MR. JOBANJI THAKOR,AHMEDABAD vs. THE ITO. WARD-3(2)(2), AHMEDABAD

2.2. The AO issued a show-cause notice to the assessee in which the AO sought clarification and justification from the assessee. In the show-cause notice, the AO specifically pointed out that, as per Sale Deed No. 1256/1/67 dated 08.07.2014, the assessee had sold immovable property jointly with five co-owners for a total sale consideration of Rs.8,32,41,800/-. The property was situated at Village Jagatpur, Ahmedabad City. The AO observed that the land sold by the assessee did not qualify as agricultural land but rather fell within the Municipality/AUDA/Corporation limits as per the provisions of Section 2(14)(iii) of the Act. Accordingly, the AO held that the land was a capital asset and subject to capital gains tax.

2.3. On verification of the computation of total income furnished by the AR vide letter dated 01.12.2017, the AO noted that the assessee had considered the net sale consideration of his share at Rs.2,08,10,450/- and, against this, had claimed deductions for cost of acquisition indexation at Rs.59,62,752/- and cost of transfer at Rs.33,10,450/-. Accordingly, the assessee computed Long Term Capital Gain (LTCG) at Rs.1,15,37,248/- and claimed deductions under Sections 54B and 54F of the Act aggregating to Rs.1,12,19,000/-. The AO raised specific queries regarding the basis of the deductions claimed, particularly on the grounds that the assessee had not furnished any proof in support of the cost of acquisition or the cost of transfer. Further, the AO noted that the assessee had claimed Rs.1,12,19,000/- as a deduction under Section 54B of the Act, which pertained to the purchase of agricultural land. However, upon verification, it was found that certain purchases were made beyond the prescribed time limit and that the investment was made in the name of another person, namely the assessee’s brother, Shri Baldevji Ramaji Thakor. Additionally, the AO observed that the assessee had claimed Rs.5,91,036/- under Section 54F of the Act in respect of investment in a residential property. However, the transaction in question was executed beyond the permissible time limit, rendering the claim ineligible.

2.4. In response to the show-cause notice dated 15.12.2017, the Authorized Representative (AR) of the assessee attended the office on 20.12.2017 and submitted a written reply vide letter dated 20.12.2017, along with various supporting documents. The assessee, in his response, primarily sought to justify the deductions claimed under Sections 54B and 54F of the Act, and provided explanations regarding the genuineness of the capital gain computation.

2.5. The assessee contended that the land in question was an agricultural land and was used for agricultural purposes before its sale. In support of this claim, it was submitted that the land was mentioned as agricultural in the 7/12 Uttara revenue records, where the assessee was cultivating Jowar. The assessee argued that, since the land was used for agricultural purposes, it should be considered as an agricultural asset for the purpose of exemption under Section 54B of the Act. Accordingly, the AR requested the AO to treat the land as an agricultural land and allow the deduction under Section 54B. Regarding the cost of acquisition, the assessee submitted that he had relied on the valuation report obtained from a government-approved valuer. A copy of the valuation report was attached as "Annexure A" to the reply. Further, with respect to the cost of transfer amounting to Rs.33,10,450/-, the assessee explained that this amount represented his share (one-fourth) of the premium required to be paid, which was directly paid by the purchaser and adjusted from the sale consideration. The AR attached a copy of the sale deed and the bank statement reflecting the payment transaction, which was marked as "Annexure C."

2.6. In support of the claim under Section 54B of the Act, the assessee furnished copies of documents related to the purchase of new agricultural land. Copies of purchase agreements and supporting payment details were submitted, marked as "Annexure D," "Annexure E," and "Annexure F," showing investments of Rs.39,00,000/-, Rs.25,51,000/-, and Rs.99,00,000/-, respectively. The assessee maintained that these investments qualified for exemption under Section 54B of the Act as the purchases were made within the stipulated period.

2.7. Regarding the purchase of a residential property for claiming deduction under Section 54F of the Act, the assessee submitted details of the purchase transaction for a house amounting to Rs.7,70,000/-. A copy of the purchase deed was enclosed as "Annexure H", wherein the assessee claimed that the intention was always to reinvest the proceeds into a residential property. Further, the assessee also submitted that additional costs were incurred for the construction of the house, supported by bills totaling Rs.14,64,500/- dated 12.06.2014 and Rs.10,32,875/- dated 25.10.2013, marked as "Annexure H-1" and "Annexure H-2", respectively.

