Income Tax Appellate Tribunal - Surat
Arun Kumar Gupta, Income Tax vs Asodaria Gordhanbhai Ranchhodbhai ... on 29 December, 2025
IN THE INCOME-TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT
BEFORE SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER AND
SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER
ITA No. 601/SRT/2023 (AY: 2017-18)
(Hybrid Hearing)
DCIT, vs. Asodariya Gordhanbhai
Circle- 1(3), Ranchhodbhai (HUF),
Surat 8, Raghuvir Bungalow, City Light
Road, Surat, Gujarat
थायीले खासं /.जीआइआरसं /.PAN/GIR No: AACH A70 33D
(Appellant) (Respondent)
Appellant by Shri Mukesh Jain, CIT-DR with
Shri Kevin Langaliya, CA
Respondent by Shri Manish J. Shah, Advocate
Date of Hearing 07/11/2025
Date of Pronouncement 29/12/2025
आदे श / O R D E R
PER DINESH MOHAN SINHA, JM:
This appeal by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, 'Act') by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, [in short, 'CIT(A)'] dated 03.07.2023 for assessment year (AY) 2017-18.
2. The grounds of appeal raised by the revenue are as follows:
"1. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in directing the AO to allow the assessee's claim for deduction of Rs.4,77,37,017/- u/s 54F of the Income-tax Act.
2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to allow deduction u/s 54F of the Income-tax Act, 1961 without appreciating findings of the AO and the facts and circumstances established on record which show that the assessee had not fulfilled the conditions laid down as per the provisions of section 54F of the Income-tax Act, 1961 and the exemption claimed u/s 54F of the Act was erroneous.ITA No.601/SRT/2023/AY 2017-18
Asodariya Gordhanbhai Ranchodbhai (HUF)
3. It is therefore prayed that the order of the ld. CIT(A) may kindly be set aside and that of the AO be restored.
4. The appellant craves leave to add, alter, amend and/or withdraw any ground of appeal either before or during the course of hearing of the appeal."
3. Since the grounds are inter-related and pertained to the correctness of the deduction u/s 54F of the Act, they are taken up together for adjudication for the sake of clarity and convenience.
4. The facts of the case in brief are that the assessee filed its revised return of income on 05.04.2018 declaring total income of Rs.81,06,140/-, which included long-term capital gains (LTCG) of Rs.80,62,933/-. The assessee had sold three non- agricultural plots situated at Makarba, for a total consideration of Rs.6,91,74,750/-. Against the resultant capital gain, the assessee claimed deduction u/s 54F amounting to Rs.4,77,37,017/- on the ground that it had invested the consideration in a new residential property consisting of two flats, being Flat Nos.B-103 and B-104 in the residential project known as "Raghuvir Shell", Vesu, Surat. The case was selected for complete scrutiny through CASS and accordingly notices u/s 143(2) and 142(1) were issued calling for supporting documents, agreements, financial trail, ownership proof and evidence of fulfillment of statutory conditions u/s 54F.
5. During the course of assessment proceedings, the assessee furnished a notarized agreement for sale dated 12.09.2016 and a possession deed dated 27.03.2018 in support of the claim. The assessee also submitted that both flats formed one composite residential house and, therefore, qualified for exemption u/s 54F of the Act. It was further stated that payments towards purchase were made through banking channels and the housing loan sanctioned by Union Bank of India was utilized for the acquisition.
6. The Assessing Officer (in short, 'AO') examined the claim in detail and noted that the exemption was claimed in respect of two distinct residential units and not a single residential house as envisaged u/s 54F. The AO observed that no registered conveyance deed evidencing legal title of ownership had been executed within the 2 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) statutory time limit prescribed under the Act. The documents relied upon by the assessee consisted only of unregistered notarized papers and therefore did not constitute a valid instrument of transfer in law. It was also noted that the transaction was with a related-party builder firm namely, M/s Raghuvir Developers and Builders, wherein the Karta of the assessee-HUF himself was a partner, thereby giving rise to the possibility of self-controlled documentation without real transfer of ownership or possession. To verify the factual position, the AO directed his Inspector to conduct physical verification of the property. The Inspector's report revealed that Flat No.B- 104 was being used as a builder's sample flat and was used for marketing purposes, while Flat No.B-103 was found to be in the occupation of a third party having the name "Kaswala", with a permanent name plate affixed at the entry of 'B' Tower, Raghuvir Shell. These findings, according to the AO, clearly contradicted the assessee's claim of exclusive possession and usage. The AO also noted that separate electricity connections and municipal property tax assessments existed for both flats and that bills continued to be issued in the name of the builder, demonstrating absence of beneficial ownership by the assessee.
