Introduction
Capital gains taxation continues to be one of the most frequently litigated areas under the Income-tax Act, 1961. Among these, disputes relating to Section 54F exemption—especially in cases involving under-construction property, registered agreements, and timing of payments—are increasingly common.
In this detailed case study, I share how our firm successfully represented a client before the Commissioner of Income Tax (Appeals) and secured a complete deletion of an addition of Rs. 2.78 crore, which was disallowed by the Assessing Officer under Section 54F.
This case highlights:
- How assessments often ignore documents actually filed
- How a well-strategised written submission can reverse an adverse order
- How to argue “purchase” for Section 54F even when registration or municipal completion is pending
- How procedural lapses in SCN under Section 144B can be used effectively before CIT(A)
This real-world case reflects our expertise in handling scrutiny assessments, capital gains issues, NFAC proceedings, and appellate representation before CIT(A).
Background of the Case
Our client, a resident individual taxpayer, filed his return of income for AY 2023-24 declaring income of Rs. 2.07 crore. The case was picked up for scrutiny under CASS due to “large investments in shares”.
During the scrutiny, the Assessing Officer (AO) examined the taxpayer’s claim of exemption under Section 54F against long-term capital gains arising on a share-swap transaction. The taxpayer had invested Rs. 2,78,81,490 in a residential flat at Sobha Rajvilas, Bengaluru, through a duly registered purchase agreement dated 20 February 2023, supported by bank receipts.
Yet, the AO completely disallowed the exemption, raising the following objections:
- The purchase agreement was allegedly “not signed or registered”
- Payment schedule in agreement was not adhered to
- No proof of construction or possession was furnished
- No Capital Gain Account Scheme deposit was made
- Ownership of only one residential house was not proved
A tax demand of Rs. 1.09 crore was raised.
This is where our firm stepped in.
Our Appellate Strategy
Unlike routine appeals, this case involved deep factual analysis and legal positioning, as the AO’s order was based on assumptions and non-consideration of key documents already on record.
Our strategy consisted of four pillars:
1. Demonstrating that the AO ignored documents already filed
We established before the CIT(A) that:
- The registered purchase agreement dated 20.02.2023 was uploaded on the ITBA portal well before the assessment order.
- All payment receipts issued by Sobha Limited (January to July 2023) were on record.
- The taxpayer had fully invested the capital gains before the due date of filing the ITR, making CGAS deposit irrelevant.
This weakened the AO's entire foundation.
2. Highlighting procedural defects under Section 144B
Although a show-cause notice was issued, critical issues such as:
- Ownership of only one house,
- Status or completion of the property,
- Validity of the registered agreement,
were never raised in the SCN nor under Section 142(1).
We argued that the AO introduced entirely new grounds in the final assessment order without giving the assessee an opportunity to respond. This demonstrated a clear violation of natural justice, a ground that CIT(A) gives significant weight to.
3. Establishing “purchase” under Section 54F through judicial precedents
We relied on landmark rulings:
- CIT v. R.L. Sood (Delhi HC)
- CIT v. Bharti Mishra (Delhi HC)
- CIT v. K. Ramachandra Rao (Karnataka HC)
These judgments collectively confirm:
- Substantial payment + possession = valid “purchase”
- Delay in municipal completion certificate does not affect eligibility
- CGAS deposit is not mandatory if full investment is already made before the due date
We demonstrated that the client had:
- A registered agreement
- Substantial payments before due date
- A possession certificate from the builder
Thus, the conditions of Section 54F were fully satisfied.
4. Preparing a meticulous written submission before CIT(A)
We drafted a detailed, evidence-backed written submission that:
- Corrected factual inaccuracies in the assessment order
- Presented a chronological investment trail
- Addressed each AO allegation with documentary rebuttal
- Cited legal precedents supporting the assessee
- Highlighted procedural lapses in the NFAC assessment
The clarity and depth of the submission played a significant role in the final outcome.
CIT(A)’s Decision – Complete Relief Granted
After reviewing the assessment order, our submission, and supporting documents, the CIT(A):
- Accepted the registered agreement as valid evidence
- Acknowledged that full payment was made before return due date
- Held that the absence of municipal completion certificate or final conveyance deed does not negate “purchase”
- Agreed that possession + substantial payment = valid 54F investment
- Deleted the entire addition of Rs. 2,78,81,490
- Struck down the entire tax demand of Rs. 1,09,60,386
This was a complete appellate victory.
Key Takeaways for Taxpayers and Professionals
1. Section 54F claims require careful documentation
Even minor oversights can result in large tax demands.
2. Registered agreements and payment proofs are crucial
Even if the builder delays completion or registration, substantial compliance protects the assessee.
3. NFAC assessments often miss context
A strong appellate strategy is essential.
4. Written submissions before CIT(A) can fully reverse an adverse order
The appellate stage is not a formality—it is a powerful remedy.
5. Procedural lapses in SCN can be a strong ground for relief
Especially under Section 144B.
Why Clients Trust Us With Their Appeals
At Veeresh and Ajay Chartered Accountants, we specialise in:
- Scrutiny assessment handling
- Appeals before CIT(A) and ITAT
- Capital gains and Section 54/54F matters
- Cryptocurrency taxation
- Complex transactional tax matters
This case is one of many examples demonstrating our:
- Evidence-based approach
- Deep understanding of appellate law
- Ability to convert adverse assessments into favourable outcomes
- Commitment to protecting our clients' interests at every stage
If you are facing a scrutiny notice, disallowance, or high tax demand under capital gains, we are here to help.
Need Help With a Capital Gains Dispute or CIT(A) Appeal?
Contact us for a consultation.
CA Ajay Konale
Partner – Nirupam and Associates
Email: ajay@cavac.in
Phone: 9686192927
Bangalore
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