ACIT Vs Prasanna Lakshmi Chakka (ITAT Hyderabad)
Unregistered Sale Agreement Can Still Qualify for Section 54 Relief – Hyderabad ITAT Says “Investment”, Not Registered Title, Is the Real Test
The Hyderabad ITAT reiterated that exemption under section 54 cannot be denied merely because the new residential property was acquired through an unregistered agreement to sell and not through a registered sale deed. The Tribunal held that what is relevant for section 54 is substantial investment towards acquisition of a residential house within the prescribed period and not formal transfer of legal title alone.
Relying upon the Supreme Court ruling in Sanjeev Lal v. CIT and various High Court decisions including R.L. Sood, Kuldeep Singh and Shakuntala Devi, the ITAT observed that the word “purchase” in section 54 has a wider and purposive meaning and cannot be narrowly confined only to execution of a registered conveyance deed. The Bench emphasized that beneficial provisions granting capital gains exemption deserve liberal interpretation.
The Tribunal also referred to its earlier Hyderabad Bench ruling in Syama Reddy Mali Reddy, reiterating that substantial payment, acquisition of rights and genuine investment in a residential property can satisfy the requirements of section 54/54F even if possession, registration or occupancy certificate is obtained later.
However, while rejecting the Revenue’s pure legal objection regarding absence of registration, the ITAT accepted the Department’s argument that genuineness of the unregistered agreement and actual investment required factual verification. The Tribunal held that although the DR cannot ordinarily improve upon the assessment order, issues going to the root of the deduction claim can still be examined by the Tribunal as the final fact-finding authority.
Accordingly, the matter was restored to the AO for fresh verification of the genuineness of the investment, nature of payments and surrounding facts relating to the assessee’s section 54 claim.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeals filed by the Revenue are directed against the respective orders passed by the Commissioner of Income Tax (Appeals)-12, Hyderabad, dated 15/07/2025, which in turn arises from the respective orders passed by the Assessing Officer (for short, “AO”) under section 147 of theIncome Tax Act, 1961 (for short, “the Act”), dated 19/03/2025 and under section 147 r.w.s 144 of the Act, dated 18/03/2025 for the Assessment Year (AY) 2021-22 and AY 2022-23, respectively. As the issues involved in the captioned appeals are interlinked and interwoven, the same are being taken up and disposed of vide a consolidated order. We shall first take up the appeal filed by the assessee in ITA No. 1599/Hyd/2025, wherein the impugned order has been assailed on the following grounds of appeal:
1. That the learned CIT(A) erred both on facts and in law in passing the impugned order.
2. That the learned CIT(A) erred in granting relief to the assessee on the basis of an ‘Agreement of Sale’, ignoring the fact that the ownership of the property had not been physically or legally transferred to the transferee.
3. That the learned CIT(A) erred in holding that taking of physical possession or execution of a registered sale deed was immaterial to the question of ownership and transfer.
4. That the learned CIT(A) failed to appreciate that, as per Section 54 of the Transfer of Property Act, unregistered documents cannot be relied upon to claim ownership of immovable property.
5. That the learned CIT(A) erred in treating the ‘Agreement of Sale’ as constituting a complete transfer by relying on judicial precedents cited in Paragraph 6.2.9 on page 20 of the appellate order.
6. That the learned CIT(A) ignored the fact that mere possession or execution of a sale agreement, without conclusive proof of possession in part-performance or any acts by the transferee in furtherance of the contract, is insufficient to invoke Section 53A of the Transfer of Property Act, 1882.
7. The appellant craves leave to amend, modify, or alter any of the grounds of appeal wherever necessary.”
2. Succinctly stated, the assessee is an individual deriving income from salary, house property, capital gains, and other sources. Search and seizure operation under section 132 of the Act was conducted in the case of “Vertex Group” and related entities on 31.01.2023. Consequent thereto, proceedings under section 147 of the Act were initiated in the assessee’s case, and the assessment was completed vide order passed under section 147 r.w.s. 143(3) of the Act dated 19.03.2025.
