Case Law Details
Nidhi Siddharth Kejriwal Vs DCIT (ITAT Mumbai)
Mumbai ITAT Allows Section 54F Deduction on Purchase of House from In-Laws – Genuine Family Transaction Cannot Be Branded a Colourable Device
Mumbai ITAT allowed the assessee’s claim of exemption under Section 54F, holding that the mere purchase of a residential house from close relatives does not make the transaction a colourable device or sham.
The assessee had earned long-term capital gains from the sale of unlisted shares and invested the proceeds in purchasing a residential flat from her father-in-law and mother-in-law. The Assessing Officer denied the exemption alleging that the transaction was an artificial arrangement devised solely to avoid tax, pointing to factors such as common family residence, the father-in-law signing the sale deed as both seller and attorney for the purchaser, and the sellers ultimately paying little or no capital gains tax.
The Tribunal found that the Revenue had not disputed the genuineness of the sale of shares or the purchase of the flat. The purchase was evidenced by a registered sale deed, payment of stamp duty, confirmation from the developer, transfer of maintenance and electricity records, and other supporting documents. There is no prohibition in the Income-tax Act against purchasing a residential property from a relative.
Rejecting the Revenue’s reliance on the doctrine of colourable devices, the Tribunal held that tax planning within the framework of law is permissible. In the absence of any evidence that the transaction was fictitious or legally invalid, the deduction under Section 54F could not be denied merely because it resulted in a tax advantage. The Tribunal also relied upon earlier decisions where deductions under Sections 54/54F were allowed despite purchases from spouses or other close family members.
Accordingly, the ITAT directed the Assessing Officer to delete the entire disallowance of ₹41.50 crore and allow the exemption under Section 54F.
Cases Discussed
- Kavita Manoj Damani vs. ITO Ward 2(1)(1) (ITAT Mumbai), ITA No.2648/Mum/2024
- ITO Ward 6 (3), Pune vs. Kalawati Vijaykumar Agarwal (ITAT Pune), ITA No.979/Pun/2023 (AY 2021-22)
- Vodafone International Holdings, 341 ITR 1
- UOI v Azadi Bachao Andolan (Supreme Court of India), 263 ITR 706
- Girish Dharod v. Assistant Commissioner of Income-tax, Circle 1(2), Hyderabad (ITAT Hyderabad), [2013] 40 taxmann.com 282 (Hyderabad – Trib.)
- Prakash s/o Timaji Dhanjode Vs ITO (Bombay High Court), 173 Taxmann 311
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the assessee against the order of Commissioner of Income Tax Appeals/ National Faceless Appeal Centre, Delhi [“the Ld. CIT(A)] dated 28.07.2025 for the assessment year (AY) 2022-23, arises from the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (“the Act”) dated 30.03.2024 by Assessment Unit, Income Tax Department. Grounds of appeal raised by the assessee are as under:
“1. The Hon’ble Commissioner of Income Tax (Appeals) (“CIT(A)”) has erred in confirming the action of the Ld. AO for disallowing the exemption of Rs. 41,50,24,136/-claimed by the appellant u/s 54F of the Income Tax Act, 1961 (“the Act’) on the ground that purchase of immovable property from related party is a colorable device to evade tax, On the facts and circumstances of the case and in law, exemption u/s 54F of the Act of Rs. 41,50,24,136/- ought to be allowed to the appellant.
2. The Hon’ble CIT(A) has erred in confirming the action of the Ld. AO of denying the exemption u/s 54F of the Act:
a. Without appreciating the detailed submissions, including various documents such as the payment of purchase consideration, payment of stamp duty, transfer of share certificate by India Bulls, transfer of electricity meter in the name of appellant, maintenance bill in the name of appellant, payment of property tax subsequently raised by BMC in her name, made by the appellant during the course of the appellate proceedings
b. Incorrectly observing that the aforesaid purchase of property was not a genuine purchase on the basis that the appellant failed to produce any evidence that the sellers ceased to reside in the same premise after sale and further concluding that they didn’t pay any rent
c. Incorrectly observing that the address of the appellant as well as all the family members as per the departmental database remained same before and after the purchase of the impugned flat showing no transfer of property
d. Incorrectly observing that Mr. Ramesh Kejriwal acted as a constituted attorney for the purchase of the aforesaid flat by the appellant treating it as unnatural and merely a way to camouflage the transaction
3. The Hon’ble CIT(A) has erred in not adjudicating the following ground no. 3 of the appellant:
“Ld. AO after giving an opportunity to the appellant to show cause as to why the provisions of Chapter XA (Le. “GENERAL ANTI-AVOIDANCE RULE’) shall not he invoked and after considering the appellant’s reply in response thereto, not invoking them could not have denied the claim of the appellant for an exemption u/s 54F by treating the transaction as colorable device”
and thereby confirming the denial of exemption u/s 54F of the Act. On the facts and circumstances of the case and in law, exemption denied by the Ld. AO without invoking GAAR is without jurisdiction.”
