Case at a Glance
The assessee sold a flat in FY 2017-18 for ₹74,00,000 against a stamp-duty value of ₹80,52,860 and bought a new flat for ₹67,00,000 jointly with his father, a senior citizen. The Assessing Officer, in a reassessment, allowed Section 54 deduction only on 50% of the new flat and taxed the rest of the gain; the CIT(A) confirmed it. The ITAT Pune held that the 10% tolerance band under the proviso to Section 50C applies retrospectively, so the actual price of ₹74 lakh was the sale value, and that Section 54 deduction is available on the entire purchase cost. The appeal was allowed.
The assessee had not filed a return for AY 2018-19. On information from the INSIGHT portal about property transactions, the Assessing Officer reopened the assessment (Section 148 notice of 10 February 2023) and passed an order under Section 147 read with Sections 144/144B on 24 January 2024. The assessee had sold Flat A4 and A4a for ₹74,00,000; the stamp-duty value was ₹80,52,860. He invested in a new flat costing ₹67,00,000, purchased jointly with his father.
The Assessing Officer allowed Section 54 deduction only on 50% of the new flat (₹33,50,086) and treated the balance gain as taxable; the CIT(A) confirmed the assessment on 24 December 2025. Before the Tribunal the assessee raised two grounds: the stamp-duty value should not replace the actual price, and the full cost of the jointly bought flat qualified for exemption.
The Key Question Before the Court
Does the 10% tolerance band in Section 50C apply to AY 2018-19, and can an assessee claim Section 54 exemption on the full cost of a new house bought jointly with a family member?
Tolerance Band Applies Retrospectively; Co-Owner’s Name Does Not Halve the Exemption
On Section 50C, the Tribunal followed the Mumbai Bench in ACIT v. Sunil B. Dalal, which held that “the prescribed tolerance band of 10% applies retrospectively.” Since the stamp-duty value exceeded the sale price by only about 8.8%, the Tribunal held that “the tolerance band of 10% is applicable in the case of the assessee” and took ₹74,00,000 as the full value of consideration. After deducting the indexed cost of ₹12,58,780, the long-term capital gain was ₹61,41,220.
On Section 54, the Tribunal followed the Delhi High Court in CIT v. Ravinder Kumar Arora, where the assessee was not denied the full exemption “merely because he has included the name of his wife” in the purchase deed. The Departmental Representative cited no contrary decision of the jurisdictional High Court. The Tribunal therefore held that “the assessee is eligible for deduction u/s 54 on the entire amount of purchase.” The Revenue’s alternative request for remand to the Assessing Officer was not adopted.
What the Court Actually Held
- The 10% tolerance band under the proviso to Section 50C applies retrospectively, including to AY 2018-19.
- As the stamp-duty value was within 10% of the sale price, the actual consideration of ₹74,00,000 was the sale value.
- Section 54 deduction is allowable on the entire cost of the new flat bought jointly with the assessee’s father, not just 50%.
- The appeal of the assessee was allowed.
Why This Judgment Matters
- Families often buy a replacement home in joint names; this order supports full exemption for the seller who funds it.
- It confirms the retrospective benefit of the 10% safe-harbour for older property sales still under assessment.
- It shows the value of relying on High Court rulings where the Revenue cites no contrary jurisdictional decision.
What Should Advocates Take Away From the Judgment?
For Taxpayers
- If you sell a house and buy another in joint names with a parent or spouse, the full investment may qualify under Section 54.
- If the stamp-duty value is within 10% of your actual price, the actual price may be taken as the sale value.
- Keep payment records showing who funded the new house.
For Tax Practitioners
- Cite CIT v. Ravinder Kumar Arora where exemption is restricted to the assessee’s share.
- Raise the retrospective 10% tolerance band for pre-2018-19 and 2018-19 sales.
- Check whether any contrary jurisdictional High Court ruling exists before relying on these decisions.
Key Takeaways
- Joint ownership with a family member did not halve the Section 54 exemption.
- The 10% tolerance band under Section 50C was applied retrospectively.
- The actual price of ₹74 lakh replaced the higher stamp value.
- The assessee’s appeal was allowed in full.
Frequently Asked Questions
Can I claim Section 54 exemption if the new house is in my and my father’s names?
In this case, yes. Following CIT v. Ravinder Kumar Arora, the ITAT Pune allowed deduction on the entire purchase cost of the jointly bought flat.
What is the 10% tolerance band under Section 50C?
Under the proviso to Section 50C, if the stamp-duty value does not exceed the actual consideration by more than 10%, the actual consideration is taken as the sale value. The Tribunal held it applies retrospectively.
What was the capital gain after the Tribunal’s order?
Taking ₹74,00,000 as the sale value and indexed cost of ₹12,58,780, the long-term capital gain was ₹61,41,220, against which Section 54 deduction on the full ₹67 lakh investment was allowed.
Conclusion
The order gives clear relief on two common issues in property sales: small gaps between stamp value and actual price, and replacement homes bought in joint names with family members.
Practical takeaway: Where the new house is bought jointly with a relative but funded from the sale proceeds, claim Section 54 on the full cost and document the source of funds.
For more judgments, legal opinions and case analysis, visit courtkutchehry.com