IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER & SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER I.T.A. No.1366/Ahd/2025 (Assessment Year: 2017-18)

Deputy Commissioner of Income Vs. Bharat Lakhaji Nandwana, Tax, 701-A, Pragati Apartment, Circle-2(1)(1), Opp. Sampati Flats, Ahmedabad Maharashtra Society, Ahmedabad-380006 [PAN No.AGAPN4641A]

(Appellant) .. (Respondent Appellant by : Shri C Dharani Nath, Sr. DR Respondent by: Shri S. N. Soparkar, Sr. Adv. & Ms. Ukti Shah, ARs Date of Hearing 09.03.2026 Date of Pronouncement 12.03.2026

O R D E R

PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:

This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 13.06.2025 passed for A.Y. 2017-18.

2. The Department has taken the following grounds of appeal:

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 3,39,34,924/- on account of disallowance of exemption u/s 54 and 54EC of the Act as the assessee does not fulfill the basic conditions prescribed under sections 54 and 54EC of the Act for claiming such exemption.

2. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.

3. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored?”

3. The brief facts of the case are that the assessee is an individual who filed his return of income for Assessment Year 2017–18 on 05.08.2017 declaring total income of ₹20,89,430/-. During the course of assessment proceedings, the Assessing Officer observed that the assessee had declared long-term capital gain on sale of a residential house and had claimed exemption under section 54 as well as section 54EC of the Income-tax Act, 1961 ("the Act").

4. The Assessing Officer asked the assessee to substantiate the claim of exemption under section 54 and section 54EC of the Act. In response, the assessee submitted that the property sold during the year originally belonged to L.K. Nandwana, the father of the assessee, and that after his demise a family trust namely L.K. Nandwana Family Trust was created under his will in the year 1984. The assessee along with his brothers were beneficiaries of the said trust. The trust held the residential property for a specified period and thereafter by a deed of transfer dated 04.02.2017 the trust transferred the property to the beneficiaries, which included the assessee. The share of the assessee in the said property was 22.45%. Subsequently, the said property was sold by the assessee along with other co-owners by way of sale deed dated 10.02.2017.

5. The assessee submitted that before the Assessing Officer that since the property was originally held by the trust and the assessee had acquired the property by virtue of devolution of the trust, the cost of acquisition and the period of holding of the previous owner i.e. the trust should be considered while computing capital gains in terms of section 49 of the Act. The assessee also submitted that the capital gains arising from the sale of the residential property were invested partly in specified bonds eligible under section 54EC of the Act and partly in a new residential property for which the assessee had entered into an agreement to purchase a flat from a builder on 13.02.2017.

6. The Assessing Officer however did not accept the explanation of the assessee. According to the Assessing Officer, the property had been transferred by the trust to the assessee only on 04.02.2017 and the same was sold on 10.02.2017. Therefore, the Assessing Officer held that the property had been held by the assessee only for a period of a few days and consequently the asset was a short-term capital asset. Accordingly, the Assessing Officer treated the gains arising from sale