2. Briefly stated, the assessee had filed her return of income for the assessment year 2022-2023 on 04.11.2022. Subsequently, the case of assessee was selected for scrutiny under CASS for the reason “Large deduction/exemption claimed u/s 54, 54B, 54EC, 54D, 54F, 54G, 54GA and 54GB etc. Accordingly, notice u/s 143(2) and 142(1) along with questionnaires were issued, which were responded by the assessee. To investigate further, notices u/s 133(6) were issued to M/s. Indiabulls, M/s. Green Fin Investments BV and M/s. Parksons Packaging Limited.
3. The genesis of the issue arises, as during the year under consideration, the assessee had sold 4,34,529 unlisted shares of M/s. Parksons Packaging Limited at Rs.1,467.74 per share for a total sale consideration of Rs.63,77,75,594/- and earned long-term capital gain of Rs.4,96,09,667/-. To corroborate the genuineness of the transaction, assessee submitted copy of the share purchase agreement with notification of the sale price, demat account, copy of invoice of the expenses incurred. Further, the assessee purchased a residential property situated at Flat No.B-4001, Indiabulls Blu, Lower Parel, Mumbai-400013, for a consideration of Rs.51,15,87,450/-, including stamp duty and other expenses and had claimedandeduction of Rs.41,50,24,136/- u/s 54F of the Act. After claiming the said deduction, the assessee admitted taxable long-term capital gain of Rs.8,10,75,531/- from sale of shares. The assessee was asked to furnish information to substantiate her claim u/s 54F. In response, assessee filed written submissions and also requested for virtual hearing which was provided by the Ld. AO. Assessee submitted that she has acquired the subjected house property from Shri Ramesh Kejriwal and Smt. Anjali Devi Kejriwal for her genuine requirement to have her own house, where the assessee and her family can reside permanently and peacefully without any interference from any other family member of Shri Ramesh Kejriwal and not merely to obtain any tax benefit, which was claimed being incidental.
4. Such submissions of assessee are considered by the AO but not found acceptable, stating the reason that the assessee had designed artificial arrangements with family members to claim deduction u/s 54F in the guise of purchase of flat. Ld. AO extracted the related party details, details of transactions taken place within the family, extract of sale deed dated 20.10.2022 and had observed that the document of sale of property between the assessee (purchaser) and Shri Ramesh Badriprasad Kejriwal and Smt. Anjali Kejriwal (sellers) shows a clear nexus and understanding between the family members for arranging the impugned sale transaction, wherein Mr. Ramesh Badriprasad Kejriwal acted on behalf of the assessee Mrs. Nidhi Siddharth Kejriwal, in capacity as a purchaser, under her power of attorney to sign the sale document. The other sale transaction with Smt. Shaili Chaitanya Kejriwal also follows a similar pattern where Mr. Ramesh Badriprasad Kejriwal acted as attorney showing clear nexus and understanding between the family members in arranging of the impugned sale and purchase transaction. Ld. AO also doubted the contention of the assessee that the house was purchased out of genuine requirement, whereas assessee’s husband Shri Siddharth Kejriwal had also sold his stake in the property to his sister-in-law.
