Case Law Details
ACIT Vs Prasanna Lakshmi Chakka (ITAT Hyderabad)
Unregistered Sale Agreement Can Still Qualify for Section 54 Relief – Hyderabad ITAT Says “Investment”, Not Registered Title, Is the Real Test
The Hyderabad ITAT reiterated that exemption under section 54 cannot be denied merely because the new residential property was acquired through an unregistered agreement to sell and not through a registered sale deed. The Tribunal held that what is relevant for section 54 is substantial investment towards acquisition of a residential house within the prescribed period and not formal transfer of legal title alone.
Relying upon the Supreme Court ruling in Sanjeev Lal v. CIT and various High Court decisions including R.L. Sood, Kuldeep Singh and Shakuntala Devi, the ITAT observed that the word “purchase” in section 54 has a wider and purposive meaning and cannot be narrowly confined only to execution of a registered conveyance deed. The Bench emphasized that beneficial provisions granting capital gains exemption deserve liberal interpretation.
The Tribunal also referred to its earlier Hyderabad Bench ruling in Syama Reddy Mali Reddy, reiterating that substantial payment, acquisition of rights and genuine investment in a residential property can satisfy the requirements of section 54/54F even if possession, registration or occupancy certificate is obtained later.
However, while rejecting the Revenue’s pure legal objection regarding absence of registration, the ITAT accepted the Department’s argument that genuineness of the unregistered agreement and actual investment required factual verification. The Tribunal held that although the DR cannot ordinarily improve upon the assessment order, issues going to the root of the deduction claim can still be examined by the Tribunal as the final fact-finding authority.
Accordingly, the matter was restored to the AO for fresh verification of the genuineness of the investment, nature of payments and surrounding facts relating to the assessee’s section 54 claim.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeals filed by the Revenue are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-12, Hyderabad, dated 15/07/2025, which in turn arises from the respective orders passed by the Assessing Officer (for short, “AO”) under section 147 of the Income Tax Act, 1961 (for short, “the Act”), dated 19/03/2025 and under section 147 r.w.s 144 of the Act, dated 18/03/2025 for the Assessment Year (AY) 2021-22 and AY 2022-23, respectively. As the issues involved in the captioned appeals are interlinked and interwoven, the same are being taken up and disposed of vide a consolidated order. We shall first take up the appeal filed by the assessee in ITA No. 1599/Hyd/2025, wherein the impugned order has been assailed on the following grounds of appeal:
1. That the learned CIT(A) erred both on facts and in law in passing the impugned order.
2. That the learned CIT(A) erred in granting relief to the assessee on the basis of an ‘Agreement of Sale’, ignoring the fact that the ownership of the property had not been physically or legally transferred to the transferee.
3. That the learned CIT(A) erred in holding that taking of physical possession or execution of a registered sale deed was immaterial to the question of ownership and transfer.
4. That the learned CIT(A) failed to appreciate that, as per Section 54 of the Transfer of Property Act, unregistered documents cannot be relied upon to claim ownership of immovable property.
5. That the learned CIT(A) erred in treating the ‘Agreement of Sale’ as constituting a complete transfer by relying on judicial precedents cited in Paragraph 6.2.9 on page 20 of the appellate order.
6. That the learned CIT(A) ignored the fact that mere possession or execution of a sale agreement, without conclusive proof of possession in part-performance or any acts by the transferee in furtherance of the contract, is insufficient to invoke Section 53A of the Transfer of Property Act, 1882.
7. The appellant craves leave to amend, modify, or alter any of the grounds of appeal wherever necessary.”
2. Succinctly stated, the assessee is an individual deriving income from salary, house property, capital gains, and other sources. Search and seizure operation under section 132 of the Act was conducted in the case of “Vertex Group” and related entities on 31.01.2023. Consequent thereto, proceedings under section 147 of the Act were initiated in the assessee’s case, and the assessment was completed vide order passed under section 147 r.w.s. 143(3) of the Act dated 19.03.2025.