7. The AO further noted that the assessee had not utilized the sale consideration received from transfer of original capital assets for the purported investment in the new property and instead availed housing loan finance for the same. It was observed that the assessee had sold three assets but claimed deduction in respect of more than one unit, whereas the statutory framework u/s 54F contemplates exemption only in respect of investment in one residential house. The AO, therefore, held that the assessee had failed to satisfy multiple mandatory statutory conditions, including the condition of "purchase", the nature of the asset being "one residential house", the condition relating to possession and ownership and the requirement of application of net consideration toward the investment. In view of these facts and in absence of credible evidence demonstrating a genuine and legally enforceable transfer of residential property within the prescribed time frame, the AO disallowed the 3 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) exemption claimed u/s 54F of the Act aggregating to Rs.4,77,37,017/- and computed the total income at Rs.5,58,43,160/- as against the returned income of Rs.81,06,140/-.
8. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made during the assessment proceedings and further contended that the AO had erred in interpreting the provisions of section 54F in a restrictive manner by concluding that the exemption was allowable only against the purchase of a single residential house. It was argued that the expression used in the statute is "a residential house" and the same has been consistently interpreted by various judicial forums to include more than one residential unit where such units are adjacent, on the same floor, and capable of being used as a single residential house. The assessee further submitted that both flats in question formed one combined usable dwelling unit and therefore, the exemption was allowable in full.
9. The assessee also submitted before the CIT(A) that the AO was incorrect in treating the transaction as colourable or sham transaction merely because the builder was a related concern. It was argued that all payments had been made through banking channel, the loan was sanctioned by Union Bank of India after due scrutiny, and notarized documents and possession records demonstrated transfer and enjoyment of the property. The assessee further contended that the Inspector's report was obtained behind its back without affording any opportunity to cross-examine or rebut the findings and therefore, could not be relied upon against the assessee. The assessee also placed on record electricity bills, municipal tax receipts, loan repayment statements, the possession agreement, and other documentary evidence to substantiate its claim. No registered sale deed was available or produced during the appellate proceedings before the CIT(A), as the same did not exist at that stage.
10. The assessee, in support of its legal arguments, placed reliance on several judicial precedents including the decisions of the Hon'ble Karnataka High Court in CIT v. D. Ananda Basappa, 309 ITR 329, Hon'ble Delhi High Court in CIT v. Gita 4 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) Duggal, 357 ITR 153, the decision of the Hon'ble ITAT Ahmedabad in the case of Shri Pankaj Chimanlal Patel (HUF) v. DCIT, in ITA No.3179/Ahd/2019, dated 12.12.2018 and some other decisions of the ITAT, Mumbai wherein exemption u/s 54/54F of the Act was allowed in cases of adjoining or multiple flats used as a single residential unit. Relying upon these decisions, it was argued that the claim of the assessee was squarely covered and the interpretation adopted by the AO was contrary to settled principles.
11. After considering the submissions of the assessee, the documentary evidence filed and the judicial precedents relied upon, the CIT(A) accepted the assessee's contention. The CIT(A) held that the two flats formed a single residential unit and, therefore, qualified for exemption u/s 54F. The CIT(A) also observed that the Inspector's report could not be treated as conclusive evidence, particularly in absence of cross-examination, and further held that notarized agreements and possession documents were sufficient to establish purchase and possession for the purposes of claiming deduction u/s 54F of the Act. The CIT(A), thus, allowed the assessee's claim and deleted the entire disallowance of Rs.4,77,37,017/- made by the AO.
12. Aggrieved by the order of CIT(A), the revenue has filed appeal before the Tribunal. The learned Commissioner of Income-tax - Departmental Representative (ld. CIT-DR) supported the order of the lower authorities. He submitted that this was not a case of a mere technical lapse or debatable interpretation of section 54F, but a case where the assessee had engineered an artificial, documentation-based arrangement with a related party only to secure exemption from long-term capital gains tax without satisfying the mandatory statutory conditions. Drawing the Bench's attention to the sequence of events, the ld. CIT-DR submitted that immediately after the sale of three non-agricultural plots on 29.08.2016, the assessee entered into an unregistered notarized agreement dated 12.09.2016 with Raghuvir Developers and Builders, a firm in which the Karta of the assessee-HUF is himself a partner. Thus, the assessee had effectively negotiated with itself and retained complete control on 5 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) both sides of the transaction, with the ability to modify, cancel, backdate or rewrite documentation depending upon tax exigencies.