5. Ld. AO further investigated into the insight data of the assessee on the income tax portal, that the assessee owns a residential flat no.1301, floor no.13, Sarathi Building, Block Sector, Chowpatty Road, KM munshi Marg, Maharashtra Mumbai-400007. Regarding this property, assessee explained that it was purchased by her husband Mr. Siddharth Kejriwal in financial year 2003-04 and her name was added for convenience purposes. The said property was sold by Mr. Siddharth vide deed of transfer dated 05.06.2020 and the resultant long-term capital gain was admitted only in his hands and not in the hands of assessee. It is observed by Ld. AO that as per departmental database, the address of assessee and other family members remained unchanged before and after purchase / sale of impugned flat, which shows that there was no genuine transfer of property in reality and the entire transaction was arrange to avoid/evade taxes.
6. Further, explanations were furnished by the assessee discussing provisions of section 54F, that the transactions undertaken by the assessee are within the permissible guidelines of the law, therefore the deduction u/s 54F shall be allowable. On the other hand, the AO was of the opinion that the beneficial provisions have to be strictly construed and abided to avail benefits, as envisaged by the legislature, whereas in the instant case the legislative intent has been clearly violated. Hence, claim of assessee u/s 54F is not admissible. Ld. AO further noted that the assessee has not furnished any documentary evidence for purchase of shares despite being specifically asked all supporting evidence with respect to Long Term Capital Gains exemption claimed.
7. Ld. AO further perused the return of sellers and have noted that seller no.1 Shri Ramesh Kejriwal has effectively paid Nil taxes as seen from the capital gain working. There was a loss of Rs.82,27,798/- in the working extracted in the assessment order after the effect of transaction with the assessee that is the daughter-in-law. Regarding seller no.2, Anjali Kejriwal, she also has not paid any tax having negative income of Rs.(55,78,422/-), effectively computed after the impugned transaction with assessee (daughter-in-law). Regarding power of attorney extended by the assessee to her father-in-law, it is submitted that assessee was travelling abroad, hence given power of attorney to the seller which according to AO was quite odd and unnatural for a transaction value of about Rs.49 crores. AO observed that the transactions in such a case all the mores shows that the arrangement made amongst the family members was to camouflage the transaction as genuine purchase to avail the benefits of section 54F, thereby avoid legitimate taxes arising from the transfer of shares. Ld. AO further described the doctrine of substance over form to disregard the legal form of artificially arranged transaction in the present case. Ld. AO finally summed up his findings as under:
“Assessee Smt Nidhi Kejriwal has claimed the benefit u/s 54F on the sale of shares by way of purchasing a flat from Sri Ramesh Kejriwal and Smt Anjali Kejriwal.
Upon going through the submissions, the records available with the department, the documents submitted, the assessee has been residing in the same place prior to the purchase of the same property. The original owner ofthe property was none other than her own mother-in-law and father-in-law, who had not charged a penny for her stay prior to the alleged purchase.
Even the alleged agreement specifies the seller and purchaser as one and the same where Sri Ramesh Kejriwal (father-in-law) himself has signed the agreement as the purchaser as well as the seller. Such a similar arrangement has also been made with the other daughter-in-law, Smt Shaili Kejriwal.
The mail communications, the status of addresses, and the ITRs filed by the alleged sellers all together denote arrangement among the family members by artificially creating sale transactions on the same properties where they were residing earlier too.
In view of the fact that assessee has not submitted any proof/source for acquisition of the Shares sold(during F. Y 2000-01 and 2002-03), no new asset was acquired in Substance as per the principle laid out by the Hon’ble Bombay High Court in the case of Prakash s/o Timaji Dhanjode Vs ITO by engaging in the artificial arrangement that has been made to claim 54F benefit, not following the procedure laid out u/s 54F (Not depositing the gains into Capital Gains Scheme). Thereby, the assessee has violated the norms stipulated, purpose envisaged, and the legislative intent. Therefore, the deduction claimed is not considered admissible. “
With aforesaid findings, the income of the assessee had been enhanced with an amount of Rs.41,50,24,136/-.
8. Being aggrieved with aforesaid findings, assessee preferred an appeal before the Ld. CIT(A), wherein the issue had been discussed at length by the Ld. CIT(A) and had decided the appeal against the assessee with the following observations:
“4.1.3 I have gone through the entire gamut of the case, assessment order, grounds of appeal, statement of facts, written submission of the appellant and other materials available on record.
