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Judgment
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals/ National Faceless Appeal Centre (‘Ld. CIT(A)/NFAC’ for short), New Delhi dated 18/06/2025 for the Assessment Year 2023-24.
Brief facts of the case as mentioned in the order of the Ld. CIT(A) are as under: -
“4.1The appellant filed return of income for A.Y. 2023-24 declaring income of Rs. 23,58,990/-. The case of the appellant was selected for complete scrutiny under CASS for the reason "Large deduction claimed u/s 54F and no deemed capital gain is shown". Subsequently, notice u/s 143(2) was issued to the appellant on 19.06.2024. In response to the notice issued, the appellant furnished reply. Thereafter, notices u/s142(1) was issued by the AO to the appellant.
4.2During the course of assessment proceedings, it was noticed by AO that the appellant had sold an immovable property for a sale consideration of Rs. 3,88,50,000/-(her 50% share in a property jointly co owned by her with her spouse). The appellant had claimed deductions viz. cost of improvement (with indexation) at Rs. 6,70,946/-u/s 48 of the Act and deduction u/s 54F of the Act for an amount of Rs. 3,74,12,994/- reflecting the Long Term Capital Gain (LTCG) on account of such sale consideration at Rs. NIL. Therefore, the appellant was asked by the AO vide notice dated 05.08.2024 to provide the following details:
(1)Description of the property
(ii)Date of sale and sale consideration
(ii)Date of purchase and cost of purchase
(iv)Computation of capital gain/loss on sale of the said property
(v)Copies of registered sale deeds in connection with the purchases/sale of the said immovable property
In response to the above notice, the appellant submitted part reply. Therefore, another notice u/s142(1) was issued by AO on 17.02.2025 to appellant asking her to provide specific details viz. cost of improvement of Rs. 6,70,946/-, computation of capital gain/loss on sale of property, deduction claimed u/s 54F of the Act for Rs. 3,74,12,994/- etc.. In response the appellant filed reply which can be summarized as under:
*The assessee had purchased three immovable properties jointly with her spouse at Rs. 1,05,000/-, 2,22,000/- and 1,23,000/- along with stamp duty of Rs. 73,050/-during the year 2003. She incurred cost of improvement in the year 2010 (as per capital gain computation) of Rs. 3,00,000/- (50% of total cost of improvement). The above immovable properties were sold during the year 2022-23 at sale consideration of Rs. 7,77,00,000/- (jointly) out of which assessee's share was 50%. Thus, the sale consideration of assessee was Rs. 3,88,50,000/- (i.e. 50% of Rs. 7,77,00,000/-). The assessee had stated that the amount received on sale of land was deposited in CGSB account with Canara bank in joint name and had submitted the bank statement of Canara Bank."
4.3Since, the appellant has failed to substantiate the claims made by her in connection with the deductions claimed against sale of immovable properties during the year under consideration for a total amount of Rs. 3,80,83,940/- (u/s 48 for Rs. 6,70,946/- as indexed cost of acquisition & 54F for Rs. 3,74,12,994/-), therefore a show cause was issued by the AO on 24.02.2025, however, no reply was filed by the appellant to the show cause notice.
The explanation/ reply submitted earlier by the appellant was not accepted by the AO after verification ofdocuments due to following reasons:
1.The appellant had failed to submit any documentary evidence in support of cost of improvement of Rs. 6,70,946/-(after indexation as claimed in the ITR) claimed to be incurred by her in connection with the immovable property sold during the year under consideration.
2.On perusal of the Canara Bank statement (Capital Gain A/c No. 1101011194860) for the period from 20.02.2023 to 13.12.2024 as submitted by the appellant, it was noticed by AO that the bank account is in the name of the spouse of the appellant Mr. Rakesh K Sharma and the appellant is only nominee. It is also revealed from the said bank statement during the period mentioned as above that there were only two transactions (excluding deposit of interest) i.e. the deposit of sales consideration of Rs. 7,77,50,000/- on 20.02.2023 and RTGS transfer (debit entry) for an amount of Rs. 76,23,362/-on 06.10.2023 in the name of Anaiah Constructions Pvt Ltd. Thus, it was clearly found that either the total sale consideration of Rs. 7,77,50,000/- or even appellant's share of sale consideration of Rs. 3,88,50,000/- has not been expended fully till date.