13. The ld. CIT-DR further submitted that the so-called possession deed dated 27.03.2018 was also an unregistered, self-serving document executed just before the time of filing the revised return on 05.04.2018. It was argued that this possession deed had no legal sanctity and was created only to fabricate a semblance of compliance with section 54F of the Act. He pointed out that despite this alleged possession, the ground-level factual position, as brought on record through the Inspector's reports dated 14.12.2019 and 23.12.2019, showed that one of the flats was being used as a builder's sample flat and the other was occupied by a third party. In particular, Flat No. B-104 was used as a fully furnished sample flat for marketing purposes by the builder, while Flat No. B-103 was in possession of the Kaswala family, with their name plate fixed at the entrance of building, a feature which, in residential societies, reflects actual dominion and enjoyment by the occupant. The ld. CIT-DR submitted that these facts conclusively demonstrated that the assessee never obtained real, exclusive or beneficial possession of either flat and that the entire narrative of "possession" was contrary to objective evidence. The ld. CIT-DR pointed out that the entire sequence of events after the case was selected for complete scrutiny in reality pointed to creation of self-serving documents made between related parties which were unregistered, and then finally leading to the creation of an unregistered possession deed on 27.03.2018 just before the filing of revised return also lends credence to the above argument. That was the reason why on physical inspection, the documents filed by the assessee were contrary to the facts on the ground. That was also the reason for non-registration of sale agreement and that only after the case was selected for scrutiny, the assessee entered into a registered sale deed on 27.07.2024, which was not only way beyond the statutory time period as prescribed u/s 54F of the Act. No reason has ever been advanced by the assessee ever, before any authority, as to the reasons which compelled the assessee to sign the 6 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) registered agreement with a delay of 7 years. The entire sequence of events, as per ld. CIT-DR, pointed out the mechanism and adoption of this colorable devices to claim deduction u/s 54F of the Act, even though the claim was not tenable.
14. The ld. CIT-DR submitted that the CIT(A) had completely erred in discarding the Inspector's report on the technical ground that it was prepared behind the back of the assessee. It was argued that the Inspector's report was based on physical verification, supported by photographs and video footage, which were shown before the Bench, and that the findings therein had never been effectively rebutted by the assessee through any cogent material. The assessee had not been able to show that it or its family members had at any point of time resided in the flats, or exercised any incident of ownership such as control, exclusion of third parties, or consistent occupation. The ld. CIT-DR emphasized that possession u/s 54F of the Act is not a matter of self-declaration but must be reflected through control, occupation and enforceable legal rights, all of which were absent in the present case.
15. The ld. CIT-DR further submitted that there was a complete absence of a registered conveyance deed within the period prescribed u/s 54F. He drew attention to the legal position laid down by the Hon'ble Supreme Court in Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana (2012) 340 ITR 1 (SC) and followed in Ramesh Chand (D) through LRs v. Suresh Chand & Anr., Civil Appeal No.6377 of 2012, dated 01.09.2025, wherein it has been categorically held that ownership in immovable property does not pass through agreement to sell, GPA, will, affidavit, possession letter or similar arrangements, but only through a duly stamped and registered conveyance deed. In the present case, the registered sale deed for Flat Nos. B-103 and B-104 was executed on only 23.07.2024, nearly seven years after the sale of the original assets and long after the statutory window for purchase or construction u/s 54F of the Act had closed. The ld. CIT-DR submitted that this belated registration, produced as additional evidence, was not contemporaneous with the transaction and 7 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) was clearly a reaction to the scrutiny and litigation; it could not retrospectively cure the foundational statutory defect of non-purchase within the stipulated period.
16. The ld. CIT-DR also brought to the notice of the Bench that the assessee had sold three separate capital assets but claimed exemption u/s 54Fof the Act in respect of two separate residential units. He argued that the plain wording of section 54F contemplates investment of the net consideration in "a residential house" and not multiple independent units. While acknowledging that some Hon'ble High Courts have interpreted "a" to include plural in genuine cases of combined, integrated dwelling units, he submitted that those decisions, such as D. Ananda Basappa (supra) and Gita Duggal (supra) were rendered in fact situations where the flats were adjoining, internally connected, structurally integrated, and actually used as a single residence with proper registered conveyances. In contrast, in the present case, the two flats were legally and structurally independent units, with separate electricity meters, separate municipal assessments, separate loan components and no internal connection or architectural blending. Further, the contemporaneous usage was not as a single residence of the assessee at all but as a sample flat and a third-party occupied premise. He also relied upon the recent decision of the Hon'ble Delhi High Court in Mrs. Kamla Ajmera vs. PCIT, (2024) 169 taxmann.com 119, wherein it was held that where two flats cannot be physically combined into a single living unit, exemption cannot be extended to treat them as "one residential house" for the purposes of section 54F of the Act.
17. On the investment aspect, the ld. CIT-DR submitted that another critical statutory failure arose from the assessee's admitted position that the so-called purchase of the flats was financed almost entirely through a housing loan from Union Bank of India, rather than out of the net sale consideration received from the transfer of the original capital assets. He relied on the decision of the ITAT Mumbai in Milan Sharad Ruparel v. ACIT (2010) 5 ITR(T) 570 (Mum) to contend that section 54F contemplates reinvestment of the consideration received on transfer in a residential 8 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) house and does not intend to extend exemption where the new asset is acquired substantially out of borrowed funds while capital gains remain available to the assessee. He submitted that this financing pattern, coupled with the related-party nature of the transaction and absence of timely registration, showed that the arrangement was not a bona fide re-investment but an exercise designed to create a legal facade for claiming exemption u/s 54F of the Act while retaining flexibility and liquidity.
