIT