Anand Boddapaty Vs PCIT (ITAT Hyderabad)
Unregistered Sale Agreement with Spouse Not Enough for Section 54F Exemption – Section 263 Revision Upheld: Capital Gain Exemption Denied on Unregistered Intra-Spouse Property Deal– ITAT Hyderabad
Assessee had sold a property & claimed exemption u/s 54F by purchasing a duplex villa from his wife, Smt. Radha Kumari Boddapaty, for ₹4.40 crore. The transaction was based on an un-registered sale agreement with possession (15.05.2021) because the property was listed as “Prohibited Property” under Government of Telangana notifications, hence not registrable.
PCIT’s Findings (263 Proceedings)
- Purchase from wife via an unregistered agreement cannot be considered a valid transfer.
- Exemption u/s 54F of ₹4.26 crore allowed by AO was erroneous.
- AO failed to make proper enquiry & accepted claim mechanically.
- Thus, order was both erroneous & prejudicial to Revenue. AO was directed to redo assessment.
Assessee’s Contentions
- AO had specifically examined capital gains & exemption claim u/s 54.
- Agreement of sale with possession is a valid mode; Supreme Court rulings u/s 53A of Transfer of Property Act recognize possessory rights.
- No prohibition in the Act against purchasing property from spouse.
- Non-registration was due to prohibitory orders; AO accepted explanation.
- Hence, PCIT merely changed opinion, which is impermissible under s.263.
Revenue’s Stand
- AO failed to properly verify the genuineness of the unregistered transaction.
- Lack of enquiry makes assessment erroneous.
- PCIT rightly assumed jurisdiction.
Tribunal’s Observations/ Decision
- For s.263 action, PCIT must show the AO’s order is both erroneous & prejudicial.
- Here, exemption u/s 54F was based solely on an unregistered agreement with wife (related party).
- Assessee failed to prove genuine attempts to register the property or produce independent evidence.
- Unregistered agreement is a self-serving document without evidentiary value.
- Explanation 2 to s.263 applies: an order passed without necessary enquiry is deemed erroneous & prejudicial.
- Case laws cited by assessee (Malabar Industrial Co., Max India, Sanjeev Lal, Balraj, Spectra Shares, etc.) not applicable because facts differ – here the related party transaction & lack of registration made claim doubtful.
- Tribunal upheld PCIT’s order u/s 263 & held Assessment was indeed erroneous & prejudicial to Revenue.
- Exemption u/s 54F could not be accepted merely on basis of an unregistered intra-spouse agreement.
Exemption u/s 54/54F requires genuine acquisition of a new residential property. If purchase is through an unregistered agreement, especially from a related party like spouse, without proper evidence of registration attempts, AO’s acceptance without enquiry makes order vulnerable u/s 263.