During the year under consideration, the assessee had sold 4,34,529 unlisted shares of M/s Parksons Packaging Limited @ Rs.1,467.74/- per share for a total sale consideration of Rs. 63,77,75,594/- and earned a Long Term Capital Gains of Rs.49,60,9,667/-. Subsequently, the assessee purchased a residential property situated at Flat No.B-4001, Indiabulls Blu, Lower Parel Mumbai 400013 for a total consideration of Rs.51,15,87,450/- (inclusive of Stamp Duty and other expenses) and claimed an exemption of Rs.41,50,24. 136 u/s 54F of the Act. After claiming the deduction, the assessee admitted Long Term Capital Gains of Rs. 8,10,75,531/- from sale of Shares. The appellant had purchased the new property from her father in-law and mother in-law Shri Ramesh Kejriwal and Smt. Anjali Devi Kejriwal respectively. The A.O., during the course of assessment proceedings, raised question that the new property was transferred to the appellant merely on paper to obtain a tax benefit and not for any genuine requirement. In response, the appellant claimed before the A.O. that the above house property was acquired for her genuine requirement to have her own house where the assessee and her family can reside permanently and peacefully without any interference from any other family members of Shri Ramesh Kejriwal and not merely to obtain a tax benefit. The A.O. rejected the claim of the appellant mentioning several reasons including(i) The sellers and purchaser are members of a single family and resided in the transferred house property not only before the transfer but also after the execution of transfer. (ii) The agreement of purchase/sale of the said residential house was a sham one as Sri Ramesh Kejriwal (father-in-law) himself had signed the agreement on behalf of the purchaser as well as the seller. (iii) The said transfer was executed as per mutual understanding amongst the family members to get undue benefit of section 54F and not for any genuine need. (iv) The alleged seller had paid effectively Nill tax for capital gain arising out of transfer of the residential house to the appellant. Accordingly, the A.O. concluded that the agreement and purchase of the residential house was a colourable device to evade taxes and disallowed the deduction of Rs.41,50,24,136/- claimed by the appellant u/s 54F of the Act.
On careful consideration of the impugned assessment order and response of the appellant submitted during the course of assessment proceedings as well as during the course of present proceedings reproduced in the foregoing paras and other materials available on record, it is evident that the appellant had claimed deduction u/s 54F of the Act on account of investment of capital gains arising out of sell of shares of M/s Parksons Packaging Limited in to the purchase of a house property from her father in-law and mother in-law Shri Ramesh Kejriwal and Smt. Anjali Devi Kejriwal respectively. It is an undisputed fact that the capital gains arising out of sell of shares were invested in purchase of a house property from a close relative or say, family members of the appellant. It is also not under dispute that Sri Ramesh Kejriwal (father-in-law) himself had signed the agreement on behalf of both the parties i.e.the purchaser as well as the seller. It is also not under dispute that eventually no capital gain tax was paid by the seller on sale of the said house property. The matter under dispute is that whether there was an actual transfer of property executed due the genuine need of the appellant which may satisfr the legislative intent of section 54F or the Act which is to promote housing for individuals so that a suitable residential dwelling can be owned by them or the said transfer was a colourable device to evade taxes only.
The appellant could not bring on record any evidences to support her claim that the said transfer was a genuine one to satisfr her genuine need as the seller of the property continued to reside in the said house even after execution of transfer deed that too, without paying any rent thereon. The appellant could also not bring on record any evidences to confirm that the seller of the house i.e. her father-in-law and mother-in-law ceased to reside at the sold property (As the appellant has stated that she was not peaceful with her father-in-law and his family members that is why she purchased the new house property) and shifted their residence to any other property. In contention of the allegation of the A.O. that the agreement of purchase/sale of the said residential house was a sham one as Sri Ramesh Kejriwal (father-in-law) himself had signed the agreement as the purchaser as well as the seller, the appellant has stated that she was travelling abroad and hence had given power attorney to the seller itself The above contention of the appellant is merely a statement as she could not bring on record any evidences to confirm that there was any urgency to execute and sign the agreement during that very moment when she was out of country. It is quite un-natural that a person may sign an agreement of sale/purchase on behalf of both the parties i.e. seller and purchaser. The appellant could also not bring on record any evidences to negate the allegation of the A.O. that the said transfer was executed as per mutual understanding amongst the family members to get undue benefit of section 54F and not for any genuine need. Although the appellant has relied upon several judgment of Hon’ble high courts, facts and merits of the instant case are distinguishable.
