Chandra Pal Singh Vs ITO (ITAT Agra)
Bank Balance Is Not Unutilised Capital Gain by Default: ITAT Restores ₹16.19-Lakh Section 54 Disallowance for Verification of Construction Payments
Property Sold & Section 54 Claimed
The assessee filed his return for AY 2014-15 on 28.08.2014. The case was selected for limited scrutiny to verify capital gains arising from the transfer of immovable property.
The assessee had sold property situated at Belaganj, Agra, to three purchasers through a registered sale deed dated 06.06.2013 for consideration of ₹61 lakh.
The stamp valuation authority adopted a value of ₹91,27,000, which, according to the AO, was accepted by the assessee. After claiming indexed cost of acquisition of ₹28,17,000, the capital gain was computed at ₹63,10,000.
The assessee claimed that the capital gain had been invested in construction of a residential house at Dhakran Crossing, Agra. The total investment claimed was ₹64,67,940.
In support, the assessee furnished a valuation report dated 30.09.2014 prepared by Shiromany Architects.
AO Finds ₹16.19 Lakh Unappropriated
The AO examined the amount & timing of expenditure claimed toward the new house.
He concluded that ₹16,19,133 had neither been utilised for construction before the due date for filing the return u/s 139(1) nor deposited under the Capital Gains Accounts Scheme as required u/s 54(2).
Consequently, exemption u/s 54 was denied to that extent & ₹16,19,133 was added to the assessee’s income.
The assessee challenged both the computation & the AO’s authority to examine the issue within limited scrutiny.
CIT(A) Confirms the Disallowance
The CIT(A) held that the assessee had failed to utilise the disputed amount for purchase or construction of a new residential house before the due date u/s 139(1). The amount had also not been deposited in the notified capital-gain account.
The CIT(A) further noticed that construction of the new property had commenced in 2010, substantially before the original asset was transferred on 06.06.2013. This was treated as another instance of non-compliance with the statutory conditions.
Reliance was placed upon CIT v. Rajesh Kumar Jalan, Fathima Bai v. ITO & Humayun Suleman Merchant v. CCIT regarding utilisation or deposit of capital gains within the prescribed period.
The assessee’s reliance on CIT v. K. Ramachandra Rao was distinguished on the ground that the entire consideration in that case had been utilised within the prescribed period.
The objection concerning limited scrutiny was also rejected. According to the CIT(A), verification of exemption u/s 54 was an integral part of computing capital gains & fell within the notified scrutiny issue.
Valuation Report Showed Larger Investment
Before the Tribunal, the assessee submitted that a revised computation & the approved valuer’s report dated 30.09.2014 had already been furnished before the AO.
The valuation report estimated aggregate investment of ₹98,31,300 in the residential property during the period from 2010 to 30.09.2014.
It was argued that the AO did not examine the report to determine the actual amount invested during the relevant statutory period. Instead, the AO merely noticed a bank balance of ₹16,19,133 as on 31.07.2014 & treated that amount as unutilised capital gain.
The assessee contended that the closing balance in a bank account could not automatically establish that an equivalent portion of the capital gain remained unspent, particularly when substantial withdrawals & payments for construction were reflected in the same account.
Date-Wise Construction Payments Produced
The assessee relied upon his bank statement for account number ending 43282 & furnished a date-wise statement of cash withdrawals and cheque payments toward the residential house.
According to the statement, the assessee invested ₹64,67,940 during the period from 06.06.2012—one year before the transfer—up to 30.09.2014, stated to be the extended due date for filing the return.
The assessee argued that these payments, read with the valuation report, established complete utilisation of the capital gain. Therefore, the mere existence of ₹16,19,133 in the bank account on a particular date could not justify proportionate denial of exemption.
The assessee requested restoration to the AO for proper verification of the valuation report, bank statement & date-wise payment schedule.
The Revenue supported the lower authorities but did not seriously object to remand.
ITAT Grants One More Opportunity
After examining the submissions & documents placed before it, the Tribunal considered it appropriate to provide the assessee one further opportunity to establish his claim.
The CIT(A)’s order was set aside & the issue was restored to the AO. The AO was directed to examine the assessee’s submissions, valuation report, bank transactions & date-wise cash withdrawals and cheque payments.