3. During the course of assessment proceedings, the AO observed that the assessee had earned Long Term Capital Gains (“LTCG”) of Rs. 2,69,30,723/- from the sale of three residential apartments and claimed exemption under section 54 of the Act on the ground that she had invested the same towards the purchase of a residential house property for a consideration of Rs. 7,35,00,000/-
4. The AO observed that the assessee had furnished only an “Agreement to Sell” dated 01.03.2021 and had failed to furnish any registered sale deed evidencing transfer of the property in her favor. The AO was of the view that an unregistered agreement of sale could not be treated as conferring ownership rights upon the assessee and, therefore, the assessee could not be held to have purchased a residential house property within the meaning of section 54 of the Act. Accordingly, the AO disallowed the exemption claimed by the assessee under section 54 of the Act and made an addition of the amount of Rs. 2,69,30,723/- to her returned income.
5. Aggrieved, the assessee assailed the impugned assessment order before the CIT(A), who deleted the addition by observing that a substantial investment had been made by the assessee towards the acquisition of the residential property and that execution of a registered sale deed was not mandatory for claiming exemption under section 54 of the Act. The CIT(A) to support his view relied upon various judicial pronouncements, including the judgment of the Hon’ble Supreme Court in the case of Sanjeev Lal vs. CIT (2014) 365 ITR 389 (SC).
6. The Revenue, being aggrieved with the CIT(A) order, has carried the matter in appeal before us.
7. DR. Sachin Kumar, learned Departmental Representative (for short, “Sr. DR”) strongly relied upon the assessment order, and submitted that the CIT(A) had grossly erred in law and fact of the case in granting relief merely on the basis of an unregistered agreement of sale. Elaborating on his contention, the Ld. DR submitted that the ownership of immovable property cannot pass in the absence of a registered conveyance deed and, therefore, the assessee cannot be said to have purchased a residential property within the meaning of section 54 of the Act. Apart from that, the Ld. Sr. DR raised doubts regarding the genuineness of the unregistered “agreement to sell”, dated 01/03/2021, which was stated to have been entered by the assessee with her group entity.
8. Per Contra, Shri. AV Raghuram, Advocate, the learned Authorized Representative (for short, “AR”) for the assessee, supported the order of the CIT(A) and submitted that the assessee had substantially invested the capital gains towards the purchase of a new residential house property within the prescribed time. It was contended that for claiming exemption under section 54 of the Act, what is relevant is the investment of capital gains towards the acquisition of a new residential property and not the execution of a registered sale deed. The Ld. AR to buttress his contention had placed reliance upon a host of judicial pronouncements in support of the proposition that beneficial provisions under section 54 are to be liberally construed.
9. We have heard the Ld. Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements pressed into service by them to drive home their respective contentions.
10. Admittedly, it is a matter of fact borne from record that the assessee had claimed exemption under section 54 of the Act on the basis of an unregistered agreement dated 01.03.2021, pursuant to which she claimed to have invested towards the purchase of a residential property for a consideration of Rs. 7,35,00,000/-.