18. The ld. CIT-DR also addressed the time-limit requirement u/s 54F of the Act. He submitted that the transfer of original assets on 29.08.2016 triggered the statutory period of two years for purchase and three years for construction. In the present case, even if one were to assume that the assessee intended "purchase", the only legally recognized conveyance was the registered sale deed dated 23.07.2024, well beyond any statutory window. He placed reliance on the decision of the ITAT, Rajkot in case of ITO v. Hiteshbhai Mansukhbhai Bagdai (2024) 162 taxmann.com 547, wherein it was held that if the registered sale deed is executed beyond the prescribed time limit, exemption u/s 54F cannot be allowed, irrespective of any earlier unregistered agreements or claims of possession. He submitted that this decision was rendered within the same jurisdictional zone and squarely applied to the present case, thereby compelling denial of exemption.
19. The ld. CIT-DR submitted that decisions relied upon by the assesse in cases of D. Ananda Basappa (supra), Gita Duggal (supra) etc. were distinguishable on facts because, in those cases, there was no allegation of a colorable device, title was transferred through registered documents within time, the flats were genuinely converted into a single residential unit and were actually used as such by the assessee. In contrast, the present case involved (i) a related-party builder, (ii) unregistered documentation, (iii) absence of genuine possession, (iv) third-party occupation and sample flat usage, and (v) delayed registration after 7 years only after the tax dispute surfaced. He submitted that the CIT(A) had mechanically applied the 9 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) above precedents without appreciating these crucial distinguishing features and without considering binding principles laid down in Suraj Lamp (supra), McDowell & Co. Ltd. v. ITO (1985) 154 ITR 148 (SC) and Vodafone International Holdings B.V. v. Union of India, 341 ITR 1, which mandate that courts must look at the real substance of the transaction and disregard arrangements lacking commercial purpose and aimed solely at tax avoidance.
20. In conclusion, the ld. CIT-DR submitted that the cumulative facts clearly showed that there were (i) no valid "purchase" within the statutory period, (ii) no real or beneficial possession of the alleged new asset, (iii) no utilization of net sale consideration for reinvestment, (iv) acquisition of more than one independent residential unit contrary to the statute, and (v) a controlled related-party structure used as a colorable device to reduce tax liability. He contended that the assessee had failed to satisfy even the threshold conditions of section 54F and that the CIT(A), by ignoring the Inspector's findings, by treating unregistered papers as equivalent to conveyance deeds and by misapplying judicial precedents, had rendered an order that was both factually and legally unsustainable. He, therefore, prayed that the order of the CIT(A) be set aside and that the assessment order disallowing the claim of deduction u/s 54F of the Act and computing the total income at Rs.5,58,43,160/- be restored in toto.
21. On the other hand, learned Authorized Representative (ld. AR) supported the order of the CIT(A) and submitted that the assessee had fully complied with the statutory requirements prescribed u/s 54F of the Act. He submitted that the AO had proceeded on assumption, suspicion and selective appreciation of evidence, while the CIT(A) had correctly appreciated the facts, chronology of events, nature of documents executed, and the judicial precedents governing interpretation of the expression "a residential house". It was submitted that the AO erred in treating the transaction as artificial merely because the builder was a related concern, without demonstrating any tangible evidence of mala-fides or unexplained financial flow. The 10 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) ld. AR submitted that it was a matter of record that the assessee had sold long-term capital assets and invested the consideration in a residential property and therefore, the statutory benefit u/s 54F of the Act could not be denied merely on technicalities.
22. The ld. AR submitted that the AO's reliance on the Inspector's report was misplaced, because such report was prepared behind the back of the assessee without granting an opportunity to rebut, cross-examine or clarify. He argued that the Inspector's observations including the alleged placement of a nameplate, temporary use of one flat as a sample unit by the builder, and the alleged occupation by a third party could not be treated as conclusive proof regarding legal or beneficial ownership. He further submitted that use of a residential flat by family members, relatives, or temporary occupants does not extinguish the assessee's ownership rights nor affect eligibility u/s 54F. He emphasized that income tax proceedings are governed by evidentiary standards under the Act and not by visual impressions recorded in a field visit.
23. The ld. AR further submitted that both flats, namely B-103 and B-104, were situated side by side on the same floor, designed as a combined living space, and were intended to be used as a single residential house. There were only two flats in the same floor. He argued that the AO focused solely on the number of units appearing on paper without appreciating the functional usage and intention of the assessee. He submitted that separate electricity connections and municipal billing do not alter the character of the asset as long as the physical and intended use is that of one residential house. It was further submitted that the AO's objection that the assessee had acquired two units was contrary to a long line of judicial precedents, including those relied on by the CIT(A).
