ITO Vs Kalawati Vijaykumar Agarwal (ITAT Pune)
The Revenue appealed against the order dated 11.07.2023 passed by the CIT(A)/NFAC for Assessment Year 2021-22, whereby the assessee was allowed deduction of ₹3,03,74,563 under Section 54F of the Income-tax Act, 1961.
The assessee had filed her return declaring total income of ₹23,06,480 and claimed deduction under Section 54F after selling her one-third share in a property at Uruli, Devachi, Haveli, Pune for ₹3,75,00,000, out of a total sale consideration of ₹11,25,00,000 received jointly with two others. She invested ₹3,50,00,000 in purchasing a residential property from her husband, Shri Vijaykumar Satyanarayan Agarwal, and claimed exemption under Section 54F.
During assessment, the Assessing Officer noted that the assessee, as a member of Vijaykumar Satyanarayana Agarwal HUF, had earlier consented to the assignment of the same property by the HUF to her husband through a deed of assignment dated 28.07.2011. Viewing the subsequent purchase of the property by the assessee from her husband as a circular transaction, the Assessing Officer rejected the claim under Section 54F. The Assessing Officer also observed that the deed of assignment dated 28.07.2011 had not been produced and considered the claim insufficiently substantiated.
The CIT(A) allowed the deduction. It held that Section 54F requires purchase or construction of a new residential property within the prescribed period and specifies other conditions relating to ownership of residential houses, but does not prescribe any restriction based on the relationship between the buyer and the seller. It further held that purchase of a property from a spouse is not prohibited under Section 54F. The CIT(A) also observed that the earlier assignment between the HUF and the assessee’s husband and the later purchase by the assessee were separate transactions, that consent of HUF members was required for transfer of HUF property, and that such consent had no bearing on the assessee’s claim in the relevant assessment year. Referring to Section 47(i), the CIT(A) held that the assignment between the HUF and the husband was not pursuant to partition and therefore constituted a transfer. It also observed that the Act contains no provision excluding transfers between husband and wife for adequate consideration and noted that the assessee had paid ₹3,50,00,000 through banking channels. Accordingly, the CIT(A) directed the Assessing Officer to allow the deduction under Section 54F.