11. We have given thoughtful consideration and find substance in the contention advanced by the Ld. AR that for claiming deduction under section 54 of the Act, what is required is investment of the sale consideration arising from transfer of the original capital asset towards purchase or construction of a new residential house, and not necessarily acquisition of title through a registered sale deed. The Hon’ble Supreme Court in the case of Sanjeev Lal vs. CIT (2014) 365 ITR 389 (SC), has held that the provisions of section 54 deserve purposive interpretation and that substantial compliance with the requirement of investment in a residential property would entitle the assessee to exemption. Also, we find that the Hon’ble High Court of Delhi in CIT vs. R.L. Sood (2000) 245 ITR 727 (Delhi) has held that payment of substantial consideration and acquisition of substantial domain over the property would satisfy the requirements of section 54 of the Act, even if possession or registration is delayed. A similar view has been expressed by the Hon’ble High Court in CIT vs. Kuldeep Singh (2014) 270 CTR 561 (Del), wherein it has been held that the word “purchase” in Section 54 is not confined only to the execution of a registered sale deed, and the substantial payment and acquisition of rights in the property can amount to purchase. Also, a similar view has been taken by the Hon’ble High Court of Karnataka in CIT vs. Mrs. Shakuntala Devi (2016) 389 ITR 366 (Kar), wherein it is held that utilization of capital gains in the purchase/construction of a residential house would suffice to claim the benefit of Section 54 of the Act. In fact, a view to that effect has been taken by the coordinate bench of the Tribunal in the case of DCIT (International Taxation)-1 vs. Syama Reddy Mali Reddy, ITA No. 366/Hyd/2025, dated 03/09/2025. The Tribunal, based on its exhaustive deliberations, had observed as under:
17. The controversy involved in the present appeal boils down to the solitary issue, i.e. whether or not the assessee, though having made payments aggregating to Rs. 4,10,85,000/- to M/s. DSR Builders & Developers (supra) for purchase of the new residential house, viz. flat/apartment bearing No. 1102, 11th floor of the Tower, “The First” in Survey No. 66/2, at Raidurg, Panamaktha, Serilingampalli Mandal, Ranga Reddy District, Telangana, i.e. upto the date of filing of her return of income for the subject year on 22.07.2019, was entitled for claim of deduction under Section 54F of the Act, though the possession letter was issued by the builder/developer on 24.08.2020, while for the registered sale deed of the said new residential property was executed on 07.12.2021, and the occupancy certificate issued on 30.07.2021.
18. We find that the issue in hand revolves around the adjudication of the term “purchase” as used in sub-section (2) of Section 54F of the Act. In our considered view, once it is proved that the assessee had within the prescribed period invested towards purchase of the new residential property, then, despite that the legal title in the said property was not passed or transferred to her within a period of two years from the date of sale of the old property, it would not disentitle her from claiming deduction under Section 54F of the Act. We say so, for the reason that the word ‘purchase’ as used in sub-section (2) of Section 54F is not restricted or confined to a registered sale deed or even to possession, but has a wider connotation. We concur with the Ld. CIT(Appeals), who, after drawing support from the judgment of the Hon’ble Supreme Court in the case of CIT Vs. T.N. Aravinda Reddy (1979) 120 ITR 46 (SC), had observed that the provisions of Section 54F, being an analogous section, calls for a more liberal interpretation and application, as the intent of the section was to encourage investment in residential house by an individual or a Hindu Undivided Family out of the sale proceeds earned. Also, we find that a similar view had been taken by the ITAT, Hyderabad in the case of Pradeep Kumar Chowdhry Vs Deputy Commissioner of Income-tax, Circle-1 (1), Hyderabad (2015) 55 com81 and in the case of Narsimha Raju Rudra Raju Vs. ACIT (2013) 143 ITD 586 (Hyd).
19. Apart from that, we find that Hon’ble High Court of Delhi in the case of CIT Vs. Kuldeep Singh, ITA No. 117/2014, dated 12.08.2014, has held that the word “purchase‟ used in sub-section (2) of Section 54 is not restricted or confined to the registered sale deed or even possession but has a wider connotation. It was observed that the basic purpose behind Section 54 is to ensure that the assessee is not taxed on the capital gain, if he replaces his house with another house and spends money earned on the capital gains within the stipulated period. For the sake of clarity, we deem it apposite to cull out the relevant observations of the Hon’ble High Court, as under:
“3. The Assessing Officer referred to the copy of the flat buyers agreement dated 9th February, 2006 between the assessee and the builder and observed that the ownership in the new property would be conferred on the date of issuance of occupation certificate. Further, the expected date of completion was 36 months from the date of the agreement dated 9th February, 2006 i.e. 8th February, 2009. He held that the assessee was not entitled to benefit of Section 54 as he had not purchased the new property within a period of one year before the sale of first property on 3rd June, 2005 or within two years from the date on which the transfer took place. The assessee had not constructed residential house within three years from 3rd June, 2005. Assessing Officer observed that legal ownership of the property never vested in the assessee within the aforesaid period and therefore, the purchase was not completed within two years which was the period stipulated and specified in Section 54 of the Act. He, accordingly, computed the long term capital gain, after granting benefit of indexation on cost of acquisition and cost of improvement, at Rs.45,36,273/-. While examining the question of capital gains, the Assessing Officer also disallowed the claim of the assessee to the extent of Rs.7,50,000/- as cost incurred for transfer.