2.8. The assessee also addressed the AO’s concern regarding the purchase of land in the name of his brother, Shri Baldevji Ramaji Thakor. It was argued that, although the land was purchased in the brother’s name, the payment was made by the assessee, and the land was intended to be jointly owned by both. The AR contended that, due to unavoidable circumstances, the sale deed had to be executed solely in the name of the brother. The assessee requested the AO to consider this as a genuine investment, forming part of the exemption claim under Section 54B of the Act.

2.9. Further, the assessee relied on Circular No. 359, dated 10.05.1983, issued by the Central Board of Direct Taxes (CBDT), which stated that if an assessee invests the sale consideration in specified assets, including advance payments made before the transfer of the original asset, such investments should be considered eligible for exemption under Section 54B of the Act. The assessee enclosed a copy of this circular as "Annexure B" and requested the AO to allow the deduction based on the principles laid down therein.

2.10. Additionally, the assessee placed reliance on judicial precedents, particularly the decision of the Income Tax Appellate Tribunal (ITAT) in the case of Ramesh Narhari Jakhadi vs. Income-tax Officer, where the ITAT Pune had allowed the exemption under Section 54B in a similar case. The assessee argued that the present case was identical and, therefore, should be treated in line with the ITAT ruling.

2.11. Subsequent to the reply dated 20.12.2017, the Authorized Representative (AR) of the assessee once again attended the office on 27.12.2017 and submitted another written reply vide letter dated 27.12.2017, along with additional documents in response to the issues raised in the show- cause notice. The reply filed by the assessee at this stage further elaborated on the claims under Sections 54B and 54F of the Act, and sought to reinforce the arguments made earlier.

2.12. The assessee submitted that the cost of acquisition of the property in question was determined based on the valuation received from the Valuation Department of the Income Tax Department. The assessee referred to valuation reports obtained under Section 55A of the Act, specifically from the District Valuation Officer (DVO) vide report numbers D.T. 26/12/2017 and No. 6 (25)/VO-1/2017-18/873. The DVO had determined the cost of the land as on 01.04.1981 at Rs.5,96,000/-, and after applying the indexation benefit, the indexed cost was computed at Rs.15,25,760/-. The assessee reiterated that the valuation had been undertaken as per law and requested that the AO accept the valuation figures for computing capital gains.

2.13. Further, the assessee requested the AO to also consider the cost of construction of the house for claiming deduction under Section 54F of the Act. In this regard, the AR of the assessee submitted a bank statement from M/s. Krutika Constructions and Carting Contractors, marked as Annexure-2, as evidence of payments made towards construction expenses.

2.14. In support of the claim for deduction under Section 54B of the Act, the assessee reiterated reliance on the decision of the Income Tax Appellate Tribunal (ITAT), Jaipur Bench, in the case of Laxminarayan vs. Income-tax Officer, where it was held that the objective of Section 54B of the Act is to encourage reinvestment in agricultural lands. The assessee argued that since the section allows exemption even when the reinvestment is made in different land, the deduction claimed in the present case should also be allowed. The assessee also submitted that the law does not mandate that the newly acquired land must be in the name of the same assessee and cited various judicial precedents to support the argument that if the investment is made using the sale proceeds, the deduction should be granted, even if the purchase is made in the name of a close relative.

2.15. To substantiate the claim, the assessee submitted a copy of the judgment in support of Section 54B of the Act deduction, marked as Annexure-3. The assessee specifically highlighted an instance where Rs.49,50,000/- had been paid as part of the reinvestment, with stamp duty of Rs.7,12,013/- being paid vide cheque number 26097882 dated 07.12.2013 and another cheque number 26097888 dated 29.01.2014. These payments were claimed as forming part of the reinvestment eligible for deduction under Section 54B of the Act.