24. The ld. AR relied upon the decisions of the Hon'ble Karnataka High Court in D. Ananda Basappa (supra) and CIT v. K.G. Rukminiamma, 331 ITR 211, wherein it was held that multiple flats forming part of the same residential complex constitute a single residential house and qualification u/s 54F cannot be denied merely because 11 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) there are more than one door numbers. He also relied on the judgment of the Hon'ble Delhi High Court in Gita Duggal (supra), wherein it was held that even where multiple floors or units exist, the expression "a residential house" must be interpreted pragmatically and not literally, and exemption cannot be denied if the property constitutes a single liveable structure.
25. The ld. AR submitted that the finding of AO that exemption was wrongly claimed because the assessee sold more than one asset was misconceived. He submitted that section 54F merely requires that capital gains arising from "any long- term capital asset" be invested in "a residential house". The use of the word "any", he argued, indicates that even multiple assets can be transferred, and this principle has been affirmed by the Ahmedabad Bench in Shri Pankaj Chimanlal Patel (HUF) v. DCIT, ITA No. 3179/Ahd/2019, dated 12.12.2018. He submitted that denial of exemption on the basis that the assessee sold three properties was contrary to legislative intent and judicial interpretation.
26. On the issue of unregistered agreements, the ld. AR submitted that the law recognizes agreement for sale coupled with possession as a valid form of transfer for purposes of section 54F of the Act, particularly when supported by evidence of payment and enjoyment. He submitted that the possession deed dated 27.03.2018 was executed well within the statutory window and demonstrated transfer of control. He relied on the principle that income-tax law does not necessarily require registered title for claiming exemption u/s 54F as long as ownership is complete in substance and the assessee is entitled to occupy and enjoy the property. He also submitted that the execution of the registered sale deed in July 2024 only formalized rights already vested in the assessee earlier.
27. The ld. AR also addressed the issue of funding and submitted that there is no statutory mandate requiring utilization of the exact proceeds received from transfer of the original asset. He submitted that the Act merely requires that the assessee "invest" the amount in a residential house and does not prohibit sourcing funds through loan 12 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) or any other legitimate means. He argued that reliance placed by the ld. CIT-DR on the Mumbai Bench ruling in Milan Sharad Ruparel (supra) was misplaced because the legal position has evolved and courts have held that mode of funding is irrelevant so long as investment is made within time.
28. The ld. AR submitted that the assessee had furnished a comprehensive paper book including loan sanction letter, loan repayment statements, notarized agreement, possession deed, electricity bills, property tax payment receipts, BU certificate issued by municipal corporation and bank statements reflecting installment payments. These documents, according to the ld. AR, demonstrated consistent conduct of ownership and intention to occupy, whereas the AO disregarded them and relied only on conjectural assumptions.
29. Finally, the ld. AR submitted that the assessee's case was squarely covered by judicial precedents, the investment was bona fide and genuine, and the AO had erred in denying the exemption claimed u/s 54F of the Act by adopting a hyper-technical and restrictive approach. He submitted that the CIT(A) had passed a well-reasoned order by applying settled law and appreciating evidences placed on record and, therefore, prayed that the appeal of the Revenue be dismissed.
30. In brief rejoinder, the ld. CIT-DR submitted that the arguments advanced by the assessee do not address the core statutory deficiencies noted by the AO. He contended that reliance on judicial precedents permitting exemption u/s 54F of the Act in cases of adjoining or multiple flats was misplaced because those decisions presupposed a valid, registered transfer of ownership and actual user as a single residential unit, conditions demonstrably absent in the present case. The ld. CIT-DR argued that mere execution of notarized documents or payment through banking channels cannot substitute the statutory requirement of purchase evidenced through a registered conveyance. He further submitted that the assessee's claim of possession was disproven by physical verification, which revealed that one flat was being used as a builder's sample unit and the other was occupied by a third party. He maintained 13 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) that the assessee's failure to utilize the sale proceeds for acquisition, the related-party nature of the transaction, continued ownership in the name of the builder during the relevant period, and delayed registration of the sale deed in 27.07.2024 collectively indicate that the arrangement lacked commercial substance and was structured solely to claim exemption. He, therefore, urged that the order of the AO, being factually sound and legally correct, deserves to be restored in full and the order of the CIT(A) be reversed.
31. We have given our thoughtful consideration to the rival submissions, perused the orders of the lower authorities and examined the entire material placed on record including the assessee's paper book and the Inspector's verification report. The substantial issue before us is whether, on the facts and in the circumstances of the case, the assessee is entitled to deduction u/s 54F of the Act in respect of the long- term capital gains arising from sale of three non-agricultural plots, on the basis of purported investment in Flat Nos. B-103 and B-104 of "Raghuvir Shell", Vesu, Surat, claimed to constitute "one residential house".
