ITAT Denies Section 54F Exemption for Mother’s Property

Ashok Kumar Vs ITO (ITAT Delhi)

ITAT Upholds Denial of Capital Gains Exemption for Property in Mother’s Name; Unexplained Cash Deposits Addition Sustained

In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has dismissed an appeal filed by Ashok Kumar for the assessment year 2015-16. The tribunal upheld the Commissioner of Income Tax (Appeals)’s (CIT(A)) decision to deny the assessee the benefit of deduction under Section 54F of the Income Tax Act, 1961, and sustained an addition for unexplained cash deposits. The core of the ruling on Section 54F emphasizes that for this exemption, the new asset must be acquired in the name of the assessee.

The appeal, which had been listed for hearing on fifteen dates since its filing in 2019, proceeded with the assistance of the departmental representative due to the assessee’s apparent lack of keenness in pursuing the matter.

Background of the Case: Capital Gains and Section 54F Claim

The assessee’s case was initially selected for limited scrutiny due to a substantial deduction claimed under Section 54F and a discrepancy in the sale consideration of a property reported in the Income Tax Return (ITR) versus Form 26QB. This was later converted to complete scrutiny.

During the relevant assessment year, the assessee had sold a commercial property located in Sector-40, Gurgaon, on February 5, 2015, for a consideration of Rs. 1,23,00,000/-. After applying the indexed cost of acquisition, the assessee declared a Long Term Capital Gain (LTCG) of Rs. 78,57,794/-. To claim exemption from this LTCG, the assessee invested the amount in acquiring a residential property at Unit Bearing No. 54 in Block-H, Ground Floor, Greenwood City, Gurgaon, on June 30, 2015. However, this new residential property was purchased in the name of his mother, Smt. Promila Rani Yadav.

The Assessing Officer (AO) disallowed the assessee’s claim for deduction under Section 54F. The AO’s primary reasoning for this disallowance was that for the benefit of Section 54F, the new asset must be purchased in the name of the assessee. In support of this position, the AO relied on the judicial precedent set in the case of Jai Narayan vs. ITO, 306 ITR 335 (P&H).

Unexplained Cash Deposits under Section 69

In addition to the Section 54F disallowance, the AO also made an addition of Rs. 16,45,000/- under Section 69 of the Act, citing unexplained cash deposits in the assessee’s bank accounts.

Before the AO, the assessee explained that these cash deposits were sourced from earlier bank withdrawals. Specifically, he contended that he had withdrawn Rs. 72,00,000/- from his Union Bank of India account and subsequently deposited Rs. 63,00,000/- into various other bank accounts: Rs. 25,00,000/- in Indusind Bank, Rs. 29,00,000/- in Yes Bank, and Rs. 9,00,000/- in RBL Bank. The AO partially accepted this explanation. However, the AO identified and added back Rs. 16,45,000/- (comprising Rs. 8,07,500/- in Indusind Bank, Rs. 6,97,900/- in Yes Bank, and Rs. 1,40,000/- in RBL Bank) as cash deposits that occurred prior to the reported withdrawals from the Union Bank of India. The AO further rejected the assessee’s alternative claim of cash deposits from cash in hand, noting the assessee’s low gross sales turnover of Rs. 4,50,000/- and business income of Rs. 2,70,000/-. Consequently, the AO made the addition of Rs. 16,45,000/- under Section 69 read with Section 115BBE of the Act.

Appellate Proceedings and Judicial Precedents

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). Before the First Appellate Authority, the assessee reiterated his submissions regarding both the Section 54F claim and the cash deposits. Significantly, for the cash deposits, the assessee introduced a new explanation, contending that the deposits were from an advance received from the sale of an immovable property. He claimed an agreement to sell his property was executed on August 25, 2024, and a cash amount of Rs. 16,00,000/- was received, which was then deposited into different bank accounts on various dates. However, the CIT(A) found this new explanation unsubstantiated and rejected the assessee’s claims on both counts.

Before the ITAT, the departmental representative, Shri Ashish Tripathi, vehemently defended the orders of the lower authorities. Regarding the Section 54F claim, he emphasized the jurisdictional High Court’s position. He cited not only Jai Narayan vs. ITO (supra) but also Kamal Kant Kamboj vs. ITO, 84 taxmann.com 541. In Kamal Kant Kamboj’s case, the Punjab & Haryana High Court had ruled that for claiming deduction under Section 54B of the Act, the new asset must be purchased in the name of the assessee and not a family member, even if the assessee had purchased agricultural land in his wife’s name. The departmental representative argued that the provisions of Section 54F are pari materia (on the same subject or matter) with Section 54B, and thus the same analogy should apply.