2.16. Additionally, the assessee relied on the decision of ITAT Pune in the case of Ramesh Narhari Jakhadi vs. Income-tax Officer, wherein the ITAT had taken into account CBDT Circular No. 359, dated 10.05.1983, and allowed the deduction under Section 54B of the Act, even where the investment was made before the date of transfer of the asset. The assessee reproduced relevant portions of the circular, arguing that an advance payment made towards the purchase of agricultural land should be treated as an eligible investment under Section 54B of the Act. A copy of the circular was enclosed as Annexure-4.

2.17. The assessee also requested that deduction of Rs.10,50,000/- paid on 17.04.2013 vide cheque number 147364 be considered under Section 54B of the Act as well as Rs.19,50,000/- paid on 23.03.2017 and 27.03.2017 through cheque numbers 60019304 and 60019308, respectively. The assessee contended that since the sale proceeds were received between 2012 and 2016, the reinvestments were made accordingly, and all amounts should qualify for exemption under Section 54B of the Act.

Particulars Amount (Rs.) Sale consideration of immovable property 2,08,10,450/- Less: Indexed cost of acquisition (as per DVO report dated 15,25,760/- 26.12.2017) Less: Cost of transfer (Stamp duty, brokerage, legal 33,10,450/- expenses, etc.) Net capital gain before exemption 1,59,74,240/- Less: Deduction under Section 54B (Investment in 87,11,000/- agricultural land) Less: Deduction under Section 54F (Investment in 25,08,037/- residential house) Total deductions claimed under Sections 54B and 54F 1,12,19,000/- (rounded off) Final long-term capital gain (as per assessee's revised 47,55,240/- computation)

Total income declared in the original return (before 3,18,248/- revision) Difference in LTCG due to revision (leading to 44,36,992/- enhancement by AO)

3.1. Along with the revised computation, the assessee furnished a detailed chart of deductions/exemptions claimed under Sections 54B and 54F of the Act, providing additional explanations regarding the cost of acquisition, investments in new properties, and the nature of capital gains declared. The AR contended that the revised computation of income was based on the DVO valuation report, that all deductions had been correctly computed in accordance with the provisions of the Income-tax Act, and that supporting documents, including payment proofs, bank statements, and valuation reports, had been enclosed to substantiate the deductions claimed. Further, the assessee argued that since he had made advance payments towards the purchase of agricultural land, the investment should qualify for deduction under Section 54B of the Act.

3.2. Relating to exemptions claimed by the assessee under section 54F of the Act, the AO observed that the assessee had claimed a deduction of Rs.25,08,037/- under Section 54F towards investment in a residential house at Jagatpur Village, purchased from Jabuben Naranbhai Rabari on 10.12.2012. Upon examination of the purchase details, the AO found that as per Section 54F(1) of the Act, the investment in a new residential property must be made within one year before or two years after the date of sale of the original asset. In the assessee’s case, the original asset was sold on 07.07.2014, meaning that the investment should have been made between 07.07.2013 and 07.07.2016. However, the assessee purchased the new residential property on 10.12.2012, which was beyond the prescribed time limit. The AO calculated the correct claim u/s 54F of the Act, as follows:

Particulars Amount (Rs.) Total investment in residential house claimed by the assessee 32,67,375/- Less: Investment not made within the prescribed time limit 7,70,000/- (transaction executed on 10.12.2012 instead of after 07.07.2013) Net eligible investment after time-limit adjustment 24,97,375/- Allowable proportionate deduction under Section 54F (as per 19,17,001/- AO's working) Deduction claimed by the assessee in revised computation 25,08,037/- Excess deduction claimed and disallowed 5,91,036/- 3.3. Accordingly, the AO proportionately disallowed Rs.5,91,036/- from the claimed deduction.

3.4. The assessee claimed exemption under Section 54B of the Act for an amount of Rs.87,11,000/-, stating that he had reinvested the capital gains in purchasing agricultural land. However, upon verification of the supporting documents, the AO observed multiple discrepancies that made the claim ineligible which are – (a) Land Purchased Beyond the Permissible Time Limit – Rs.19,50,000/- The assessee claimed that he purchased agricultural land jointly with another co-owner through Purchase Deed No. 1984 dated 21.03.2017. However, as per the provisions of Section 54B, the new land must be purchased within two years from the date of sale of the original asset (i.e., before 07.07.2016). Since this purchase was made after the prescribed two-year limit, the exemption of Rs.19,50,000/- was disallowed.