32. At the outset, it is necessary to reiterate that section 54F is a conditional and restricted exemption provision. The benefit is available only where the assessee (i) has, within the time prescribed, purchased or constructed one residential house in India; (ii) has invested the net consideration received from transfer of the original capital asset in such purchase or construction; and (iii) does not own more than one other residential house on the date of transfer. These conditions are cumulative and mandatory. Being an exemption provision, section 54F, though benevolent in object, must be applied on the touchstone of strict compliance with its statutory ingredients and cannot be expanded to legitimize arrangements that only mimic compliance on paper.
33. In the present case, a few core facts stand out and are undisputed. First, the assessee's claim is not based on a registered sale deed executed within the statutory period. The only contemporaneous documents are an unregistered notarized 14 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) agreement for sale dated 12.09.2016 and a notarized possession document dated 27.03.2018 executed with a partnership firm, in which the assessee HUF's karta is a partner. The registered conveyance deed in respect of Flat Nos. B-103 and B-104 came into existence only on 27.07.2024, long after the date of the unregistered agreement for sale for the new residential flats dated 12.09.2016. Second, the claim is in respect of two separate flats, each having an independent municipal assessment and separate electricity connection, and there is no material brought on record showing internal structural combination sanctioned by any competent authority. Third, physical verification by the departmental Inspector revealed that one of the flats was used as a sample flat by the builder and the other was in occupation of a third-party family, with no evidence of the assessee or its members ever actually occupying or enjoying either unit during the relevant period.
34. The assessee has heavily relied on the line of judicial precedents including D. Ananda Basappa (supra) and Gita Duggal (supra), to contend that multiple or adjoining units constitute "one residential house" and that registered title is not a sine qua non for relief u/s 54F. However, those decisions cannot be read in isolation, divorced from their factual setting. In those cases, the Hon'ble Courts were dealing with bona fide situations where (i) flats were admittedly adjoining and internally connected, (ii) they were actually used as a single family residence, (iii) there was no allegation of collusiveness or colorable device, and (iv) title had passed in accordance with law within the relevant period. In contrast, in the present case, the units have remained legally in the builder's name for several years, one flat was used as a marketing unit, the other was used by a third party, and the entire documentation was between related parties, drafted and timed in a manner that coincided more with return filing and scrutiny milestones than with normal commercial conveyancing.
35. Let us first discuss as to whether "agreement for sale" and "possession deed"
would satisfy the conditions of section 54F of the Act without actual registration deed. The scope of an agreement for sale had been highlighted by the Hon'ble 15 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) Supreme Court in the case of Suraj Lamp and Industries Pvt. Ltd. (supra), wherein it was observed as under:
"16. Section 54 of TP Act makes it clear that a contract of sale, that is, an agreement of sale does not, of itself, create any interest in or charge on such property. This Court in Narandas Karsondas v. S.A. Kamtam [1977] 3 SCC 247, observed:
"32. A contract of sale does not of itself create any interest in, or charge on, the property. This is expressly declared in Section 54 of the Transfer of Property Act. See Rambaran Prosad v. Ram Mohit Hazra [1967] 1 SCR 293. The fiduciary character of the personal obligation created by a contract for sale is recognised in Section 3 of the Specific Relief Act, 1963, and in Section 91 of the Trusts Act. The personal obligation created by a contract of sale is described in Section 40 of the Transfer of Property Act as an obligation arising out of contract and annexed to the ownership of property, but not amounting to an interest or easement therein."
33. In India, the word 'transfer' is defined with reference to the word 'convey'. The word 'conveys' in section 5 of Transfer of Property Act is used in the wider sense of conveying ownership firm.
...........
37. that only on execution of conveyance ownership passes from one party to another."
17. In Rambhau Namdeo Gajre v. Narayan Bapuji Dhotra [2004 (8) SCC 614] this Court held:
"10. Protection provided u/s 53A of the Act to the proposed transferee is a shield only against the transferor. It disentitles the transferor from disturbing the possession of the proposed transferee who is put in possession in pursuance to such an agreement. It has nothing to do with the ownership of the proposed transferor who remains full owner of the property till it is legally conveyed by executing a registered sale deed in favour of the transferee. Such a right to protect possession against the proposed vendor cannot be pressed in service against a third party."
18. It is thus clear that a transfer of immoveable property by way of sale can only be by a deed of conveyance (sale deed). In the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immoveable property can be transferred.
19. Any contract of sale (agreement to sell) which is not a registered deed of conveyance (deed of sale) would fall short of the requirements of sections 54 and 55 of TP Act and will not confer any title nor transfer any interest in an immovable property (except to the limited right granted u/s 53A of TP Act). According to TP Act, an agreement of sale, whether with possession or without possession, is not a 16 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) conveyance. Section 54 of TP Act enacts that sale of immoveable property can be made only by a registered instrument and an agreement of sale does not create any interest or charge on its subject matter."
