An assessment order allowing capital gains exemption on an unregistered sale agreement is erroneous and prejudicial to the Revenue due to lack of validation.

ORDER

PER MANJUNATHA G. :

This appeal has been filed by the assessee against the order dated 13.02.2025 of the learned Principal Commissioner of Income Tax, Hyderabad-4, Hyderabad, passed u/sec.263 of the Income Tax Act, 1961 , relating to the assessment year 2021-2022.

2. Brief facts of the case are that, the assessee is an individual and filed his return of income on 11.12.2021 declaring total income at Rs.2,07,55,350/-. The case of the assessee has been selected for scrutiny under CASS and notice u/sec.143(2) dated 28.06.2022 was duly served upon the assessee. The Assessing Officer also issued various statutory notices u/sec.142(1) of the Act calling the assessee to furnish his explanation with respect to large capital gains exemption claimed u/sec.54 of the Act. In response, the assessee has filed his submissions dated 23.08.2022 and 23.11.2022. The Assessing Officer after examining the submissions of the assessee, accepted the return of income filed by the assessee.

3. The learned PCIT, Hyderabad-4, Hyderabad was of the view that the assessment order passed by the Assessing Officer is not only erroneous, but, also prejudicial to the interest of Revenue and, therefore, by exercising his revisional powers u/sec.263 of the Act, issued show cause notice to the assessee on 03.01.2025 calling the assessee to furnish his explanation. The reasons enunciated by the learned PCIT in the show cause notice are that, the assessee has purchased immovable property for a consideration of Rs.4,40,00,000/- from his wife Smt. Radha Kumari Boddapaty on 15.05.2021 through an un-registered agreement of sale and claimed deduction on the impugned transaction u/sec.54 of the Act. The learned PCIT further noted that, since the agreement of sale has not been registered, therefore, the un-registered agreement cannot be treated as a ‘valid transfer’ and thus, the claim of deduction made by the assessee u/sec.54F of the Act at Rs.4,26,28,194/- is not allowable. In response, the assessee has filed his submissions on 04.02.2025 contending, inter alia, that, he has already furnished agreement of sale [with possession] dated 15.05.2021 with regard to the purchase of duplex villa on House bearing No.7-108/A-28, on Plot No.28 [In Part-A] situated at Manchirevula (v) under Narsingi Municipality, Gandipet Mandal, Ranga Reddy District from his wife Smt. Radha Kumari Boddapaty who has purchased the property in question through Sale Deed No.400/2007 dated 05.11.2007. The assessee further submitted that, the Assessing Officer after verifying and examining all the evidences filed viz., agreement of sale [with possession] has accepted the return of income filed by the assessee and allowed the exemption claimed by the assessee u/sec.54 of the Act. He further submitted that, the Assessing Officer has already examined the evidences filed and took a view that the claim of exemption u/sec.54F is in order and therefore, the PCIT cannot take a different view which tantamounts to change of opinion i.e., different view on the same issue. The assessee also further submitted before the learned PCIT that, in the agreement of sale dated 15.05.2021, it was clearly mentioned that, the property could not be registered in view of the fact that, the same was included in the “Prohibited Properties in Rural Prohibited Register” by the Registration and Stamps Department, Government of Telangana, as per stay issued by Court Orders and the said fact was also endorsed at page-2 in Agreement of Sale [with possession] dated 15.05.2021.