On the issue of cash deposits, the departmental representative highlighted the inconsistency in the assessee’s explanations. He noted that before the AO, the source was stated as earlier bank withdrawals and cash in hand from business receipts, while in the appellate proceedings, the explanation shifted to an advance received from a property sale. He further pointed out that the CIT(A) had rejected this latter claim due to its unsubstantiated nature.

ITAT’s Decision and Rationale

The ITAT considered the submissions and the records. On the Section 54F claim (Ground Nos. 1 to 3), the tribunal acknowledged that the assessee had sold a commercial property in his name and invested the capital gain in a residential house in his mother’s name, claiming the Section 54F deduction. The AO and CIT(A) had consistently rejected this claim, citing that the new asset must be purchased in the assessee’s name to satisfy the conditions of Section 54F.

The ITAT noted the existence of “contrary decisions by non-jurisdictional High Courts,” which have allowed the benefit of Section 54F even when the new residential house is purchased in the name of a family member. However, the tribunal emphasized its obligation to follow the binding precedents of the jurisdictional High Court. Consequently, by respectfully following the decisions of the Hon’ble Punjab & Haryana High Court in Jai Narayan vs. ITO (supra) and Kamal Kant Kamboj vs. ITO (supra), the ITAT upheld the findings of the CIT(A) on this issue and dismissed Ground Nos. 1 to 3 of the assessee’s appeal. This reiterates the principle that for capital gains exemptions like Section 54F, the legal ownership of the new asset must vest with the assessee.

Regarding the addition of Rs. 16,45,400/- on account of cash deposits (Ground Nos. 4 & 5), the ITAT observed the shift in the assessee’s explanation. The tribunal found that the assessee’s explanation in the First Appellate proceedings, attributing the cash deposits to an advance from the sale of an immovable property by his mother, lacked crucial details of the property. This absence rendered the explanation unsubstantiated. The ITAT concluded that an unsubstantiated explanation cannot be accepted and therefore, the assessee also failed on Ground Nos. 4 & 5.

Ground No. 6, being general in nature, required no separate adjudication.

In conclusion, the ITAT upheld the impugned order of the CIT(A) on both counts, dismissing the assessee’s appeal. The ruling underscores the importance of strict adherence to the conditions stipulated in the Income Tax Act for claiming deductions and the necessity of providing consistent and well-substantiated explanations for financial transactions.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-1, Gurgaon (hereinafter referred to as ‘the CIT(A)’) dated 18.12.2018, for assessment year 2015-16.

2. A perusal of appeal file shows that the appeal was filed in the year 2019 and thereafter, the appeal was listed for hearing on fifteen dates. On most of the dates fixed for hearing none appeared to represent the assessee and on some dates wherever representative of the assessee appeared, adjournment was sought. It seems that the assessee is not keen to pursue his appeal, therefore, the appeal is taken up for hearing with the assistance of ld. DR and the material available on record.

3. Brief facts of the case as emanating from records/statements of facts furnished by assessee are: The assessee’s case was selected for limited scrutiny through CASS with the reason; (i) large deduction claimed u/s. 54F of the Act; and (ii) sale consideration of property in ITR is less than sale consideration reported in Form No. 26 QB. Subsequently, the case of assessee was converted to complete scrutiny with the approval of Principal Commissioner of Income Tax, Gurgaon vide letter dated 16.11.2017. The assessee filed his return of income for impugned assessment year declaring income of Rs.2,70,000/- . In assessment year under appeal, the assessee had sold a commercial property bearing no. 14, Sector-40, Gurgaon for a consideration of Rs.1,23,00,000/- on 05.02.2015. The assessee after availing the benefit of indexed cost of acquisition at Rs.44,42,206/- declared Long Term Capital Gain of Rs.78,57,794/-. The assessee invested Long Term Capital Gain for acquiring a residential property at Unit Bearing No. 54 in Block-H, Ground Floor, Greenwood City, Vill Jharsa, Tehsil & Distt. Gurgaon in the name of his mother Smt. Promila Rani Yadav on 30.06.2015. The assessee claimed the benefit of deduction u/s. 54F of the Income Tax Act, 1961(hereinafter referred to as ‘the Act’) on Long Term Capital Gain earned by the assessee on sale of commercial property. In assessment proceedings, the Assessing Officer (AO) disallowed assessee’s claim of deduction on the ground that for claiming deduction u/s. 54F of the Act, the new asset should have been purchased in the name of the assessee. The AO in support of his view placed reliance on the decision rendered in the case Jai Naryan vs. ITO, 306 ITR 335 (P&H.)