(b) Land Purchased Before the Permissible Period – Rs.15,01,000/- The assessee had also claimed Rs.15,01,000/- as an investment towards the purchase of another agricultural land (jointly with co-owner Shri Baldevji Ramaji Thakor) under Purchase Deed No. 3238 dated 15.04.2013. As per Section 54B, the purchase should have been made on or after 07.07.2013. However, since the transaction took place before the stipulated period, the exemption of Rs.15,01,000/- was disallowed.

(c) Land Purchased in the Name of the Assessee’s Brother – Rs.52,60,000/- The assessee had claimed an exemption of Rs.52,60,000/- (Rs.49,50,000/-basic purchase price plus the stamp duty of Rs.3,10,000/-) for agricultural land purchased through Purchase Deed No. 8218 dated 04.12.2013. However, on verification of the purchase deed, it was found that the land was registered in the name of the assessee’s brother, Shri Baldevji Ramaji Thakor, and not in the name of the assessee. Since the property was registered in the brother’s name, the exemption of Rs.52,60,000/- was disallowed. Thus, the AO found that Rs.87,11,000/- claimed under Section 54B was not allowable and disallowed the entire amount.

(d) Deduction of RS.99,00,000/- claimed by the brother - Further, it was observed that the assessee’s brother, Shri Baldevji Ramaji Thakor, had claimed a deduction of Rs. 99,00,000/- in his own return of income towards investment in the same agricultural land. The claim was allowed in scrutiny assessment by ITO Ward-3(2)(1), Ahmedabad, vide assessment order dated 30.11.2017. Since the property was already considered for exemption in the brother’s assessment, the deduction of Rs.52,60,000/- claimed by the assessee was disallowed, as it would result in a double deduction for the same investment.

3.5. Thus, out of the total claimed exemption of Rs.1,12,19,000/-, the AO allowed only Rs.19,17,001/- under Section 54F of the Act, after making necessary disallowances for ineligible investments and applying the proportionate exemption formula. The entire exemption claimed under Section 54B of the Act was disallowed, and the balance Rs.93,01,999/- was added back to the assessee’s total income.

13 4. Aggrieved by the order of the AO, the assessee preferred an appeal before CIT(A). During the appellate proceedings before the CIT(A), the assessee challenged the disallowances made by the AO under Sections 54B and 54F of the Act, along with the addition to long-term capital gain (LTCG). The CIT(A) considered the submissions of the assessee, sought a remand report from the AO. The AO furnished a remand report, reaffirming the disallowances and additions made in the assessment order. The AO reiterated that – - The assessee failed to satisfy the conditions for exemption under Section 54B of the Act, as the land purchased was either beyond the prescribed time limit or was not registered in the assessee’s name. - The assessee’s brother had already claimed an exemption of Rs.99,00,000/- on the same land in his own assessment, which was allowed by ITO Ward-3(2)(1), Ahmedabad. - The assessee had wrongly claimed an exemption of Rs.25,08,037/- under Section 54F of the Act. Rs.7,70,000/- was excluded from the total investment, as the purchase transaction was executed on 10.12.2012, beyond the prescribed time limit (i.e., before 07.07.2013). - The AO defended the addition of Rs.44,36,992/- to LTCG, stating that the assessee had originally declared only Rs.3,18,248/-, whereas the correct computation (based on DVO valuation) showed LTCG of Rs.47,55,240/-. - The DVO report dated 26.12.2017 determined the indexed cost of acquisition at Rs.15,25,760/-, which was considered for capital gains computation.

4.1. In response to the remand report, the assessee filed a rejoinder, reiterating the following points:

- The land sold was agricultural land, and therefore, capital gains should not have been taxed. - The investments in agricultural land should qualify for exemption under Section 54B, irrespective of minor technical discrepancies. - The brother’s claim under Section 54B of the Act should not affect the assessee’s claim, as both contributed towards the purchase and the AO of the brother had subsequently passed a rectification order under Section 154 in the case of the assessee’s brother, restricting the eligible investment to Rs.49,50,000/- being 50% of the investment. - The delay in purchasing residential property should be condoned, and full exemption under Section 54F of the Act should be granted. - The valuation report of the DVO was not justified, and the cost of acquisition should be higher than what was determined in the assessment order.

