Ownership of the property must be in the name of the assessee to qualify for deduction under Section 54 of the Income Tax Act, 1961.

आदेश/ORDER

PER MAKARAND V. MAHADEOKAR, AM:

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Ahmedabad [hereinafter referred to as "CIT(A)"] dated 28.06.2024 for the Assessment Year (AY) 2018-19, wherein the CIT(A) upheld the disallowance of deduction under Section 54 of the Income Tax Act, 1961 [hereinafter referred to as "the Act”] made by the Income Tax Officer, Ward 1, International Taxation, Ahmedabad [hereinafter referred to as "AO] vide his order dated 26-04-2023 passed under section 147 r.w.s.144C(3) of the Act.

Facts of the Case:

2. The assessee was a 1/3rd co-owner of an immovable property sold for ₹ ₹ 55,00,000 with his share of sale consideration amounting to 18,33,333. After applying indexation, the Long Term Capital Gain (LTCG) was ₹ computed at 14,62,660, for which the assessee claimed deduction under Section 54 of the Act on the grounds of reinvestment in a new property. The AO disallowed the deduction, noting that the new property was registered solely in the name of the assessee’s mother, Smt. Heenaben Vashi, and not in the assessee’s own name. The AO observed that Section 54 of the Act mandates that the new property must be purchased in the name of the assessee to qualify for exemption. Although the assessee transferred ₹ 17,68,000 to his mother’s account, and she paid for the property, mere transfer of funds does not establish ownership. The assessee relied on the judgment in the case of Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC) where Section 54B of the Act exemption was granted even when the new property was purchased in the spouse’s name. However, the AO distinguished this case, stating that Sections 54B and Section 54 of the Act have different conditions, and Section 54 does not allow exemption if the new property is not in the assessee’s own name. The assessee also failed to provide any documentary evidence proving co-ownership or investment in his own name. In light of these findings, the AO disallowed the deduction of ₹ 14,62,660 under Section 54 and added it to the assessee’s taxable LTCG. Additionally, penalty proceedings under Section 270A(9) of the Act for misreporting of income were initiated.

3. The assessee preferred an appeal before CIT(A). The CIT(A) upheld the disallowance of deduction under Section 54, as the new property was registered solely in the name of the assessee’s mother, Smt. Heenaben Vashi, and not in his own name. The AO was asked to submit a remand report through the ITBA system but failed to do so, leading the CIT(A) to decide the matter based on the available records. The assessee contended that he had ₹ invested 17,68,000 from his bank account in purchasing the new house and that the purchase was made in his mother’s name for sentimental reasons. However, the CIT(A) rejected this argument, noting that mere transfer of funds does not establish ownership, and the assessee failed to furnish any documentary evidence proving joint ownership or a legal right over the property. The CIT(A) distinguished the case of Laxmi Narayan v. CIT (2018) 402 ITR 117 (Raj. HC), relied upon by the assessee, stating that it pertained to Section 54B of the Act, which allows exemption when property is purchased in a spouse’s name, whereas Section 54 strictly requires the property to be in the assessee’s own name. The CIT(A) referred to judicial precedents, including Ganta Vijaya Lakshmi v. ITO ( (AP HC) ), D. Devadass v. ITO ( (Chennai ITAT) ) and Prakash v. ITO ( (Bom. HC) ), which categorically held that exemption under Section 54 or 54F of the Act is available only if the new property is in the assessee’s name. The CIT(A) also cited the Supreme Court’s decision in the case of Ponds India Ltd. v. Jt. CTT (2008) emphasizing that legislative provisions must be adhered to strictly. Given the clear requirement under Section 54 that the new property must be owned by the assessee, the CIT(A) concluded that the assessee was not eligible for t