Ashwinbhai Babubhai Dudhat Vs Interim Board For Settlement (IBS)-1 & Anr. (Gujarat High Court)
Conclusion: Section 54 deduction was allowable on cash transactions involving residential property as it was ensured that genuine investments in residential properties were duly recognized for tax exemptions.
Held: During search proceedings, various incriminating materials and documents were seized, leading to an assessment under Section 153A. Subsequently, Dudhat filed an application before the Settlement Commission, disclosing undisclosed income from real estate transactions and unaccounted investments. Following the abolition of the Settlement Commission by the Finance Act, 2021, the case was transferred to the Interim Board for Settlement. Assessee claimed an exemption under Section 54 for long-term capital gains on the sale of a residential bungalow, asserting that the investment in a new property was made using cash received from the sale. However, the Interim Board rejected the claim, arguing that the exemption could not be granted for cash transactions not declared in the initial income return and not deposited in the capital gains deposit scheme. It was held that the grounds on which the deduction under Section 54 was denied by the board were not tenable, as none of the grounds on which the deduction under Section 54 of the Act was denied could be said to be contrary to the provisions of the Act and that such contravention had prejudiced assessee and assessee was entitled to get the deduction under Section 54 also qua the amount paid in cash to purchase the property as amount received in cash by assessee was considered as part of undisclosed income of assessee, then once the same was considered as undisclosed income, assessee was also entitled to deduction under Section 54 when it was also not in the dispute that the such amount had been invested for purchase of the property by payment of cash. Therefore, the order of the Settlement Commission on the issue of denial of deduction under Section 54 was required to be interfered with being not in accordance with the provisions of section 54 and accordingly the order of the Settlement Commission to the extent of denial of deduction under Section 54 in respect of cash portion of Rs.2,40,14,000/- was quashed and set aside.