On the other hand the Ld. A.O. has brought on record number of documents and circumstantial evidences which confirm that the entire transaction was arranged to avoid/evade taxes. He has rightly held that the contention of the appellant that she was traveling abroad and hence had given power of attorney to seller herself, was quite odd and unnatural for a transaction value of about Rs. 49 crores which shows the arrangement made among the family members was for camouflaging the transaction as a genuine purchase to avail the benefits of Section 54F and thereby avoid the taxes arising from the transfer of shares. It has also been rightly held that the address of the assessee and all other family members remained unchanged before and after the purchase of the contested flat, showing that there was no such transfer of property in reality and the entire transaction was arranged on paper only to avoid/evade taxes. I find myself in agreement with the A.O. that the instant case is squarely covered with the ratio of judgment of the Hon’ble Apex Court in the case of McDowell & Company Ltd., in which the Hon’ble Apex Court has held that tax planning is legitimate provided it is within the framework of law and colorable devices cannot be part of tax planning. The legal principle is clearly established that where tax planning is permitted, the assessee is not allowed to resort to sham transactions or colorable devices to avoid and evade tax. Hence, in my considered view, the A.O. has rightly disallowed the deduction of Rs.41,50,24,136/- claimed by the appellant u/s 54F of the Act. Accordingly, the addition of Rs.41,50,24,136/- is confirmed and Ground No. 1, 2 & 3 are dismissed.”
9. Since, the appeal has been dismissed by the Ld. CIT(A) and the issue raised by the AO regarding addition as discussed hereinabove was decided against the assessee, the assessee preferred an appeal before the Tribunal which is under consideration in the present matter.
10. At the outset, Ld. AR of the assessee submitted that all the transactions undertaken by the assessee and the family members/relativesare within legal parameters, as permissible under the provisions of law. The allegations made by the AO are just on the basis of presumption, whereas no specific defect in the transactions or working of taxable income of the assessee could not have been pointed out by the AO, therefore the addition made by the AO is liable to be deleted. As directed during the hearing, Ld. AR has submitted a written note of their submissions and clarifications on various issues raised by the AO while making the addition. The submissions made by the assessee qua each and every aspect examined by the AO are extracted hereunder:
‘A. The basic facts relevant for the subject matter of the appeal are as follows:
(1) Long term capital gains accruing from sale of shares of shares held by the Appellant 63g.33 demat account) utilised in the purchase of Flat no. 4001 from her in-laws by a registered agreement) Purchase confirmed by the developer Indiabulls in response to the notice under sec. 133(6) (page 3. para 2 of assessment order)
(ii) Maintenance bill from Indiabulls (pg. 146 paperbook) and electricity bill (pg. 147152 paperbook) after the purchase in the Appellants name
(iii) Purchase agreement signed by Ramesh Kejriwal as seller and on behalf of the Appellant as Power of Attorney holder (pg. 83 paperbook) as the Appeliant was not in Mumbai at the relevant time.
B. The fact of purchase of Flat no. 4001, Indiabulls by the Appellant out of the long term capital gains on sale of shares held in Parksons Packaging has not been controverted. However, the deduction claimed by the Appellant under sec.54F has been denied by the AO and confirmed by the CIT(A). The reasons for the disallowance and submission with respect to each are summarised below:
(1) The seller and the purchaser are members of a single family and resided in the flat before and after the transfer.
Submission
It is submitted that the seller and purchaser did not reside in flat n.-4001 and the above observation. is erroneous. The sellers Ramesh and Anjali Kejriwal owned the flat no.4001 but were not residingin it. They were residing in Flat no.4101 with Chaitanya and Shaili Kejriwal. There is no bar under the Act to the purchase of property from a relative.
(ii) The agreement is sham because it was signed by Ramesh Kejriwal for himself and the Appellant.