3.Further the appellant didn't furnish any documentary evidence in respect of expenditure/investment made for purchase or construction of residential house till date for claiming deduction u/s 54F of the Act. The appellant submitted only the "Construction Contract Agreement" made on 24.06.2021 between Mr. Rakesh Sharma & Ms. Deepika Sharma (appellant) and Anaiah Constructions Pvt Ltd. It was seen that the said agreement contained clauses/terms like Description of Work, Contract Price & Payments, Certificate of Completion, Material and Labour etc. but the appellant did not submit any supporting evidence regarding completion of construction work, final bill received from the said construction company and receipts for part/final payments made to Anaiah Constructions Pvt Ltd and mode of payments made to the contractor etc.
Accordingly, AO made addition of Rs.3,80,83,940/- to the income of the appellant.
Aggrieved by the assessment order dated 18/03/2025, Assessee preferred an Appeal before the Ld. CIT(A). The Ld. CIT(A) vie order dated 18/06/2025, dismissed the Appeal filed by the Assessee. As against the order of the Ld. CIT(A), Assessee preferred the captioned Appeal.
The Ld. Counsel for the Assessee submitted that the Assessee and her husband being a joint owner, have sold the residential plot situated at Jilling Estate Uttarakhand on 15/07/2022, which was held since 2003-04and the Assessee has fulfilled all the statutory conditions mentioned under Section 54F of the Act. Apart from the same, the Assessee's Representative submitted that in the case of the husband Sh. Rakesh Sharma, the Ld. A.O. has allowed the deduction/exemption under Section 54F of the Act vide assessment order dated 12/08/2024 passed under Section 143(3) r.w. Section 144B of the Act. Further contended that the authorities below have committed error in making/upholding the disallowance. The Ld. Assessee's Representative has also narrated the compliance of the condition under Section 54F of the Act by way of Chart which is reproduced as under:
Thus, the Ld. Assessee's Representative sought for allowing the Appeal.
Per contra, the Ld. Departmental Representative relying on the orders of the Lower Authorities sought for dismissal of the Appeal.
It is not in dispute that the Assessee and her husband are the joint owner of the property, the Assessee was having 50% share in the said immovable property which has been jointly sold in the Financial Year 2022-23 and jointly purchased the residential plot at Jilling State for construction of a residential house. Due to certain litigation i.e. Stay Order from Hon'ble High Court and the Hon'ble Supreme Court the construction carried out and the construction was commenced when it was permitted and the Assessee paid an amount of Rs. 76,23,362/- to the contractor. However, the construction could not be completed due to the stay orders on the Courts. The entire capital gain attributable to the Assessee’s share were deposited in CGAS Account and earmarked exclusively for construction. There is no finding regarding diversion or misuse of fund allegation made by the A.O. The fund remained intact in the CGAS account and partial utilization of Rs. 76.23 lakhs was made for construction. There is no allegation of withdrawal, diversion or personal use of the said funds. Moreover, in the case of husband who is similarly placed and also being a joint owner of the subject property, A.O. allowed the exemption claimed under Section 54F of the Act finding the claim as correct and genuine vide assessment order dated 05/02/2025 passed under Section 143(3) r.w. Section 144B of the Act. In view of the above, we find merits in the Grounds of Appeal of the Assessee, accordingly the disallowance made by the A.O., which has been affirmed by the Ld. CIT(A) is hereby deleted. The A.O. is directed to allow the deduction/exemption under Section 54F of the Act to the Assessee for the year under consideration.
In the result, Appeal of the Assessee is allowed.