The requirement of 'purchase' under Section 54 of the Income Tax Act, 1961, does not necessitate the registration of a sale deed within the statutory period, provided the capital gains have been substantially invested in the residential property within the prescribed time limits.

O R D E R

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of the ld. DCIT ASMNT, Circle-2(1), Bengaluru dated 12.12.2024 vide DIN & Order No. ITBA/AST/S/147/2024-25/1071150775(1) passed u/s 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (in short “The Act”) for the assessment year 2016-17.

2. The assessee has raised the following grounds of appeal:

Ground of Appeal:

1. Regarding the Disallowance of Deduction Under Section 54 of the Income Tax Act, 1961:

a. The learned Assessing Officer erred in disallowing the deduction under section 54 of the Income Tax Act, 1961, as claimed by the me, without considering as substantial evidence furnished as as substantial evidence by me, including the Completion certificate, Possession mail, Electricity bill along with mail conversation, the registered sale deed, and the payments made to the developer.

b. The Assessing Officer has ignored the facts that construction a new residential property within the stipulated time frame, and the possession was obtained by the me well within the required period as per the provisions of section 54.

c. The Hon’ble DRP has upheld the disallowance of deduction under section 54, however, it is contended that I had adhered to the prescribed timelines for purchasing the property, but the registered sale deed was executed in January 2019 due health issue restriction my wife was unable to travel to India. Therefore, I should be allowed to avail benefit of deduction under section 54.

2. Regarding the Addition of Long Term Capital Gain:

a. The Assessing Officer has passed order based on above disallowance under section 54 has made addition of Rs. 36,64,791/-. Based on above ground appeal I plead drop the addition made.

3. Regarding the Penalty Provisions:

a. The assessing officer has initiated penalty proceedings under section 271F for not filing return of income and 271(1)(c) stating I have not claimed the cost of acquisition of the property correctly by claiming deduction u/s 54 which has been disallowed. Based on above ground of appeal I have adhered with provisions in section 54 deduction, I have availed benefit. I request you to consider the same.

b. Therefore, the imposition of penalty under section 271(1)(c) and section 271F is unjustified and should be dropped.

4. Request for Relief:

a. I respectfully prays that the Hon’ble Income Tax Appellate Tribunal (ITAT) may kindly allow the appeal and grant the relief by:

o Allowing the deduction under section 54 in full.

o Dropping the addition of long-term capital gain as per the correct computation.

o Dropping the penalty proceedings initiated under sections 271(1)(c) and 271F.

3. The brief facts of the case are that as per the specific information flagged as per risk management strategy (RMS) formulated by the CBDT in insight portal under the head “NMS Cases”, the assessee had carried out the following financial transactions during the FY 2015-16 relevant for AY 2017-18 –

a) Received amount of Rs.70,00,000/- for sale of immovable property.

b) Paid purchase consideration Rs.21,26,423/- for purchase of immovable property to Bhartiya Urban Private Limited.

After obtaining the prior approval of the CIT (Intl. Taxation), Bengaluru on 29/03/2023, the order u/s. 148A(d)of the Act along with the notice u/s. 148 of the Act were served to the assessee. In response to notice u/s. 148 of the Act, the assessee filed his return of income on 11/01/2024. From the return of income filed by the assessee, it was seen by the AO that the assessee had claimed cost of acquisition with indexation amou