Legal ownership through a registered deed is not a prerequisite for claiming the exemption, provided there is substantial compliance through investment and possession
Investment and possession are enough, says ITAT – No need for registered deed under Section 54F. Revenue’s objection on title document rejected.
The Income Tax Department filed an appeal against the order of the CIT(A), NFAC, dated 24.11.2023 for the Assessment Year 2016–17, where relief was granted to the assessee, Smt. Rajni Gupta, on two counts:
1. Deletion of capital gains addition under Section 50C and
2. Allowance of exemption under Section 54F.
The Assessing Officer had substituted the actual sale consideration of Rs. 1.01 crore with the higher stamp duty value of Rs. 3.68 crore, thereby adding Rs. 2.67 crore as deemed capital gains. Further, the AO denied Section 54F exemption of Rs. 1.36 crore on the ground that the new property purchase was not backed by a registered document.
The CIT(A) held that the addition under capital gains was unsustainable because the AO had wrongly invoked Section 56(2)(x) instead of Section 50C, and therefore, deleted the entire addition. As regards Section 54F, the CIT(A) observed that the assessee had demonstrated actual investment and possession of the new residential property, which was sufficient to satisfy the conditions of Section 54F, even in the absence of a registered sale deed.
During the hearing, the Revenue argued that the reference to Section 56(2)(x) was merely a typographical error and that the AO had, in substance, applied Section 50C throughout the assessment order. The ITAT accepted this argument, noting that the entire reasoning and discussion in the AO’s order revolved around Section 50C and not Section 56(2)(x), and hence, the deletion by the CIT(A) on that basis was not legally correct.
However, the ITAT found merit in the assessee’s contention that a request was made during assessment to refer the matter to the Departmental Valuation Officer (DVO) under Section 50C(2), as the stamp duty valuation was much higher than the actual market value. The AO rejected the DVO reference citing time constraints. The Tribunal held that denying this statutory remedy was improper. Accordingly, it restored the issue of capital gains addition back to the AO for fresh adjudication after obtaining the DVO’s report and granting the assessee due opportunity.
On the issue of exemption under Section 54F, the Tribunal upheld the CIT(A)’s findings. It reiterated that legal ownership through a registered deed is not a prerequisite for claiming the exemption, provided there is substantial compliance through investment and possession. Relying on the Delhi High Court ruling in Balraj vs. CIT and other ITAT precedents, the Tribunal dismissed the Revenue’s ground on this issue. In conclusion, the appeal was partly allowed for statistical purposes—capital gains issue remanded to AO, while Section 54F relief to the assessee was confirmed.
The copy of the order is as under:
