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Facts
The assessee sold two flats for Rs. 1,16,00,000 and purchased another flat for Rs. 1,27,00,000, claiming deduction under Section 54F. The assessee also had issues with cash deposits and agricultural income. The Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the deduction and made additions.
Held
The Tribunal noted that the assessee failed to furnish necessary documentary evidence to substantiate the claim for deduction u/s 54F of the Act before the lower authorities. However, to provide an opportunity to the assessee, the issue was restored to the file of the AO for a denovo assessment.
Key Issues
Whether the assessee is eligible for deduction under Section 54F for the purchase of a new flat and whether the additions made for cash deposits and agricultural income are justified.
Sections Cited
54F, 250, 143(3), 263, 142(1), 144B, 69A
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT, AM
O R D E R Per Kavitha Rajagopal, JM:
This appeal has been filed by the assessee, challenging the order of the Learned Commissioner of Income Tax (Appeals) [‘Ld. CIT(A)’ for short], National Faceless Appeal Centre (‘NFAC’ for short) passed u/s. 250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2016-17.
The assessee has raised the following grounds of appeal:
“1. The appellant prays that on the facts and circumstances of the case and in law, The learned CIT(A) has erred in law in fact in confirming the addition of Rs.36,35,520/-for long term capital gain and not allowing the deduction under section 54 even though the appellant has invested Rs.1,27,00,000/- in Flat within prescribed time limit by the appellant the consideration received from the sale of Flats.
Mr. Nivrutti Pandurang Bhor 2. The appellant prays that on the facts and circumstances of the case the appellant states in confirming the addition of Rs.13,84,112/-even though appellant has submitted all the evidences of cash deposited by him the bank account.
3. The appellant prays that on the facts and circumstances of the case the appellant states in confirming the addition of Rs.13,84,112/- but the learned commissioner would have as a tired as sales consideration and erred in not considering the same for Deduction U/s 54 for Invested in the Flat.”
Brief facts of the case are that the assessee is an individual and had filed his return of income declaring total income at Rs.13,07,650/-. The assessee’s case was selected for scrutiny under CASS for verification of large Long Term Capital Loss (“LTCL” for short) on sale of property and huge cash deposits in saving bank account. The Learned Assessing Officer (“Ld. AO” for short) passed the assessment order u/s. 143(3) of the Act dated 18.12.2018 determining the total income at Rs.13,07,650/-. Subsequently, the Learned Principal Commissioner of Income Tax (“Ld. PCIT” for short) set aside the original assessment order vide order u/s. 263 of the Act dated 15.03.2021 to conduct further enquiry into the claim of LTCG and cash deposits by observing that the assessee had taken indexed cost of improvement while calculating capital loss whereas the assessee had not made any improvement to the property sold by the assessee. The Ld. PCIT also noted that though the assessee submitted the bills for the cash deposit of Rs.4,72,112/- in the name of sale of onion, the assessee could not submit the documentary evidences for the remaining cash deposits. Accordingly, the Ld. AO issued notice u/s. 142(1) of the Act to the assessee and after going through the details submitted by the assessee the Ld. AO observed that the assessee had sold immovable property in Shiv Prerna Society with capital gain of Rs.37,26,701/- and the assessee also sold another property in Dhanlaxmi society with capital loss of Rs.1,27,91,821/-. In response to the observation made by the Ld. Pr. CIT Mr. Nivrutti Pandurang Bhor with regard to the indexed cost of improvement, the assessee submitted before the Ld. AO that purchase cost of the new flat was entered as indexed cost of improvement by mistake which resulted in incorrect calculations. Based on the details submitted by the assessee the Ld. AO calculated the net LTCG amounting to Rs.36,35,520/- and hence issued a show cause notice dated 08.03.2022 along with draft assessment order by making addition of Rs.36,35,520/- towards the LTCG. Though the assessee claimed deduction u/s. 54 of the Act in his submission before the Ld. AO, the assessee did not claim the same in his original return of income and hence the Ld. AO rejected the deduction claimed by the assessee.
With regard to the cash deposit made by the assessee as has been observed by the Ld. PCIT, the Ld. AO issued notice dated 28.01.2022 u/s. 142(1) of the Act to the assessee to explain the source of cash deposits. In response to the same, the assessee submitted that the source for the remaining cash deposit was on account of agricultural income, tuition income earned by the assessee’s wife and cash withdrawal from earlier period. However, the Ld. AO observed that the assessee could not file any documentary evidences in support of his claim and accordingly the Ld. AO completed the assessment proceedings u/s 143(3) r.w.s.