36. We also find merit in the contention of the revenue that mere execution of notarized documents, i.e., agreement for sale and possession deed, and routing of payments through banking channels cannot substitute the legal requirement of "purchase" in the sense in which that expression is understood in property and tax law. The Hon'ble Supreme Court in Suraj Lamp & Industries Pvt. Ltd. has categorically held that ownership of immovable property does not pass by way of unregistered agreements to sale, power of attorney, affidavits or similar private arrangements, and that such devices cannot be recognized as transfers of title. When section 54F uses the expression "purchased", it must be interpreted harmoniously with this settled position. In our considered view, in absence of a registered conveyance deed, the assessee cannot be said to have "purchased" the flats in question for the purposes of section 54F.
37. The above view now stands reaffirmed by the recent judgment of the Hon'ble Supreme Court in Ramesh Chand (D) through LRs v. Suresh Chand & Anrs, Civil Appeal No. 6377 of 2012, dated 01.09.2025. After examining Sections 5 and 54 of the Transfer of Property Act and surveying the earlier decision in Suraj Lamp, the Hon'ble Supreme Court has reiterated that in the case of tangible immovable property, transfer of ownership can be effected only by a duly stamped and registered instrument of conveyance. It has explained the distinction between a 'sale' and a mere 'agreement for sale' and has held that an agreement for sell, even when accompanied by other documents like GPA, affidavit, receipt or will, does not itself transfer ownership but only gives rise to a right to seek specific performance. In emphatic terms, it has been held that "a transfer of immovable property by way of sale can only be by a deed of conveyance (sale deed)", and that an agreement of sale does not, of itself, create any interest in or charge on the property. The Hon'ble Supreme Court observed that in sale for an immovable property the value of which 17 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) exceeds Rs.100/-, the three requirements of law are that the transfer of property of sale must take place through a validly executed sale deed, i.e., it must be in writing, properly attested and registered. Unless, the sale deed is in writing, attested and registered, the transaction cannot be construed as sale or in other words, the property will not be transferred. There is a difference between a sale deed and an agreement for sale, or a contract for sale. A contract for sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. While a sale is a transfer of ownership; a contract for sale is merely a document creating a right to obtain another document, namely a registered sale deed to complete the transaction of sale of an immovable property. Section 54 of the TP Act, in its definition of sale does not include an agreement of sale and neither confers any proprietary rights in favour of the transferee nor by itself create any interest or charge in the property. Applying this ratio, the unregistered agreement for sale dated 12.09.2016 and notarized possession document dated 27.03.2018 in the present case cannot, in law, be regarded as instruments of 'purchase' for the purposes of section 54F of the Act.
38. The argument that possession coupled with payment is sufficient also does not avail the assessee on facts. Possession, for tax purposes, is not a mere recital in a notarized document; it must correspond to actual control, dominion and the right to exclude others, reflected in the objective circumstances. Here, the Inspector's report which is supported by photographs and has not been effectively rebutted shows that the assessee never enjoyed such possession. One flat continued to be in use of the builder for business demonstration and the other was in occupation of a third party with a nameplate. The assessee has not produced any evidence of actual residence or any contemporaneous material from which genuine residential use could be inferred. In these circumstances, the plea of "possession" is more notional than real.
39. We also cannot overlook the related-party nature of the transaction. The seller- firm, Raghuvir Developers and Builders, is controlled by the assessee's karta as 18 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) partner. This afforded the assessee the ability to execute, postpone or reshape documentation, without facing commercial resistance typical of arm's-length transactions. When such a transaction is accompanied by (i) unregistered, self- generated documents, (ii) prolonged non-registration of title and (iii) continued commercial usage and third-party occupation, it lends credence to the revenue's contention that the arrangement was devised primarily as a tax-saving structure rather than a genuine housing reinvestment. The doctrine laid down by the Hon'ble Supreme Court in McDowell & Co. Ltd. (supra) that colorable devices are not part of tax planning and must be rejected by courts squarely applies on these facts.
40. Regarding the contention of ld. AR that payments towards purchase were made through banking channels and purchaser has acknowledged the receipt thereof, it may be noted that Hon'ble Apex Court observed in the case of Ramesh Chand (D) through LRs (supra) observed that the said instruments of payments do not confer a valid title upon the plaintiff because as per Section 54 of TP Act, only through a deed of conveyance can a title be transferred.
41. Coming to the requirement of "one residential house", we are unable to accept the assessee's contention that two independent flats, which were neither structurally amalgamated nor actually used as a single dwelling by the assessee, can be treated as one. The recent decision in Mrs. Kamla Ajmera v. PCIT (supra) Hon'ble Delhi High Court has clarified that the phrase "a residential house" cannot be stretched to include multiple units which are not physically capable of being combined into a single habitable residence, or where such combination is not shown as a matter of fact. In the present case, there is no material on record to show that any such integration was undertaken or even intended beyond the manner in which the flats were described in internal documents. The reliance placed by the CIT(A) on decisions involving genuine integrated usage is therefore distinguishable.
41.1 We also note an equally significant aspect that further weakens the assessee's claim that Flat Nos. B-103 and B-104 constituted "one residential house". Even 19 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) accepting the assessee's own version that possession was allegedly taken on 27.03.2018 and legal title was ultimately registered only on 23.07.2024, there is nothing on record to show that at any point during this extended period of more than six years the assessee undertook any step to structurally combine, merge or integrate the two units into a single dwelling. No application for amalgamation, no sanctioned plan, no architect's certificate, no municipal permission, nor even a basic internal alteration plan has been placed before us. If the assessee genuinely intended to use the two flats as a single residential house, such intention ought to have manifested in concrete action within this substantial duration. The complete absence of any effort to remove the common boundary wall or create internal connectivity between the flats clearly indicates that the plea of "single residential house" is an afterthought, unsupported by any contemporaneous conduct or evidence.
42. We now advert to the additional evidence in the form of registered sale deed dated 23.07.2024 furnished by the assessee. The assessee has moved an application for admission of this document under Rule 29 of ITAT Rules, contending that the same has come into existence subsequent to the orders of the lower authorities and is relevant for proper adjudication of the issue. Having regard to the nature of the controversy and to bring quietus to the dispute on a complete factual record, we deem it fit, in the interest of substantial justice, to admit the registered sale deed as additional evidence and take it on record. Accordingly, the additional evidence is admitted.
43. However, considering the contents of the registered sale deed, we find that its admission does not in any manner improve the assessee's case on merits. On the contrary, the deed confirms that legal title in Flat Nos. B-103 and B-104 has been transferred to the assessee only on 23.07.2024, that is, long after the sale of the original capital assets on 29.08.2016 and far beyond the outer limit prescribed u/s 54F of the Act even if the case were to be viewed as one of "construction". The additional evidence thus serves only to underscore that, during the relevant statutory 20 ITA No.601/SRT/2023/AY 2017-18 Asodariya Gordhanbhai Ranchodbhai (HUF) window, the flats remained legally owned by the builder-firm and not by the assessee. As held by the Rajkot Bench of the Tribunal in ITO v. Hiteshbhai Mansukhbhai Bagdai (supra), where the registered sale deed is executed after the expiry of statutory deadlines u/s 54F of the Act, subsequent registration cannot retroactively confer eligibility for exemption.
44. Therefore, even after admitting and considering the registered sale deed dated 23.07.2024, we are of the considered view that it does not cure the foundational statutory defects discussed above. It cannot convert earlier unregistered and self- serving documents into a valid purchase within the meaning of section 54F of the Act nor can it retrospectively establish possession or residential use by the assessee during the relevant period. The additional evidence, accordingly, is of no assistance to the assessee in establishing compliance with the conditions of section 54F of the Act.
45. The Hon'ble Supreme Court in Ramesh Chand (supra) has clarified that where no registered sale deed exists, documents such as agreement to sell, GPA, receipt or affidavit do not confer ownership; at best they enable the transferee to sue for specific performance. It follows that title in immovable property passes only upon execution of a valid deed of conveyance. In the present case, the registered sale deed having come into existence only on 23.07.2024, it merely creates title from that date and cannot be retrospectively push back the purchase to the year 2016-2018 so as to fulfil the time limit specified in section 54F of the Act. The statutory window having already been closed long before, subsequent compliance cannot revive an otherwise ineligible exemption claim.
46. In view of the foregoing discussion, we hold that the assessee has failed to satisfy the statutory conditions for claiming deduction u/s 54F of the Act. Consequently, the order of the CIT(A) allowing deduction u/s 54F amounting to Rs.4,77,37,017/- is set aside and the assessment order passed by the AO is restored. Accordingly, the grounds raised by the revenue are allowed.
21 ITA No.601/SRT/2023/AY 2017-18Asodariya Gordhanbhai Ranchodbhai (HUF)
47. In the result, the appeal of the revenue is allowed.
Orders are pronounced under provision of Rule 34 of ITAT Rules, 1963 on 29/12/2025 Sd/- Sd/-
(BIJAYANANDA PRUSETH) (DINESH MOHAN SINHA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Surat
िदनां क/ Date: 29/12/2025
Copy of the Order forwarded to:
1. The Assessee
2. The Respondent
3. The CIT(A)
4. CIT
5. DR/AR, ITAT, Surat
6. Guard File
//TRUE COPY//
By Order
Assistant Registrar/Sr. PS/PS
ITAT, Surat
22