Submission
It is submitted that the agreement was signed by Ramesh Kejriwal in 2 different capacities. On behalf of the Appellant as a power of attorney holder as she was travelling at the relevant time. There is no legal prohibition against the same person signing a purchase agreement in 2 capacities. The agreement is registered, stamp duty of Rs.2.83 crores has been paid. Hence, the agreement being rejected as sham on this ground is not justified especially in view of the documents available on record and listed in A) above. Further, the agreement for the purchase of flat no.4101 by Shaili Kejriwal signed on the same date by Ramesh Kejriwal on behalf of one of the sellers. Siddharth Kejriwal has been accepted by the AO.
C. The transfer was to get undue benefit of see.54F.
Submission
It is submitted that the purchase of the said flat was pursuant to a mutual decision amongst the members of the 3 families to live independently in order to avoid any differences. Since the Appellant was residing in the said flat with her family comprising of husband and 3 children, it was considered appropriate to purchase the same flat from her in laws. The purchase of the said fiat was intended to preserve unity and peace within the family by avoiding differences that arise when living jointly in the same premises. This is also evident from the fact that Shaili Kejriwal purchased flat no.4101 from her husband and brother in law, Sidharth Kejriwal. The deduction available under see.54F was incidental.
D. Seller has paid nil tax.
Submission
It is submitted that the flat 4001 was sold at the fair market value and the sellers Ramesh and Anjali Kejriwal made capital gain but were not required to pay tax on account of indexation. (pg.18. assessment order)
E. The purchase of the flat by the appellant was a colourable device and squarely covered by McDowell’s case,
Submission
(1) It is submitted that the purchase of the said flat was a genuine transaction. This finding is recorded in the assessment order passed in Shaili Kejriwal’s case (pg 379, paperbook). The appellant continues to reside in the said flat exclusively with her own family. The records show that the ownership of the appellant is corroborated by independent confirmation from Indiabulls. maintenance and electricity bills. Further and in the alternate, the majority judgment in McDowell holds that “tax planning may be legitimate provided it is within the framework of law. The transaction cannot be termed sham or colourable, merely because deduction has been availed under sec.54F. It is not a case of tax avoidance or evasion. This position has been affirmed by the Supreme Court in Uol v Azadi Bachao Andolan’s case 263 ITR 706 at 758-759 “We are unable to agree with the submission that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interest, as perceived by the respondents.” and Vodafone International Holdings 341 ITR 1 at 32 paras 57-64.
(ii) Decisions in favour of the appellant in the case of Kalawati Vijaykumar Agarwal ITA 979/PIN/2023 (paras 11 and 13) where deduction under sec.54F was allowed to the assessee for purchase of property from her husband who, in turn had acquired it from his own HUF and Kavita Manoj Damani ITA No.2648/MUM/2024 (parus 6-7, 19, 22-27) where despite the allegation of circular movement of funds by virtue of purchase of flat from husband, deduction under sec.54 has been allowed.
(iii) Decisions relied upon by the AO in Girish Dhanod (2013) 40 com 282 (Hyd) and the Bombay High Court in Prakash v ITO, (208) 173 Taxmann 311 where claim for deduction undersec.54F was rejected are distinguishable on facts. In the first case, because property purchased by the sister in law and nephew of the assessee in his name could not be considered as investment by assessee for the purpose of sec.54F. In the latter case, the assessee claimed deduction under sec. 54F by constructing a residential house in the name of his adopted son out of capital gain on sale of his agricultural land.
On identical facts, the purchase of flat no.4101 by Shaili Kejriwal from her husband Chaitanya and brother in law Siddharth Kejriwal out of long term capital gains from sale of shares of Parksons Packaging has been held to be a genuine transaction and deduction under sec.54F has been allowed (pg. 237 paperbook)
In view of the above, it is prayed that the transaction was a genuine transaction and cannot be treated as sham or colourable merely because deduction has been claimed under sec.54F. We request you to kindly place the same on record.”
11. Based on the aforesaid submissions, it was the prayer that the addition made by the Ld. AO was not as per intent of the statutes, the same was arbitrary in treating the transaction of purchase of immovable property from related party as a colourable device to evade taxes.
12. Per contra, Ld. CIT DR representing the revenue reiterated the facts from the assessment order andthe order of CIT(A), supported such orders stating that the assessee has arranged the impugned transactions within the family as a colourable device to evade taxes by claiming deduction u/s 54F in the guise of artificially arrangements. It was therefore, the submission that the orders and findings of Ld. Revenue Authorities deserves to be upheld.