263 r.w.s. 144B of the Act on 21.03.2022 by making addition of Rs.36,35,520/- towards the LTCG, Rs.35,993/- under the head “Income from other sources” and Rs.13,84,112/- as unexplained money u/s. 69A of the Act.
Aggrieved, the assessee was in appeal before the first appellate authority, who vide order dated 20.05.2025 upheld the addition made by the Ld. AO on similar ground that the assessee has failed to furnish the relevant documentary evidences to substantiate his claim.
CIT(A).
Before us, the Learned Authorized Representative (“Ld. A.R.” for short) for the assessee commenced the arguments stating that the assessee sold two flats at a total sale price of Rs.1,16,00,000/- for both the flats and purchased another new flat for an amount of Rs.1,27,00,000/- which is higher than the capital gain earned on the flats sold by the assessee and hence the assessee is eligible for deduction u/s. 54 of the Act. The Ld. A.R. further contended that by mistake the new flat was entered as indexed cost of improvement at Rs.1,27,00,000/- by the assessee and hence he has not claimed the same in the return of income and thus the assessee showed the taxable capital gain as Nil in his return of income.
The Ld. A.R., by relying on the CBDT circular No.14 of 1955 dated 11.04.1955, submitted that the officers of the Revenue Department cannot take advantage of ignorance of the assessee about his rights and it is their duty to assist the tax payer in every reasonable way particularly in the matter of claiming and securing reliefs and hence the Ld. A.R prayed before us to allow the deduction u/s. 54 of the Act. With regard to the cash deposits, the Ld. A.R. contended that the assessee’s wife is a graduate and takes tuition for the students upto 5th standard and thus she earned Rs.4,31,000/- during the year under consideration and Rs.1,50,000/- & Rs.2,81,000/- in the A.Y. 2014-15 out of which the assessee’s wife deposited the amount of Rs.2,81,000/- in her joint account with her husband and the supporting documents in this regard viz. PAN and return of income of the assessee’s wife Mrs. Surekha Bhor have been submitted. The Ld. A.R. further contended that the assessee and his wife are holding the saving account in Shri Arihant co-operative bank with account Mr. Nivrutti Pandurang Bhor no.005001002186 and the amount of Rs.31,27,500/- deposited by the assessee as has been pointed out by the lower authorities is wrong and the correct deposit was Rs.16,64,000/- only. With regard to the agricultural income, Ld. AR further contended that the assessee and his father were farmers and the assessee’s father was earning agricultural income for the past many years. The income earned by the assessee’s father was deposited in the joint account of Smt. Surekha Bhor and the assessee. By mistake the assessee has not shown the agricultural income of Rs.1,62,000/- in his return of income as he was under the bonafide belief that agricultural income was not taxable. Ld. A.R., in support of his claim, has submitted the bank account as well as the ledger copy of the cash deposited in the joint account which clearly shows that Smt. Surekha Bhor and the Assessee had deposited Rs.16,64,000/- and not Rs.31,27,500/- and hence the Ld. A.R. prayed that the addition should not be made.
The Learned Departmental Representative (“Ld. D.R.” for short), on the other hand, controverted the said fact and stated that these were not genuine transactions and further relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record.
It is observed that the assessee has sold two flats at a total sale price of Rs.1,16,00,000/- and purchased a new flat for an amount of Rs.1,27,00,000/- which was higher than the capital gain earned on the flats sold by the assessee. The assessee had claimed deduction u/s. 54F of the Act. Both the lower authorities had made the disallowance towards the deduction u/s 54F of the Act on the ground that the assessee has failed to furnish the Mr. Nivrutti Pandurang Bhor documentary evidences such as agreement of purchase, ownership proof, allotment letter from the builder, possession certificate, neither before the Ld. AO nor before the Ld. CIT(A) in spite of several opportunities provided by both the lower authorities.
Before us, the Ld. A.R. for the assessee prayed that the assessee be given one more opportunity to present his case before the lower authorities and filed relevant paper book containing documents, some of it was filed before the Ld. AO and some before the Ld. CIT(A). In order to extend the assessee with one more opportunity to corroborate his claim with sufficient documentary evidences, we deem it fit to restore this issue to the file of the Ld. AO with a direction that the assessee shall comply with the proceedings before the Ld. AO without any undue delay from his side and to furnish complete documentary evidences to substantiate his claim of deduction u/s. 54F of the Act. The Ld. AO is directed to conduct a denovo assessment on the basis of the documentary evidences proposed to be filed by the assessee and decide the issue on the merits of the case and in accordance with law after giving sufficient opportunity of hearing.
In the result, the appeal filed by the assessee is hereby allowed for statistical purposes.
Order pronounced in the open court on 30.01.2026