ACHALA PUNJA,CHENNAI vs. DEPUTY COMMISSIONER OF INCOME TAX NON CORPORATE CIRCLE 3(1), CHENNAI

The brief facts of the case are that the assessee, an individual, filed her return of income for the A.Y.2014-15 u/s.139(1) of the Act on 30.07.2014, declaring a total income of Rs.49,02,590/-. In the said return, the assessee claimed exemption u/s.54 of the Act amounting to Rs.6,16,32,285/-. Subsequently, the assessment was reopened by issuance of notice u/s.148 of the Act on 31.03.2021. In response thereto, the assessee filed her return of income on 05.05.2021 declaring the same total income as was declared in the original return. Thereafter, the AO issued notice u/s.143(2) of the Act on 06.09.2021 followed by notice u/s.142(1) of the Act on 01.12.2021.

During the course of assessment proceedings, the AO called upon the assessee to furnish documentary evidence in support of the claim of exemption of Rs.6,16,32,285/- u/s.54 of the Act. In response, the assessee furnished copies of the Sale Deed, relevant Bank Statements, and a Certificate issued by the Builder confirming the purchase of Flat No. D5092. On examination of the Sale Deed No. 6360/13-14 dated 14.03.2014, the AO observed that the total consideration mentioned therein for the purchase of the property was Rs.3,01,77,700/-, on which Tax Deducted at Source u/s.194-IA of the Act amounting to Rs.3,01,777/- had been duly deposited. The AO further noted that the assessee had incurred registration charges and stamp duty aggregating to Rs.16,90,000/-. Consequently, the AO held that the assessee was eligible for exemption u/s.54 of the Act only to the extent of Rs.3,18,67,700/- (i.e., Rs.3,01,77,700/- plus Rs.16,90,000/-) and accordingly issued a show-cause notice to the assessee proposing to disallow the balance claim of Rs.2,97,64,585/-.

In response, the assessee submitted that she had made aggregate payments of Rs.6,16,32,285/- to the Builder towards cost of acquisition and construction of the residential unit and therefore, the entire amount ought to be considered for exemption u/s.54 of the Act. However, the AO was not satisfied with the explanation furnished by the assessee on the ground that no documentary evidence was submitted in support of such additional payments. The AO, therefore, proceeded to disallow the claim of exemption to the extent of Rs.2,97,64,585/- and completed the assessment u/s.147 of the Act on :-4-: ITA. No:2630/Chny/2025 28.03.2022 determining the total income of the assessee at Rs.3,46,67,175/-, after denying the aforesaid portion of exemption claimed u/s.54 of the Act.

In light of the disallowance of the assessee’s claim for exemption amounting to Rs.2,97,64,585/- u/s.54 of the Act, penalty proceedings u/s.271(1)(c) of the Act were initiated for concealment of particulars of income. Consequently, a show cause notice dated 28.03.2022 was issued to the assessee. The AO observed that the assessee failed to respond to any of the notices issued during the course of the penalty proceedings. In the absence of any response from the assessee, the AO proceeded to pass the impugned penalty order dated 16.09.2022, levying a penalty of Rs.61,31,504/- u/s.271(1)(c) of the Act for concealment of particulars of income.

Aggrieved of the penalty order, assessee carried the matter in appeal before the Ld.CIT(A), who vide the impugned appellate order dated 18.07.2025 confirmed the penalty of Rs.61,31,504/- levied by the AO u/s.271(1)(c) of the Act.

Aggrieved further, assessee is in appeal before us.

The Ld.AR vehemently argued for the deletion of the penalty as the quantum appeal of the assessee before this Tribunal has been decided in favour of the assessee by allowing the deduction claimed u/s.54 of the Act, except to the tune of Rs.14,99,190/- for want of the supporting vouchers. Further the ld.AR relied on the grounds and other judicial precedents relied in the grounds of appeal filed.

We have heard the rival submissions and perused the material available on record. The penalty in the present case was levied by the AO u/s.271(1)(c) of the Act on the premise that the assessee had concealed particulars of income to the extent of the disallowance of exemption claimed u/s.54 of the Act amounting to Rs.2,97,64,585/-. However, it is an undisputed fact that in the quantum proceedings arising out of the very same assessment order, this Tribunal in dated 09.10.2025 has examined the issue in detail and has allowed the assessee’s claim of exemption u/s.54 of the Act to the extent of Rs.6,01,33,095/-, thereby sustaining the disallowance only to the limited extent of Rs.14,99,190/-. The relevant observations of this Tribunal are as under:

From the material placed before us, it is evident that the assessee, on 04.03.2014, entered into an Agreement for Sale with M/s. Total Environment Building Systems Pvt. Ltd. (hereinafter referred to as “the Builder”) for purchase of a residential apartment admeasuring 5924 sq. ft. in the project titled “Windmills of Your Mind” for a total consideration of Rs.5,49,99,500/-. Out of the said amount, a sum of Rs.3,60,37,500/- was stated to be attributable to the undivided share of land and the basic cost of the unit, while the balance amount of Rs.1,50,00,000/- was towards the completion of the apartment unit by way of finishing works.

Subsequently, on 14.03.2014, a registered sale deed was executed between the assessee and the Builder for a total sale consideration of Rs.3,01,77,700/-, and the assessee paid stamp duty of Rs.16,90,000/- thereon. Thus, the aggregate investment as reflected in the registered sale deed amounted to Rs.3,18,67,700/-, which amount was accepted by the AO as the basis for allowing exemption u/s.54 of the Act.

Upon perusal of the Builder’s confirmation letter dated 15.05.2014, we find that it is clearly stated that the consideration of Rs.3,01,77,700/- recorded in the registered sale deed represents only the cost towards the undivided share of land and the basic “shell” of the unit, which comprised merely the structural framework consisting of supporting pillars and slabs without internal walls, flooring, electricals, plumbing, or other habitable features. The total consideration of Rs. 5,49,99,500/-, as per the original

We, therefore, find merit in the contention of the assessee that the consideration reflected in the registered sale deed does not represent the entire investment made in acquiring the new residential house as contemplated u/s.54 of the Act. The exemption u/s.54 of the Act cannot be restricted only to the cost of the undivided share of land and the bare structure, when the assessee has demonstrably incurred additional expenditure towards rendering the apartment habitable.

Upon perusal of the bank statements and receipts placed on record, we find that the assessee had made total payments aggregating to Rs.5,81,40,485/- to the Builder upto 14.03.2014. In addition, the assessee had incurred stamp duty of Rs.16,90,000/- and registration charges of Rs.3,02,610/-. The cumulative investment, therefore, aggregates (Rs.5,81,40,485 + Rs. 16,90,000 + Rs. 3,02,610).

Considering the above facts and the settled position of law that for the purposes of section 54 of the Act, the cost of acquisition of the new residential house includes not only the purchase price of the property but also all incidental and necessary expenses incurred to make the property habitable, we are of the considered opinion that the assessee is entitled to claim exemption u/s.54 of the Act in respect of the entire investment of Rs.6,01,33,095/-.

Accordingly, we direct the AO to allow exemption u/s.54 of the Act to the extent of Rs.6,01,33,095/- as against the restricted amount of Rs.3,18,67,700/- allowed in the assessment order. Thus, the grounds of appeal raised by the assessee are partly allowed.”

In the result, the appeal of the assessee stands allowed.