Section 54 Exemption Allowed Despite Property Purchase from Spouse: ITAT Mumbai
Kavita Manoj Damani vs. ITO [ITA No. 2648/MUM/2024]
Facts:
1. Kavita Damani sold a jointly owned property in Powai (partly gifted by her husband) and earned a long-term capital gain of ₹4.21 crore in 2020.
2. To claim Section 54 exemption, she bought another flat from her husband for ₹3.85 crore, including stamp duty, and claimed an exemption on ₹3.96 crore.
3. The Assessing Officer (AO) denied the exemption, viewing the transaction as a mere transfer of capital gains to her spouse. The CIT Appeals upheld the AO’s stance.
ITAT Mumbai held as below:
1. Assessee became exclusive owner via registered gift in 2017. LTCG was assessed in her hands and sale consideration was credited to her account.
2. New property was purchased from husband via registered sale agreement dated 18.03.2021. Full consideration was paid before 31.03.2021 (including TDS compliance under Section 195).
3. Mere fund rotation is not proof of sham transaction and so the AO’s claim of colourable device to evade taxes is rejected.
4. The entire Section 54 exemption of ₹3.96 crore is allowed.
The copy of the order is as under:
