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Facts
The assessee, a non-resident, sold an agricultural land and claimed exemption under section 54F for investment in a new residential property based on an unregistered agreement. The Assessing Officer (AO) disallowed the exemption due to lack of timely submission of documents, unverified construction, and delayed substantial payment. The CIT(A) confirmed the AO's disallowance.
Held
The Tribunal noted that crucial aspects of the claim were not fully examined by the AO due to delayed submission of documents. Therefore, the Tribunal set aside the order of the CIT(A) and restored the matter to the AO for fresh determination after affording the assessee an opportunity to present necessary evidence.
Key Issues
Whether the assessee is eligible for deduction under section 54F when the investment and construction details are not properly substantiated and submitted timely, and whether the CIT(A)'s order confirming the disallowance was justified.
Sections Cited
143(3), 139(1), 54EC, 54F, 54F(4), 194IA, 271(1)(c), 271F
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-13, Ahmedabad [hereinafter referred to as “CIT(A)”], dated 29.08.2024, arising out of the assessment order passed under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) by the Assistant Commissioner of Income Tax, Circle (International Taxation)-2, Ahmedabad [hereinafter referred to as “the AO”], dated 26.12.2018 for the Assessment Year 2016– 17. Condonation of Delay 2. Before proceeding further, we note that there is a delay of 13 days in filing the present appeal before us, as noted by the Registry. In this 2 regard, the assessee has filed a duly sworn affidavit explaining the reasons for the delay. It has been averred that the assessee is a non- resident senior citizen residing in the United States, who was not conversant with the intricacies of Indian income tax proceedings and was unaware of the appellate remedy available before the Tribunal. It was further stated that the delay occurred on account of coordination difficulties between the appellant and his newly engaged counsel in India, owing to time zone differences between the two countries. Having regard to the explanation offered and the supporting affidavit placed on record, we are satisfied that the cause of delay was bona fide and not deliberate or intentional. Accordingly, in the interest of justice, the delay of 13 days in filing the appeal is condoned.
The facts of the case, in brief, are that the assessee is a non- resident individual who filed his return of income on 13.10.2017 declaring total income of Rs.21,50,920/-. The case was selected for limited scrutiny under CASS for verification of deduction/exemption from capital gains and investment in immovable property. During the year under consideration, the assessee had sold an immovable property being agricultural land located in Gram Micholi, Tehsil Hapsi, Indore, for a total consideration of Rs.3,15,00,000/- on 29.04.2015. The land was stated to have been purchased in the Financial Year 1995–96 for a consideration of Rs.4,33,977/-. From the sale proceeds, the assessee claimed exemption of Rs.50,00,000/- under section 54EC of the Act on account of investment in NHAI bonds made on 12.05.2015, which was accepted. The assessee further claimed exemption of Rs.2,33,05,406/- under section 54F of the Act, contending that he had invested the same towards the construction of a new residential house property. According to the assessee, an unregistered agreement to purchase land and construct a residential house was executed on 27.02.2017 with one Shri
3 Mohan Khemchandani for total consideration of Rs.2.5 crore. The payments were claimed to have been made in the following sequence:
Rs.20,000/- in cash on 27.02.2017, Rs.60,00,000/- by cheque on 17.01.2018, Rs.70,00,000/- by RTGS on 24.04.2018, Rs.20,00,000/- by cheque on 25.06.2018.
In the assessment proceedings, the AO issued notices under sections 143(2) and 142(1) and called upon the assessee to furnish the agreement, architectural drawings, approvals, date-wise status of construction, and evidences of payment. The AO noted that the assessee failed to produce any approval from local municipal or competent authority, any architect’s certificate, or evidence of construction activity. The agreement was produced belatedly on 25.12.2018, a day before the assessment became time barred. The agreement was drawn on a stamp paper dated 14.08.2006 (over ten years old), was unregistered, witnessed only by family members, and was not supported by any independent corroborative material. It was noted that no substantial payment was made until 17.01.2018, nearly 2 years and 9 months after the date of sale of the original asset.
The AO held that the assessee had neither utilized the net consideration for purchase or construction of a residential house before the due date for filing return under section 139(1) i.e., 31.07.2016, nor had he deposited the unutilized amount in the Capital Gains Account Scheme as required under section 54F(4) of the Act. Relying upon various judicial precedents the AO concluded that the agreement was self-serving and not capable of evidencing a genuine investment in residential property. Accordingly, the exemption of Rs.2,33,05,406/- claimed under section 54F was disallowed, and the total income was assessed at Rs.2,54,56,330/-. Penalty proceedings under sections 271(1)(c) and 271F were separately initiated.
Aggrieved by the assessment order, the assessee carried the matter in appeal before the CIT(A). The Ld. CIT(A), after considering the submissions and documents on record, confirmed the disallowance made by the AO. The CIT(A) concurred with the AO’s findings that the first substantial payment was made only on 17.01.2018, well beyond the due date of 31.07.2016 prescribed under section 139(1), and that no deposit was made in the Capital Gains Account Scheme. The Ld. CIT(A) further observed that the agreement dated 27.02.2017 was executed on stale stamp paper, lacked registration, and was devoid of any evidentiary support such as possession proof, municipal approval, or construction activity. Additional evidence in the form of a purchase deed dated 01.10.2019 was not admitted, and it was held that no case was made out for interference with the AO’s conclusion.
Being aggrieved by the order of the CIT(A), the assessee has preferred this appeal before us raising the following grounds of appeal:
1. That the learned Commissioner of Income Tax (Appeals), Ahemdabad-13 has erred in law and on facts and circumstances of the case in confirming the Disallowance of Deduction amounting to Rs.2,33,05,406/- claimed u/s 54F of the I.T. Act, 1961.
2. That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has failed to appreciate the documentary evidences and details placed by the appellant on record and is wrong in ignoring the same and confirming the disallowance of deduction claimed u/s 54F of the Act.
3. That the learned Commissioner of Income Tax (Appeals), Ahemdabad-13 has erred in law and on facts and circumstances of the case in confirming the Disallowance of Deduction purely on hypothesis, surmises and conjectures without bringing any adverse material on record to substantiate that the transaction entered into by the appellant is ingenuine and, therefore the order passed is not tenable under law.
4. That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has erred in law and on facts and circumstances of the case in equating the claim of Deduction u/s 54F to TDS deductible u/s 194IA in as much as there is no pre-condition in Section 54F that the assessee has to deduct any TDS for claiming such deduction. Hence the CIT(A) is incorrect in assuming a provision of law which is contrary to the facts mentioned in the Act.
5. That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has failed to appreciate the totality of events wherein the project was delayed however substantial payments were made by the appellant, which clearly demonstrates intent and bonafides of the appellant to construct a property.
6. That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has erred in law and on facts and circumstances of the case in not considering the additional evidence in the form of Purchase Deed dt 01/10/2019 and not appreciating that such deed is germane and instrumental to the resolution of conflict between the appellant and builder and therefore the action of the Ld. CIT(A) in dismissing the same is apparently unjust and against the principles of natural justice.
7. That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has failed to appreciate that the appellant being a Non-Resident had made all possible efforts to get the possession of the property in time with his limited outreach, though the same got delayed due to reasons beyond his control.
That the learned Commissioner of Income Tax (Appeals) Ahemdabad-13 has failed to appreciate that the Deduction u/s 54F is a beneficial provision and has to be construed as such. It should not be denied by applying hyper technical tests without appreciating the conduct and bonafide intention of the appellant and the possible efforts taken by him for the investment in question which makes him fully entitled to avail the Deduction u/s 54F of the Act.
That on the facts and circumstances of the case, the Order passed by the learned Commissioner of Income Tax, (Appeals) Ahemdabad- 13 was passed without providing proper opportunity to the appellant, which is against the principles of natural justice and therefore, the same is void ab-initio and bad in law.
10. That the appellant craves leave to add, alter, amend or withdraw any or all the grounds of appeal on or before the hearing.
6 8. During the course of hearing before us the Authorised Representative (AR) of the assessee reiterated the facts and submitted that section 54F is a beneficial provision enacted with the object of promoting investment in residential housing, and the same must be liberally construed in favour of the assessee. The AR also contended that the CIT(A) erred in treating the transaction as ingenuine, merely based on procedural infirmities in the agreement and the absence of contemporaneous construction approvals. It was submitted that the project had suffered delays beyond the control of the assessee, and the Purchase Deed dated 01.10.2019, placed as additional evidence, clearly demonstrated that the transaction had eventually culminated in the assessee acquiring the property.
9. The learned Departmental Representative (DR) vehemently supported the concurrent findings of the Assessing Officer and the CIT(A) in disallowing the assessee’s claim for deduction under section 54F of the Act. The DR submitted that the entire claim of exemption rested on an unregistered and self-serving agreement dated 27.02.2017, which was not supported by any verifiable evidence of actual construction or acquisition of a residential house within the period prescribed under the statute. It was further pointed out by the DR that the assessee failed to submit the said agreement or related evidence during the course of assessment proceedings in time, and the document was filed only on 25.12.2018, that is, just one day prior to the date of completion of the assessment. Due to this last-minute filing, the Assessing Officer had no effective opportunity to examine the genuineness and veracity of the claimed transaction or to conduct any meaningful enquiry into the background, execution, or implementation of the alleged agreement or construction activity. The DR highlighted that the AO had specifically called upon the assessee to furnish:
7 • complete details and specifications of the new asset allegedly purchased/constructed, • nature of land on which the new residential property was proposed—i.e., whether agricultural or non-agricultural, • approvals from local authorities permitting residential use,
• status of construction at various stages when part-payments were made, • and the status of construction as on the date of hearing, supported by an architect’s certificate or other cogent documentary evidence.
However, the assessee failed to furnish any such particulars. The DR thus contended that the AO was constrained to make the disallowance purely on the strength of documents that lacked credibility and were produced in a manner designed to frustrate scrutiny.
We have considered the rival submissions and perused the orders of the authorities below. Upon due consideration of the overall facts and circumstances of the case, we find that certain crucial aspects pertaining to the claim under section 54F, such as the nature and classification of the land forming part of the new asset, municipal or statutory approvals for residential construction, stage-wise progress of construction at the time of part-payments, and current status of completion supported by architect’s certificate or other corroborative evidence, were not fully examined by the Assessing Officer, primarily due to the delayed submission of documents by the assessee.
In the interest of justice and fair play, we are of the considered view that the matter requires a fresh determination at the level of the Assessing Officer after affording due opportunity to the assessee to substantiate the claim with all necessary evidences. Accordingly, we deem it just and proper to set aside the impugned order passed by the CIT(A) and restore the matter to the file of the Assessing Officer for 8 deciding the issue afresh in accordance with law, after providing a reasonable opportunity of being heard to the assessee. It is clarified that we have not expressed any opinion on the merits of the case and all contentions of both parties are left open.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the Court on 17th July, 2025 at Ahmedabad.