The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has restored to the Assessing Officer (AO) the issues relating to deduction under Section 54F of the Income Tax Act and addition under Section 69 for alleged unexplained investment, holding that an unregistered banakhat by itself cannot conclusively establish compliance with the statutory timelines prescribed under Section 54F.
The bench of Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) has noted that substantial payment towards purchase of the flat had admittedly been made more than one year before the transfer of the original asset and that the registered sale deed was executed beyond the two-year period prescribed under the Act.
The department challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for the Assessment Year 2017-18 in the case involving an individual civil contractor who had claimed deductions under Sections 54B and 54F on account of investments made after sale of certain lands.
The assessee had filed the return declaring income of Rs. 36.39 lakh. During scrutiny assessment, the AO disallowed part of the deduction claimed under Section 54B, disallowed deduction under Section 54F amounting to Rs. 56.40 lakh, and further made an addition of Rs. 83.35 lakh under Section 69 towards unexplained investment. The total assessed income was determined at Rs. 2.67 crore.
Before the CIT(A), the assessee partly succeeded. While the disallowance under Section 54B was upheld, the appellate authority deleted the disallowance under Section 54F and also deleted the addition made under Section 69.
The dispute under Section 54F related to the assessee’s claim of exemption on investment in a residential flat. The AO had noted that the urban land was sold on 20 March 2017 for Rs. 1.90 crore, whereas payment of Rs. 60 lakh to the developer had been made on 25 March 2015, which was beyond the permissible one-year period prior to the transfer of the original asset. Further, the registered sale deed for the flat was executed on 28 March 2019, beyond the statutory two-year period from the date of sale of the original asset.
The CIT(A), however, accepted the assessee’s contention that a banakhat executed on 25 March 2017 established that the assessee had entered into an agreement for purchase of the flat within the prescribed period. The appellate authority observed that the delay in registration was allegedly due to internal disputes among the developer’s partners and that the assessee had substantially complied with the requirements of Section 54F.
The Tribunal disagreed with the CIT(A)’s approach. After reproducing the provisions of Section 54F in detail, the Bench observed that the statute clearly prescribes strict timelines for purchase or construction of a new residential house in order to claim exemption from capital gains tax.
The Tribunal held that “the mere execution of a banakhat, particularly when it is unregistered, cannot be equated with completion of purchase within the statutory period in the absence of other supporting compliance.”
The Bench also observed that the flow of funds and utilization of amounts received from sale of the original asset required detailed verification. Accordingly, it set aside the CIT(A)’s findings on the Section 54F issue and restored the matter to the AO for fresh examination.
On the issue of unexplained investment under Section 69, the AO had treated Rs. 83.35 lakh as unexplained by comparing the investment made in purchase of agricultural land with sale consideration received from another property. The CIT(A) deleted the addition after observing that the assessee had made payments through banking channels and possessed sufficient funds.
The Tribunal observed that although the assessee claimed to have furnished bank statements and payment details, the assessment order did not reveal any detailed verification by the AO. Simultaneously, it was also unclear whether all evidences had been furnished before the AO or produced for the first time before the CIT(A).
The Tribunal restored the Section 69 issue as well to the file of the AO for fresh adjudication after examining bank statements, books of account, sources of funds, and all supporting evidence while granting proper opportunity of hearing to the assessee.
The department’s appeal was accordingly allowed for statistical purposes.
Case Details
Case Title: ACIT Versus Dharmendrabhai Jayantibhai Patel
Citation: JURISHOUR-1439-ITA-2026(AHM)
Case No.: I.T.A. No.5/Ahd/2021
Date: 27.05.2026
Counsel For Appellant: Amit Pratap Singh, Sr. DR
Counsel For Respondent: Mehul K. Patel, AR