1. That on facts and in law the learned Commissioner of Income tax (Appeals) has grievously erred in confirming the disallowance of claim of deduction u/s 54F of the Act of Rs.5,91,036/- while computing the long-term capital gains.

2. That on facts and in law the learned Commissioner of Income tax (Appeals) has grievously erred in confirming the disallowance of claim of deduction u/s 54B of the Act of Rs.87,11,000/- while computing the long-term capital gains.

3. That on facts, and in law, the entire claim of deductions u/s 54F and u/s 54B of the Act ought to have been allowed as prayed for.

7.1. In support of ownership of the new assets in the name of brother the AR stated that the investment made in the name of relative should be allowed considering the qualifying nature of the asset purchased. The AR argued that in case of beneficial provisions the purposive construction is to be preferred as against literal construction. The AR placed reliance on the decision of Delhi Bench in the case of Simran Bagga Vs. ACIT [2024] 158 taxmann.com 265 (Delhi – Trib.) where the residential property was purchased in the name of spouse to claim benefit u/s 54 and the same was allowed by the tribunal. In the said decision the Co-ordinate Bench was guided by the decisions of other Co-ordinate Benches. In the case of N Ram Kumar Vs. Asstt. CIT [2012] 138 ITD 317, the assessee purchased flat in the name of the minor daughter and in the case of Krishnappa Jayaramaiah Vs. ITO [2021] 189 ITD 15 the assessee purchased residential property in the name of his married widowed daughter.

9.1. The first issue concerns the disallowance of the exemption on the ground that the investments made by the assessee in a residential house and agricultural land were outside the statutory time limits prescribed under Sections 54F and 54B. The AR of the assessee contended that the provisions of these sections should be interpreted liberally to achieve the intended objective of allowing exemptions for reinvestment of capital gains. It was argued that the sale proceeds were received in a staggered manner between 2012 and 2016, and the investments in both the residential house and agricultural land were made as and when funds were available, demonstrating a clear nexus between the capital gains and the reinvestment. In support of this contention, reliance was placed on CBDT Circular No. 359 dated 10.05.1983, which clarifies that an investment made before the date of transfer of the original asset should not be denied exemption, provided that the investment meets the prescribed conditions. The AR further relied on the decision of the Hon’ble Bombay High Court in the case of Mrs. Parveen P. Bharucha vs. DCIT (W.P. No. 10437 of 2011, dated 27.06.2012), wherein the High Court applied the principle of substantial compliance and held that the timing of reinvestment should not be a rigid criterion for granting exemption under Section 54EC of the Act.

9.2. We find merit in the assessee’s contention that the purpose of Sections 54F and 54B is to promote reinvestment in qualifying assets rather than to impose rigid procedural constraints. It is settled legal principle that a beneficial provision should be construed liberally in favour of the taxpayer, provided that the underlying purpose of the statute is fulfilled and the taxpayer has acted in good faith and has substantially complied with the law.

9.3. In the present case, it is undisputed that the assessee received the sale proceeds in a staggered manner over multiple years, from 2012 to 2016, and accordingly reinvested the capital gains in a residential property and agricultural land as and when funds were available. The delay in reinvestment was not due to any intentional non-compliance but was a consequence of the phased receipt of sale consideration, which directly influenced the timing of investments. Given these circumstances, we find that the delay in reinvestment is merely procedural and not substantive, as the intent and purpose of the law—to encourage reinvestment of capital gains into specified assets—have been duly fulfilled. Therefore, the investment made by the assessee should not be disallowed merely on technical grounds of timing, particularly when the capital gains have ultimately been utilized for the intended purpose. Accordingly, we hold that the exemption under Sections 54F and 54B of the Act cannot be denied solely on the ground of non-adherence to strict time limits, and the assessee is entitled to claim the deduction in respect of investments made beyond the prescribed time period.