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6. This brings us to the other question whether the assessee had “purchased” the second property and, therefore, payment made of Rs.37,86,273/- was entitled to exemption under Section 54 of the Act. Section 54 of the Act as applicable to assessment year 2006-07 reads as under:-
“54. Profit on sale of property used for residence.—
(1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu undivided family the capital gain arises from the transfer of a long-term capital asset being buildings or lands appurtenant thereto, and being a residential house, the income of which is chargeable under the head “Income from house property”
(hereafter in this section referred to as the original asset), and the assessee has within a period of one year before or two years after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, a residential house, then instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,–
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed (hereafter in this section referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45;and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase or construction, as the case may be, the cost shall be reduced by the amount of the capital gain.
Explanation.–Omitted by FA 87 wef 1-4-88.
(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new assets made within one year before the date on which the transfer of the original asset took place, or which is not utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1) of section 139 in an account in any such bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit ; and, for the purposes of sub- section (1), the amount, if any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or construction of the new asset within the period specified in sub-section (1), then,–
(i). the amount not so utilised shall be charged under section 45 as the income of the previous year in which the period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.–Omitted by Finance Act, 1992, wef 1- 4-1993.”
7. It is accepted position, and it is not disputed by the Revenue that Rs.37,86,273/- had been invested by the assessee for purchase of the property at Gurgaon. However, legal title in the said property was not passed or transferred to the assessee within a period of two years from the date of sale of the first property on 3rd June, 2005.The second property it is apparent was still under construction though the builder had entered into and executed the flat buyers agreement with the assessee dated 9th February, 2006. The said agreement mentions the apartment number and gives specific detail of the property. The payments were linked to stage of construction and that amount of Rs.2,90,46,250/- was payable within 27 months of booking i.e. on or before 12th February, 2008 and the total cost of flat/apartment was Rs. 3,13,09,375/-. Thus, the consideration being paid by the respondent assessee was nearly 9 times income by way of capital gains which was earned by the assessee.
8. The word “purchase‟ can be given both restrictive and wider meaning. A restrictive meaning would mean transactions by which legal title is finally transferred, like execution of the sale deed or any other document of title. “Purchase‟ can also refer to payment of consideration or part consideration along with transfer of possession under Section 53A of the Transfer of Property Act, 1882. Supreme Court way back in 1979 in CIT Andhra Pradesh vs. T.N. Aravinda Reddy(1979) 4 SCC 721, however, gave it a wider meaning and it was held that the payment made for execution of release deed by the brother thereby joint ownership became separate ownership for price paid would be covered by the word „purchase‟. It was observed that the word „purchase‟ used in Section 54 of the Act should be interpreted pragmatically in a practical manner and legalism shall not be allowed to play and create confusion or linguistic distortion. The argument that “purchase‟ primarily meant acquisition for money paid and not adjustment, was rejected observing that it need not be restricted to conveyance of land for a price consisting wholly or partly of money‟s worth. The word “purchase‟, it was observed was of a plural semantic shade and would include buying for a price or equivalent of price by payment of kind or adjustment of old debt or other monetary considerations. It was observed that if you sell a house and make profit, pay Caesar (State) but if you buy a house or build another and thereby satisfy the conditions of Section 54, you were exempt. The purpose was plain; the symmetry was simple; the language was plain.