13. We have considered the rival submissions, perused the material available on record and case laws relied upon by the assessee. Admittedly, the transaction of sale of shares and in turn purchase of residential property has been effected by the assessee and a deduction u/s 54F of the Act for “Capital Gain on transfer of certain capital assets not to be charged in case of investment in residential house” was claimed. It is observed that the entire transactions in the chain to complete the transaction of purchase of property are duly supported by the corroborative evidence of purchase/sale. In support of sale of shares, copy of demat account furnished. To support the transaction of purchase of flat registered agreement as well as confirmation of developer Indiabulls in response to notice u/s 133(6) of the Act was submitted. Maintenance bill from Indiabulls, copy of electricity bills after purchase by the assessee are placed on record. The sale deed was signed by the seller in the capacity of purchaser also for which power of attorney is produced in the paper book, which had not been disputed by the Stamp Duty Authority, while registering the said document. The AO has denied the claim u/s 54F, however, there was no adverse finding qua the transaction of purchase of flat and Long Term Capital Gain on sale of shares of Parksons Packaging Limited.
14. In Rebuttal to the contention of Assessing Officer that the sellers and purchasers are residing in the same flat before and after the transfer, Ld. AR submitted that the above observation is erroneous as Mr. Ramesh Kejriwal and Mrs. Anjali Kejriwal are not residing in Flat No.4001, but they are residing in Flat No.4101 with Chaitanya Kejriwal and Shaili Kejriwal. It is submitted that there is no bar in the Act for purchase of property from a relative. Ld. AR further opposed the objection of Ld. AO that the agreement is sham because it was signed by Ramesh Kejriwal himself and on behalf of the assessee. It is submitted that such grounds raised by the Ld. AO are not justified. It is submitted by Ld. AR that the deduction u/s 54 was just incidental,the transaction between the family members was with the intention to preserve unity and peace within the family by avoiding differences that arise when living jointly in the same premises. The allegation of AO that the seller has not paid any tax cannot be the reason for denial of deduction u/s 54F, as the sellers, in their computation of income are not required to pay tax computed under the scheme of law.
15. Regarding the finding of AO that purchase of flat by assessee was not a colourable device, it is squarely covered by the settled principles of law that tax planning may be legitimate, provided it is within the framework of law. Ld. AR placed reliance on various decisions, wherein the findings supporting the contentions of assessee are as under:
In the ITAT Hyderabad Bench ‘B’, Girish Dharod v. Assistant Commissioner of Income-tax, Circle 1(2), Hyderabad[2013] 40 taxmann.com 282 (Hyderabad — Trib.)
“Liberal interpretation of statutory provisions taken by Courts to extend exemption available under section 54 to assessee, even in cases of investments in names of spouse and minor children of assessee cannot be extended beyond a point so to cover investments made in names of other blood relations or other relations “
In the case of Kavita Manoj Damani vs. ITOWard 2(1)(1), ITA No.2648/Mum/2024 (AY 2020-21)
“19. In the context of Ground No. 6, wherein the AO has denied the exemption u/s 54 on the ground that the assessee had adopted a colourable device to evade tax, it was submitted that the gift deed in favour of the assessee was executed and also registered on 1-4-2017. The said property was then sold on 9-1-2020. By no stretch of imagination, it can be said that the gift was made with the intention to evade the tax. This is for a simple reason that it could not have been imagined in 2017 that the property would be sold. With respect to the purchasing of the residential property from the husband, it was submitted that it was a legitimate transaction wherein a registered agreement was executed, stamp duty as applicable was fully paid, procedure for obtaining the certificate for deducting the tax at lower rate was fully completed and certificate was granted and consideration was fully paid to the husband from the bank account of the assessee.25. We have heard the rival contentions and purused the material available on record. The Assessing officer has brought to tax long term capital gains of Rs 4,21,83,273/- on sale of two flats without allowing the exemption claimed by the assessee u/s 54 amounting to Rs 3,96,55,000/-. The sale of flats have been executed vide agreements to sell dated 9/1/2020 and the said flats were initially purchased vide agreement to purchase dated 14/03/2002 read with registered gift deed dated 1/04/2017. The contents of these sale agreements (and purchase/gift deed) are not in dispute and the same have been executed by the assessee in her individual capacity and the consideration has been received by her in her bank account and which has been duly offered to tax by the assessee and has been brought to tax by the AO in the hands of the assessee.