The AO must pass a fresh assessment order after granting a reasonable opportunity of hearing. The assessee was also permitted to furnish additional evidence supporting his claim.
Ground Nos.1 to 5 were allowed for statistical purposes, & the appeal was accordingly allowed for statistical purposes.
What the Tribunal Did Not Decide
The ITAT did not hold that the entire investment of ₹64,67,940 qualified for deduction u/s 54. It also did not decide whether construction commencing in 2010 satisfied the statutory timeline, whether utilisation up to the extended return-filing date was sufficient or whether the AO exceeded the permitted scope of limited scrutiny.
All these questions remain open for examination in the restored proceedings.
The assessee must establish the source, date & nexus of each construction payment with the capital gain, while the AO must assess the documentary trail instead of relying solely upon the bank balance.
Author’s Comments
Section 54 concerns actual investment in a qualifying residential house, not the superficial appearance of funds in one bank account. Money is fungible; a closing balance cannot, without a proper fund-flow analysis, conclusively identify unutilised capital gain.
At the same time, a valuation report establishes the estimated cost of construction, not necessarily the precise dates or sources of payments. The assessee must reconcile it with bank withdrawals, invoices, contractor payments & construction progress.
The remand therefore strikes the correct evidentiary balance -because a valuer may certify the house, but only the payment trail can build the Section 54 exemption brick by brick.
Cases Discussed
- CIT v. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gauhati)
- Fathima Bai v. ITO (2009) 32 DTR 243 (Kar.)
- Humayun Suleman Merchant v. CCIT (2016) 387 ITR 421 (Bom.)
- CIT v. K. Ramachandra Rao (2015) 230 Taxman 334 (Kar.)
FULL TEXT OF THE ORDER OF ITAT AGRA
This appeal is directed against the impugned order dated 30.12.2025 passed in appeal No CIT(A), Agra- 2/10199/2016-17 by the ld. Addl/JCIT(A) Thane (hereinafter referred to as the Commissioner of Income Tax, u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) for the A.Y. 2014-15, wherein ld. CIT1(A) has dismissed assessee’s appeal.
2. Brief facts of the case: The AO noted that the assessee had filed his return of income for the A.Y.2014-15 on 28.08.2014 which was beyond the due date as per section 139 (1) of the Act. Further, in the AO stated that this case was selected in limited scrutiny to verify the capital gains earned by the assessee in respect of transfer of an immovable property at 6/7, Barah Gali, Belaganj, Agra to 3 purchasers vide registered deed dated 06.06.2013 for a consideration of Rs. 61,00,000/-. The AO noted that the value adopted by the stamp valuation officer was Rs. 91,27,000/- which according to the AO was accepted by the assessee. The AO further noted that the assessee had claimed the indexed cost of acquisition of the said property at Rs. 28,17,000/- and the net capital gains was Rs. 63,10,000/- which was claim to be invested (total invested amount-Rs. 64,67,940/-) in a new residential house situated at 3/281, MG Road, Dhakran Crossing, Agra. In this regard, the AO noted that in support of the above investment the assessee had filed a valuation report dated 30.09.2014 issued by Shiromany Architects. However, the AO noted that on perusal of the amount and period of appropriation of capital gain for claiming deduction u/s 54 of the Act an amount of Rs. 16,19,133/- was not appropriated as per the provisions of the section 54 of the Act. Accordingly, the AO held that the capital gain amount of Rs. 16,19,133/- which was neither utilized for construction of new asset before the due date of filing of the return of the income nor deposited in any notified account could not be allowed as deduction u/s 54 of the Act and made an addition of Rs. 16,19,133/-.
3. Aggrieved with the said order the assessee filed an appeal before the Ld. CIT (A). The Ld. CIT A dismissed the appeal of the assessee and the relevant extracts of the said order are reproduced as under:
“5.1.3 After perusal of the assessment order, the written submissions of the appellant, and the material on record, the Appellate Authority observes that the Assessing Officer rightly disallowed exemption u/s 54 to the extent of Rs. 16,19,133/–. The appellant failed to utilize this amount for purchase or construction of a new residential house before the due date u/s 139(1) and also did not deposit it in the Capital Gain Account Scheme as mandated u/s 54(2). The construction of the new property had commenced in 2010, much before the transfer of the original asset on 06.06.2013, clearly showing non-compliance with statutory conditions. The appellant plea that the case was under limited scrutiny is not acceptable, since verification of the exemption u/s 54 forms an essential part of capital gain computation and falls within the scrutiny scope. Section 54 being a conditional exemption requires strict adherence to procedure. The Hon’ble Courts in CIT v. Rajesh Kumar Jalan (2006) 286 ITR 274 (Gauhati), Fathima Bai v. ITO (2009) 32 DTR 243 (Kar.), and Humayun Suleman Merchant v. CCIT (2016) 387 ITR 421 (Bom.) have held that non-deposit of unutilized capital gain before the due date u/s 139(1) disentitles the appellant from exemption. The reliance on CIT v. K. Ramachandra Rao (2015) 230 Taxman 334 (Kar.) is distinguishable as in that case the entire amount was utilized within the prescribed period, which is not so here. Hence, the Assessing Officer’s action is legally correct and well-founded. The addition of Rs. 16,19,133/– is accordingly confirmed, and the ground of appeal is dismissed.”
4. Aggrieved with the said order the assessee has filed an appeal before us on the following grounds of appeal:
“1. That on the fact and circumstances of the case and in law the Ld.AdI/JCIT(A) erred in confirming the addition of Rs.1619133/-.
2. That Ld CIT/JCIT(A) erred in addition of capital gain of Rs.1619133/-considering that appellant failed to utilized this amount for construction of new residential house before the due date U/s 139(1) and also did not deposit in capital gain account scheme while the total capital gain amount have being invested before the due date of furnishing of return U/s 139 of I.T.Act.
3. That case was selected under limited scrutiny on the ground that sale consideration of the property in ITR is less than sale consideration of property reported in AIR.
4. That there is no difference in sale consideration of property in ITR and the sale consideration of property as mentioned in the sale deed.
5. That proceedings taken up to disallow capital gain at Rs.1619133/- was not subject to limited scrutiny and the addition made by A.O.is without jurisdiction and against the powers vested in ITO to travel further without permission of principal CIT.
6. That appellant craves leave to add, alter or withdraw any grounds of appeal before at the time of hearing.”
5. At the time of hearing, the Ld. AR submitted that the assessee had furnished before the AO a revised computation of income and valuation report dated 30.09.2014 (placed at page no. 31-38 of the paper book) certified by an approved valuer for the investment made in house property at Rs. 98,31,300/- for the period 2010 to 30.09.2014. It was further submitted that the AO has not ascertained from the valuation report that how much amount was invested but merely added the balance amount in bank account as on 31.07.2014 of Rs. 16,19,133/-. The Ld. AR also submitted that the copy of bank statement SB Account Number 0226601000043282 of the assessee showed that the assessee had made withdrawals for the purpose of investment in house property at Rs. 64,67,940/- during the period 06.06.2012 i.e. one year before of transaction of sale of property up to extended due date of filing of return i.e. 30.09.2014. The assessee also submitted a date wise cash withdrawal/cheque payment against investment in house property showing total amount of investment at Rs. 64,67,940/-. In view of these facts the Ld. AR submitted that the matter may be restored to the file of the AO for fresh verification of the above documents including the valuation report dated 30.09.2014 and the date wise cash withdrawal/cheque payments against investment in house property showing total amount of investment at Rs. 64,67,940/-.
6. On the other hand, the Ld. Sr. DR supported order of the authorities below but did not raise any serious objection to the request of the assessee for getting the matter remanded back to the AO.
7. We have heard both the parties and perused material on record. Upon consideration of the submission of the Ld. AR and the documents placed before us we are of the considered view that in the interest of justice the assessee may be given one more opportunity to explain its case before the AO.
7.1 Accordingly, we set aside the order of the Ld. CIT (A) and restore the matter to the file of the AO for examining the above submission of the assessee and the documents filed before us as referred above and to pass a fresh assessment order after giving a reasonable opportunity of being heard to the assessee and in accordance with law. The assessee will be at liberty to file any further details/evidences in support of his claim. Ground nos. 1 to 5 are allowed for statistical purposes.
8. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on- 07.07.2026