9. Recently Supreme Court in Civil Appeal Nos. 5899-5900/2014 titled Sh. Sanjeev Lal Etc.Etc. vs. CIT, Chandigarh & Anr., decided on 01/07/2014, 2014 (8) SCALE 432 again examined Section 54 in a case where the assessee had entered into an agreement to sell a house to a third party on 27th December, 2002 and had received Rs.15 lacs by way of earnest money and subsequently received the balance sale consideration of Rs.1.17 crores (total being Rs.1.32 crores) when the sale deed was executed on 24th September, 2004. In the meanwhile, the assessee had purchased another house on 30th April, 2003. Benefit under Section 54 was denied by the High Court observing that the new house had been purchased prior to execution of the sale and not within one year prior to sale of original asset i.e. new house has been purchased on 30th April, 2003 whereas the earlier asset was sold only on 24th September, 2004. The Supreme Court allowing the appeal noticed that the agreement to sell was executed on 27th December, 2002 but the sale deed could not be executed because of inter-se litigation between the legal heirs, as one of them had challenged the will under which the assessee had inherited the property. The agreement to sell, it was held had given some rights to the vendor and reduced or extinguished rights of the assessee. This, it was observed was sufficient for the purpose of Section 2(47), which defines the term transfer in relation to a capital asset. In the light of the factual matrix, it was observed that the intention behind Section 54 was to give relief to a person who had transferred his residential house and had purchased another residential house within two years of transfer or had purchased a residential house one year before transfer. It was only the excess amount not used for making purchase or construction of the property within the stipulated period, which was taxable as long term capital gain while on the amount spent, relief should be granted. Principle of purposive interpretation should be applied to subserve the object and more particularly when one was concerned with exemption from payment of tax. The assessee, therefore, succeeded. The observations made in the said decision are also relevant on the question whether the payments made by the assessee to the person with whom he had entered into an earlier agreement to sell should be allowed to be set off as expenses incurred in relation to the sale deed which was executed.
10. More direct are the two decisions of Madhya Pradesh High Court in Shashi Verma (Smt.) vs. CIT[1997] 224 ITR 106 and Calcutta High Court in CIT vs. Smt. Bharati C. Kothari (2000) 244 ITR 352. In Shashi Verma (supra), the assessee had invested the sale consideration for purchase of a flat from Delhi Development Authority and had paid part installments. Reversing the decision of the Tribunal and allowing the appeal of the assessee, the High Court observed that the Tribunal had adopted a pedantic approach without noticing the fact that the capital gain was Rs.31,980/- whereas the installments paid were Rs.71,256/-, i.e. much more than the amount of capital gain. Reference was made to Circular No. 471 dated 15th October, 1986 [1986] 162 ITR (Stat.) 41. It was observed that Section 54 of the Act says that assessee could have constructed the house and not that the construction should have necessarily been completed. Noticing that it was not easy to construct a house within the time limit of three years and under the Government schemes, construction takes years. When substantial investment was made in the construction and it should be deemed that sufficient steps had been taken, and it satisfied requirement of Section 54.
11. What has been stated in the judgment of the Madhya Pradesh High Court in 1997, in practical terms and in reality still holds good. This is a matter of common knowledge that flats or apartments being constructed by builders take time. The Government Housing Boards also take time and seldom adhere to the promised date. Similar view has been taken in Bharati C. Kothari(supra) wherein reference was made to the decision of Andhra Pradesh High Court in CIT vs. Shahzada Begum (Mrs.) [1988] 173 ITR 397 and it was observed that assessee had entered into an agreement within two years for purchase of a flat which was under construction. Payment for the said flat was made within three years from the date of sale of the first property. No doubt the assessee was not constructing the new asset herself but she had purchased the flat. Reference was made to the decision of the Hon’ble Supreme Court in CIT vs. J.H. Gotla [1985] 156 ITR 323 (SC), wherein it has been observed:
“Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction. The task of interpretation of a statutory provision is an attempt to discover the intention of the Legislature from the language used. It is necessary to remember that language used is at best an imperfect instrument for the expression of human intention. It is well to remember the warning administered by Judge Learned Hand that one should not make a fortress out of the dictionary but remember that statutes always have some purpose or object to accomplish and sympathetic and imaginative discovery is the surest guide to their meeting.”
12. Moreover, in Bharati C. Kothari’s Case (supra) it was stated as under:-
“The purpose behind the exemption under section 54(1) is that if any assessee sells his residential house and purchases a new house against those sale considerations that capital gains tax arising out of the sale of the earlier house should not be taxed. Whether the assessee himself constructs the house or he gets it constructed by a contractor or a third party that does not make any difference. The basic requirement for the purpose of relief under section 54(1), is that the assessee should invest the sale proceeds in the construction of a residential house, which has been constructed for the assessee. Keeping in view the above observations and reasons given by the Tribunal, no case is made out for interference.”
It was observed that the basic purpose behind Section 54 is to ensure that the assessee is not taxed on the capital gains, if he replaces his house with another house and spends money earned on the capital gains within the stipulated period.
13. The view we have taken gets support from sub-section (2) to Section 54.The aforesaid sub-section requires the assessee to deposit unspent amount not utilized by the assessee for purchase or construction of a new asset before the date of furnishing of return, in a specified account. It further states that the amount, if already utilized for purchase or construction of the new asset with the amount so deposited will be deemed to be cost of a new asset subject to the proviso. The word “purchase‟ is used in sub-section (2) and indicates that the said word is not restricted or confined to registered sale deed or even possession but has a wider connotation.The proviso supports the aforesaid interpretation and stipulates that the amount deposited but not utilized wholly or partly for purchase or construction of new asset within the specified period will be charged to tax under Section 45 in the previous year in which the period of three years from the date of transfer of original asset expired. The period of three years is stipulated as this is the longer period specified in the sub-section (1) to Section 54. It is only the balance amount which is not utilized which is to be brought and charged to tax. The entire amount of sale consideration or the capital gains is not to be brought to tax, but the unspent amount/figure is taxed.”
(emphasis supplied by us)
20. We, thus, in the backdrop of the aforesaid judicial pronouncements, principally finding no infirmity in the well-reasoned view taken by the CIT(A), who has rightly concluded that the assessee’s claim for deduction under Section 54F of the Act was in order, uphold the same.”
We are thus unable to subscribe to the proposition canvassed by the Ld. DR that the exemption under Section 54 can be denied solely because the agreement to purchase the new residential property by the assessee was not registered.
12. However, we find that the Ld. Sr. DR has raised doubts regarding the veracity of the assessee’s claim of having invested the consideration towards the purchase of the subject residential property based on the unregistered “agreement to sell” dated 01.03.2021. The Ld. AR had vehemently objected to the aforesaid contention of the revenue, wherein the latter had doubted the veracity of the “agreement to sell” dated 01.03.2021, for two-fold reasons, viz. (i). that the Ld. DR cannot be permitted to improve upon the assessment order by raising altogether new grounds or reasons which do not emanate from the assessment order itself; and (ii). that the revenue has not raised any ground to the said effect in the memorandum of appeal filed before the Tribunal.
13. We have given thoughtful consideration and are unable to persuade ourselves to subscribe to the aforesaid contention of the Ld. AR. We principally concur with the assessee’s counsel that the Ld. DR cannot be permitted to improve upon the assessment order by raising altogether new grounds or reasons which do not emanate from the assessment order, and find that the said aspect so canvassed by him is covered by the order of the “Special Bench” of the ITAT, Mumbai, in the case of Mahindra & Mahindra Ltd. vs. ITO (2009) 122 ITD 216 (Mum)(SB), wherein it is held that the Departmental Representative (DR) cannot improve upon the order of the AO or make out an entirely new case before the Tribunal. However, we are of firm conviction that the facts involved in the present case before us are distinguishable from those involved before the “Special bench” in the case of Mahindra & Mahindra Ltd. vs. ITO (supra). As the claim of the Ld. DR regarding the veracity of the “agreement to sell”, dated 01.03.2021 stems from and is inextricably interlinked or rather interwoven with the core issue based on which the revenue has preferred the present appeal before us, i.e., maintainability of the assessee’s claim of deduction under section 54 of the Act, based on the said unregistered “agreement to sell” dated 01.03.2001, therefore, we are of firm conviction that as the Tribunal being the last fact finding authority is vested with the jurisdiction under Section 254(1) of the Act to “….pass such orders thereon as it thinks fit”, the aforesaid contention advanced by the Ld. DR, which goes to the roots of the issue involved in the present appeal, cannot be brushed aside and needs to be looked into and verified.
14. Coming to the Ld. AR’s contention that as the revenue has not raised any “ground of appeal” regarding the genuineness of the “agreement to sell”, dated 01.03.2021, in the memorandum of appeal filed before the Tribunal, i.e, it cannot be allowed to raise the same in the course of hearing of the appeal, we are unable to concur with the same. We find that the Hon’ble High Court of Punjab & Haryana in VMT Spinning Co. Ltd. Vs. CIT, ITA No. 445 of 2015, dated 16/09/2016, has held that the Tribunal has the power to decide an appeal on a ground neither taken in the memorandum of appeal nor by seeking its leave, provided the party affected has a sufficient opportunity to be heard on that ground. We are thus unable to persuade ourselves to accept the Ld. AR’s claim that the aforesaid issue raised for the first time before us does not merit adjudication.
15. Coming back to the issue as to whether the assessee’s claim for deduction under section 54 could have been declined merely on the ground that the agreement to purchase dated 01.03.2021 was not registered, we find that the judicial precedents as culled out by us hereinabove clearly support the proposition that registration of the sale deed is not a mandatory precondition for claiming exemption under section 54 of the Act, provided the assessee establishes genuine investment towards acquisition of a residential house property within the stipulated period.
16. In our view, as the AO had not examined the veracity of the assessee’s claim regarding actual investment towards purchase of the residential property and had rejected the claim solely on legal interpretation relating to registration of the agreement, we deem it fit and proper, in the interest of justice, to set aside the impugned order on this issue and restore the matter to the file of the AO for fresh adjudication. The AO in the course of the set aside proceedings shall verify the genuineness and veracity of the assessee’s claim regarding investment made towards purchase of the new residential property, including the nature of payments, and other surrounding circumstances relevant for adjudication of the assessee’s claim for deduction under section 54 of the Act. Needless to say, the AO shall, in the course of the set aside proceedings, afford a sufficient opportunity of being heard to the assessee, who shall remain at liberty to substantiate her claim for deduction based on fresh documentary evidence/material, if any.
17. In the result, the appeal of the Revenue is allowed for statistical purposes.
ITA No.1600/Hyd/2025
AY: 2022-23
18. We shall now take up the appeal filed by the Revenue against the order passed by the CIT(A)-12, Hyderabad, dated 15/07/2025, which in turn arises from the order passed by the AO under section 147 r.w.s 144 of the Act, dated 18/03/2025.
19. As the facts and issues involved in the present appeals remain the same as they were before in ITA No.1599/Hyd/2025, AY 2021-22, therefore, our order therein passed shall apply mutatis mutandis for disposing of the present appeal.
20. In the result, the appeal of the Revenue is allowed for statistical purposes in terms of our aforesaid observations.
21. In the result, both the appeals filed by the Revenue are allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 15/05/2026.
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