26. Now, coming to exemption claimed by the assessee u/s 54 amounting to Rs 3,96,55,000/-, the same relates to purchase of another flat by the assessee from her husband vide registered agreement to sell dated 18/03/2021 for a stated consideration of Rs 3,85,00,000/- on which the assessee has paid stamp duty of Rs 11,55,000/-. The factum of ownership of the said flat in the name of the husband of the assessee vide agreement to sell dated 27/03/2015 is not in dispute nor the contents of the subject registered agreement to sell dated 18/03/2021 wherein the title in the property has been transferred by him in the name of the assessee.”
In the case of ITO Ward 6 (3), Pune vs. Kalawati Vijaykumar Agarwal, ITA No.979/Pun/2023 (AY 2021-22)
“11. We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A)/NFAC and the paper book filed by both the sides. We find the assessee claimed deduction u/s 54F of the Act towards investment in the residential property purchased from her husband Shri Vijaykumar Satyanarayan Agarwal Shri Vijaykumar Satyanarayan Agarwal had acquired the said property from his HUF Vijaykumar Satyanarayan Agarwal in which the assessee is also a member. All the members of HUF including the assessee gave consent for transfer of the property between Shri Vijaykumar Satyanarayan Agarwal and Vijaykumar Satyanarayan Agarwal, HUF. We find the Assessing Officer disallowed the deduction claimed by the assessee on the ground that the purchase of the property by the assessee is a circular transaction and therefore, the assessee is not entitled to the claim of deduction u/s 54F of the Act. We find the CIT(A)/NFAC allowed the claim of deduction u/s 54F of the Act, the reasons of which are reproduced in the preceding paragraphs.
12. We find the provisions of section 47(i) of the Act read as under:
“47. Nothing contained in section 45 shall apply to the following transfers-
(1) any distribution of capital assets on the total or partial partition of a Hindu undivided family
13. From the above, it is clear that any distribution of capital assets on the total or partial partition of HUF shall not be regarded as transfer. The CIT(A)/NFAC in our opinion has rightly held that the assignment of the property on 28.07.2011 between Vijaykumar Satyanarayan Agarwal and Vijaykumar Satyanarayan Agarwal, HUF was not in connection with the partition and therefore, the same is a transfer and therefore, the property acquired by Shri Vijaykumar Satyanarayan Agarwal is an independent one. We also agree with the findings of the CIT(A)/NFAC that the provisions of section 47 of the Act have not provided for any clauses relating to the transfer of capital asset between the wife and husband and vice-versa for adequate consideration. It is also an undisputed fact that the assessee has purchased the property for a consideration of Rs.3,50,00,000/- and the amount has been paid through banking channel. In this view of the matter and in view of the detailed discussion by the CIT(A)/NFAC on this issue, we do not find any infirmity in the order of the CIT(A)/NFAC allowing the claim of deduction u/s 54F of the I.T. Act, 1961. Accordingly, the same is upheld and the grounds raised by the Revenue are dismissed.”
16. In backdrop of aforesaid discussion, fact, circumstances and legal principles, we are of the considered view that the assessee is entitled for deduction u/s 44F of Act, which cannot be denied only because the transaction of purchase/sale was between the relatives or related parties, while the entire transactions are under the permissible legal framework, which could not be dislodged or contradicted by the revenue authorities. Further, the allowable deduction to assessee cannot be denied only on the ground of doubt or surmise that the transaction was an artificial transaction for the purpose of tax evasion in absence of any cogent reasonings, whereas the outcome of transaction in the form of deduction u/s 54F was only incidental or may be a tax planning, as there was no legal flaw in the transactions undertaken, so far as concerned authorities have not raised any dispute for such transactions.
17. Consequently, we direct the AO to delete the entire addition made on account of denial of deduction u/s 54F of the Act.
18. Since the substantial quantum addition has been directed to be deleted, as indicated above, any other contention raised by the assessee remains academic only, needs no separate adjudication.
19. In result, the appeal of the assessee stands allowed in terms of our aforesaid observation.
Order pronounced in the open court on 09-04-2026.
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