3.1. The AO also made addition of Rs.16,45,000/- u/s. 69 of the Act on account of unexplained cash deposits in the bank account of the assessee. The assessee explained before the AO, that the cash deposits are from earlier bank withdrawals. As per the assessee’s contention, the assessee has withdrawn Rs.72,00,000/- from his Union Bank of India account no. 388802010011290 and has thereafter deposited the aforesaid withdrawals to his different bank accounts as under:

The Assessing Officer partly accepted the explanation furnished by the assessee with regard to cash deposits. The AO added back Rs.16,45,000/- i.e. Rs.8,07,500/- with Indusind Bank Rs.6,97,900/- with Yes Bank and Rs.1,40,000/- with RBL Bank, the cash deposits prior to withdrawal from Union Bank of India. The AO also rejected plea of cash deposits from cash in hand as the gross sales turnover of assessee was Rs.4,50,000/- and after deducting expenses, the assessee offered business income of Rs.2,70,000/-. The AO after rejecting assessee’s contention made addition of Rs.16,45,000/- u/s. 69 r.w.s. 115BBE of the Act.

4. Aggrieved by assessment order dated 21.12.2017 passed u/s. 143(3) of the Act, the assessee filed appeal before the CIT(A). The assessee reiterated his submissions before the First Appellate Authority and also explained that an agreement to sell his property was executed on 25.08.2024 and lieu of said sale, the assessee had received cash amount of Rs.16,00,000/-. The said amount was also deposited in different bank accounts on different dates. The assessee but remained unsuccessful, before the First Appellate Authority, hence, present appeal by the assessee.

5. Shri Ashish Tripathi, representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submits that in so far as rejection assessee’s claim of deduction u/s. 54F of the Act is concerned, the Hon’ble Jurisdictional High Court in the case of Kamal Kant Kamboj vs. ITO, 84 com541, and in the case of Jai Naryan vs. ITO (supra) has held that for claiming deduction u/s. 54B of the Act, the new asset has to be purchased in the name of the assessee and not in the name of any family member. In the case of Kamal Kant Kamboj vs. ITO (supra), the assessee had purchased agricultural land in the name of his wife and had claimed deduction u/s. 54B of the Act. The provisions of section 54F of the Act are pari materia with provisions of section 54B of the Act, hence, same analogy would apply. As regards addition on account of cash deposits, the ld. DR submits that before the AO assessee explained that the cash deposits amounting to Rs.16,45,400/-were out of cash in hand from business receipts and earlier withdrawals from Bank. But in appellate proceedings, the assessee changed his stand and submitted that the cash deposits were from advance received from sale of property. The CIT(A) rejected assessee’s claim as the same was unsubstantiated.

6. We have heard the submissions made by ld. DR and have examined the orders of authorities below. The assessee in appeal has raised as many as six grounds. Ground No. 1 to 3 of appeal is with regard to rejection of assessee’s claim of deduction u/s. 54F of the Act. The assessee had sold commercial property in his name and thereafter had invested the capital gain on sale of said property for the purchase of residential house in the name of his mother Smt. Promila Rani Yadav. The capital gain was claimed as deduction u/s. 54F of the Act. The AO and the CIT(A) following the decisions rendered by Hon’ble Jurisdictional High Court rejected assessee’s claim of deduction u/s. 54F of the Act. The Authorities below have rejected assessee’s claim for the reason that since the assessee has purchased new asset in the name of his mother i.e. in the name of a person other than the assessee, the condition laid down u/s. 54F of the Act for claiming deduction is not satisfied. For claiming deduction u/s. 54F of the Act, the new asset should have been purchased in the name of the assessee. We are live to the fact that there are contrary decisions by non-jurisdictional High Courts, wherein, the Hon’ble High Courts have allowed the benefit of section 54F of the Act, even if the new residential house is purchased by the assessee in the name of one of his family member. Since, the Hon’ble Punjab & Haryana High Court holds the view against the assessee, respectfully following the decision of Hon’ble Jurisdictional High Court in the case of Jai Narayan vs. ITO (supra) and Kamal Kant Kamboj vs. ITO (supra), we uphold the findings of the CIT(A), on this issue and dismiss ground no. 1 to 3 of assessee’s appeal.

7. In ground no. 4 & 5 of appeal, the assessee has assailed addition of Rs.16,45,400/- on account of cash deposits. We find that in assessment proceedings, the assessee explained the source of cash deposits as earlier withdrawals from the bank. In First Appellate proceedings, the assessee changed his stance and explained that cash deposits were from advance received on sale of immovable property by her mother. However, the details of property against which the alleged advance was ostensibly received is conspicuously missing in the submissions of the assessee. Hence, the explanation furnished by the assessee on the second issue is unsubstantiated, therefore, cannot be accepted. Consequently, the assessee fails on ground no. 4 & 5 of appeal as well.

8. Ground no. 6 of appeal is general in nature has required no separate adjudication.

9.In the result, impugned order is upheld and appeal of the assessee is dismissed. Order pronounced in the open court on Wednesday the 11^thday of June, 2025.