9.4. We direct the AO to re-compute the assessee’s taxable capital gains by allowing proportionate exemption under Sections 54F and 54B of the Act for the investments made beyond the statutory time limits, as discussed above. The AO shall recalculate the long-term capital gains accordingly, ensuring that the correct quantum of deduction is granted in light of the revised working.

10.1. The assessee’s primary contention is that the land was purchased for the benefit of the family and that the capital gains were reinvested in agricultural land, fulfilling the substantive requirements of Section 54B of the Act. However, upon examining the legal provisions and facts of the case, we find that the language of Section 54B of the Act is clear and unambiguous, requiring that the land must be purchased by the assessee himself. When the statute mandates that an asset must be purchased in the name of the assessee, courts cannot extend the benefit to purchases made in the name of another person. Requirement of ownership in the assessee’s name is a mandatory condition and cannot be overlooked on the grounds of substantial compliance.

10.2. Further, under Hindu succession law, a brother does not automatically form a part of a Family unless there is an explicit declaration or family arrangement recognizing such status. Unlike a spouse or a minor child, a brother is an independent legal entity, and unless the property is purchased in the joint name of both brothers, the ownership of the land remains separate. Brother is not automatically treated as a part of a coparcenary unless specifically provided for in law. Accordingly, we hold that the assessee cannot claim the exemption under Section 54B for land purchased in the name of his brother, as the statute does not recognize such an arrangement for the purpose of exemption. The AR has also sought to draw an analogy to the inheritance rights of a widowed daughter under Hindu Succession Law, arguing that family ties should be considered while granting exemptions. However, we find that this analogy is misplaced. The Hindu Succession Act, 1956 (as amended in 2005), grants a widowed daughter equal inheritance rights in the property of her father and husband because she is classified as a Class I legal heir. In contrast, a brother is not a Class I heir in Hindu succession unless the property is inherited jointly under HUF law or through a will. The principle of family ownership in succession law does not override the explicit ownership requirement under Section 54B of the Act, which mandates that the land must be purchased in the name of the assessee himself. Therefore, we hold that the assessee cannot claim the exemption under Section 54B of the Act for land purchased in the name of his brother, as the statute does not recognize such an arrangement for the purpose of exemption.

10.3. The assessee has further contended that the rectification order passed under Section 154 of the Act in the case of his brother, dated 10.01.2018, reducing the exemption previously allowed to the brother, should be considered while deciding his own claim under Section 54B of the Act. However, upon a careful review of the sequence of events, we find that this rectification appears to be an afterthought, lacking any legal basis. It is important to note that the original assessment order of the assessee was passed on 29.12.2017, wherein the AO specifically recorded that the entire exemption of Rs.99,00,000/- had already been claimed and allowed in the hands of the brother. The AO disallowed the assessee’s claim on the basis that granting the same exemption to both individuals would result in double deduction, which is impermissible in law. However, within just 12 days, the AO passed a rectification order under Section 154 of the Act in the case of the brother on 10.01.2018, reducing the previously allowed exemption. The timing of this rectification order raises serious doubts regarding its genuineness and legal sustainability, particularly when no clear reasoning or legal foundation for the rectification has been provided.

10.4. Furthermore, the assessee has failed to bring on record any explanation for such an arrangement between him and his brother. The Samjuti Karar (family agreement) dated 23.01.2014, which was relied upon by the assessee to justify his claim, primarily discusses the equal rights of both brothers over the agricultural produce of the land rather than any ownership or reinvestment arrangement. Nowhere in the agreement is it stated that the agricultural land was purchased on behalf of the assessee, nor does it establish that the capital gains were intended to be utilized for his benefit instead of his brother’s. In the absence of any concrete documentary evidence supporting the claim that the land was beneficially owned by the assessee, we cannot accept the argument that the rectification of the brother’s assessment automatically entitles the assessee to the exemption.

10.5. In light of the legal precedents and factual findings discussed above, we hold that the assessee is not entitled to claim exemption under Section 54B for the land purchased in the name of his brother, as the statute specifically requires ownership in the name of the assessee, and the judicial precedents have consistently upheld this requirement. Accordingly, we uphold the disallowance of Rs.52,60,000/- under Section 54B in respect of the land purchased in the name of the brother and dismiss this ground of appeal.