Munishamappa Shivanna Vs ITO (ITAT Bangalore)
No Bills Does Not Mean No Building—ITAT Restores s.54F Claim Supported by Valuation Report &; Completion Certificate
Summary:
The controversy
The assessee, Mr. Munishamappa Shivanna, was in appeal before the Bangalore ITAT for AY 2016-17 against an ex parte order passed by the CIT(A)/NFAC.
The assessment had been reopened, and an order was passed u/s 147 r.w.s. 144B. The dispute principally concerned taxation of consideration received upon transfer of Transferable Development Rights, denial of indexed cost of acquisition & disallowance of deduction claimed u/s 54F for construction of a residential house.
The assessee also challenged the validity of notice u/s 148 dated 25 March 2023. According to him, the notice had been issued by the Jurisdictional AO in contravention of the mandatory faceless reassessment scheme notified u/s 151A and the e-Assessment of Income Escaping Assessment Scheme, 2022.
Appeal dismissed despite uploaded submissions
The CIT(A) issued several notices dated 17 July, 16 September, 26 September, 10 October & 28 October 2025.
In the appellate order dated 25 November 2025, the CIT(A) recorded that the assessee had not filed written submissions or annexed any material challenging the findings of the AO. The appeal was consequently dismissed ex parte.
Before the Tribunal, however, the assessee produced the e-proceedings response acknowledgement demonstrating that detailed written submissions and supporting judicial precedents had actually been uploaded on 25 November 2025 under acknowledgement No.640070591251125.
Thus, the appellate order and the assessee’s electronic response bore the same date, but the submission had not been considered while deciding the appeal.
The Departmental Representative fairly conceded before the Tribunal that, since the uploaded material had not been examined, the assessee deserved another opportunity.
Challenge to taxation of TDR
On merits, the assessee contended that the transfer of TDR could not be subjected to capital-gains tax because its cost of acquisition was indeterminate.
Reliance was placed upon the principle laid down by the Supreme Court in CIT v. B.C. Srinivasa Shetty, 128 ITR 294, namely that where computation provisions fail because the cost of acquisition cannot be determined, the charging provision for capital gains may also fail.
The assessee further contended that the AO had treated the entire sale consideration as long-term capital gain without granting any deduction for indexed cost of acquisition.
However, the ITAT did not decide either the chargeability of the TDR or the availability and method of computing its cost. These questions were left open for examination in the restored proceedings.
Residential construction was not disputed
The assessee had claimed deduction u/s 54F on the ground that the consideration received from transfer of the capital asset was invested in constructing a residential house within the prescribed period.
The AO denied the entire deduction because the assessee did not furnish individual bills & vouchers supporting every item of construction expenditure.
The assessee, however, had produced several other pieces of evidence during assessment, including:
the ledger account of building construction, sale deed, bank statements, a registered valuer’s report & completion certificate issued by the local authority.
According to the assessee, these documents established both the actual construction of the house and the quantum invested. The absence of individual vouchers could affect verification of the amount, but could not justify treating the entire construction as non-existent.
AO ignored relevant evidence
The ITAT noticed that the construction of the residential building was not in dispute. It therefore held that the AO should not have completely disallowed the deduction u/s 54F merely because individual bills and vouchers had not been produced.
The valuation report and completion certificate were relevant pieces of evidence. The AO had ignored both while rejecting the claim in its entirety.
A registered valuer’s report may assist in estimating the nature, extent & cost of construction, while the completion certificate establishes that the building was actually completed. Bank statements and the building-construction ledger may further corroborate the flow and utilisation of funds.
These documents required proper examination rather than outright rejection.
ITAT’s ruling
In the interest of justice, equity & fair play, the Tribunal restored the entire dispute to the AO for fresh adjudication.
The AO was specifically directed to take into consideration the valuation report furnished by the assessee while examining the claim, notwithstanding the absence of individual bills & vouchers.
The AO was also required to grant the assessee a reasonable opportunity of hearing and decide all issues in accordance with law.
The order therefore does not finally allow the deduction u/s 54F. Nor does it decide the challenge to the reassessment notice, the taxability of TDR or the claim that the computation mechanism failed for want of an ascertainable cost of acquisition. All those questions remain open for fresh determination.
The appeal was partly allowed for statistical purposes.
Author’s comments
The ruling affirms that absence of perfect documentation does not justify a 100% disallowance where the underlying investment itself is proved.
Bills and vouchers are undoubtedly the best evidence of actual construction expenditure. But where the completed house exists and the assessee produces a registered valuer’s report, local-authority completion certificate, bank statements & construction ledger, the AO must evaluate the evidence cumulatively.
A valuation report is not conclusive and cannot automatically replace primary vouchers. Yet it is a recognised evidentiary tool that cannot be discarded without identifying defects, obtaining a contrary valuation or making a reasonable verification.
The order also highlights a recurring faceless-appeal problem: a response uploaded on the date of disposal may not reach the decision-maker before the order is finalised. An electronic acknowledgement is therefore crucial proof of compliance.
On remand, the assessee must establish the date of transfer, nature and origin of TDR, applicability of B.C. Srinivasa Shetty, actual investment in construction & satisfaction of every condition u/s 54F. The AO must decide these independently through a speaking order—not treat missing vouchers as a demolition certificate.
Cases Discussed
- CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 294 (SC)
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, BANGALORE BENCH
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 25.11.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1082959582(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2016-17.
2. The assessee has raised the following grounds of appeal:-
| Grounds Raised | Tax Effect in INR |
|---|---|
| 1) The impugned order passed by the Ld CIT(A) is opposed to law, facts and circumstances of the case and is liable to be quashed. | General ground |
| 2) The Ld CIT(A) erred in confirming the reassessment order passed u/s 147 r.w.s.144B, without appreciating that the notice issued u/s 148 dated 25/03/2023 by the Jurisdictional AO is without jurisdiction, void ab initio and non est in law, having been issued in contravention of the mandatory faceless reassessment scheme notified u/s 151A of the Income-tax Act, 1961 and the e-Assessment of Income Escaping Assessment Scheme, 2022. | Rs 54 (inclusive of interest u/s 234A and 234B) |
| 3) The Ld CIT(A) erred in disposing of the appeal ex parte and in limine without adjudicating the grounds raised and the submissions made by the Appellant thereby violating the principles of natural justice and the mandate of section 250(6) of the Act. | Same as above |
| 4) Without prejudice to the above, the learned authorities below erred in subjecting the transfer of Transferable Development Rights (TDR) to tax under the head “Capital Gains”, without appreciating that the cost of acquisition of such TDR is indeterminate and not capable of computation under the provisions of the Act, and consequently, the charging provisions fail in view of the law laid down by the Honorable Supreme Court in CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 294 (SC). | Same as above |
| 5) Without prejudice to the grounds above and assuming without admitting that the transfer of Transferable Development Rights is chargeable to tax under the head “Capital Gains”, the Ld CIT(A) erred in law and on facts in confirming the disallowance of deduction claimed u/s 54F of the Income-tax Act, 1961 inasmuch as:
a) the Appellant had, within the prescribed period, constructed a residential house and invested the consideration received from transfer of the capital asset. b) the deduction u/s 54F was denied solely on the ground of non-production of individual bills and vouchers, despite the construction and quantum of investment being duly evidenced by a registered valuer’s report, building construction account, bank statements and completion certificate issued by the local authority. |
Same as above |
3. At the outset, the ld. AR of the assessee drew our attention to the ground No.3 as raised by the assessee & vehemently submitted that the ld. CIT(A)/NFAC dismissed the appeal of the assessee vide order dated 25/11/2025 stating that the assessee had not filed written submission despite various notices dated 17/07/2025, 16/09/2025, 26/09/2025, 10/10/2025 & 28/10/2025 issued to the assessee & nothing has been annexed to challenge the finding of the AO and accordingly dismissed the appeal of the assessee. Further, the ld. AR of the assessee drew our attention to the page Nos. 09-10 of the Paper book & submitted that in fact the assessee had uploaded the detailed written submissions along with the relevant case laws in support of the case on 25/11/2025 vide e-proceedings Response Acknowledgement No. 640070591251125 which were not considered by the ld. CIT(A)/NFAC while passing the Appellate Order which is a gross violation of principles of natural justice.
4. The ld. DR also fairly conceded that one more opportunity may be granted before the ld. CIT(A)/NFAC as the submissions of the assessee dated 25/11/2025 as claimed by the assessee were not considered by the ld. CIT(A)/NFAC.
5. We have heard the rival submissions & perused the material available on Record. Undisputedly, the ld. CIT(A)/NFAC dismissed the appeal of the assessee by observing that the assessee had not filed any written submissions despite various notices dated 17/07/2025, 16/09/2025, 26/09/2025, 10/10/2025 & 28/10/2025 issued to the assessee & also nothing has been annexed to challenge the findings of the AO. However, we take note of the fact that the assessee had in fact uploaded the written submissions along with the case laws relied upon by him on 25/11/2025 vide e-proceedings Response Acknowledgement No. 640070591251125 which were not considered by the ld. CIT(A)/NFAC while passing the Appellate Order. Further, before us, the ld. AR of the assessee also drew our attention to the fact that the entire sales Consideration received by the assessee was treated as Long term Capital Gain without providing the deduction towards indexed cost of acquisition. Further, it is submitted that the AO merely on the ground of non-submission of bills & vouchers in respect of expenditure claimed for construction of house disallowed the deduction claimed u/s 54F of the Act despite the fact that the assessee during the course of assessment proceedings submitted the ledger copy of building construction A/c, copy of the Sale deed, copy of bank statement, Valuation report & Completion Certificate. Thus, in our considered opinion the construction of building is not in dispute & therefore the AO should not have completely disallowed the claim of deduction u/s 54F of the Act. The AO by completely ignoring the valuation report & completion certificate had denied the deduction claimed by the assessee u/s 54F of the Act. This being so, in the interest of justice, equity & fair play and as requested by the ld. AR of the assessee, we deem it fit & proper to remit the entire issue in dispute to the file of the ld. AO to decide in accordance with law after taking into consideration the valuation report submitted by the assessee in the absence of bills & vouchers. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. It is ordered accordingly.
6. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 7th Sept, 2026
