Deduction under Section 54F is allowable even if possession of the residential house is delayed due to builder's default, provided the assessee paid full consideration and obtained allotment within the prescribed period.

Per Saktijit Dey, Vice President:

Present appeal by the assessee arises out of order dated 31.01.2026 passed by National Faceless Appeal Center [NFAC], Delhi for the Assessment Year 2012-13.

2. Effective grounds raised by the assessee are as under:-

“1. The learned CIT(A) erred in holding that the Appellant had neither purchased nor constructed a residential house within the prescribed period and merely possessed an inchoate or disputed right. The finding ignores the escrow agreement dated 06.06.2011, the allotment of Flat No. 301 (prima facie recognised by the Hon'ble Bombay High Court vide interim order dated 16.06.2014), and the substantial consideration paid, all of which collectively satisfy the conditions of Section 54F . The Appellant ought not to be penalised for the builder's default.

2. The learned CIT(A) erred in distinguishing the Appellant's case from the decisions of the Hon'ble ITAT, Mumbai, in the cases of Mr. Vinay Somani and Mrs. Shrilekha Somani (ITA Nos. 3642 & 3888/Mum/2017, order dated 01.06.2021), despite identical share sale transactions and escrow arrangements. The rejection of the claim on the ground that the Appellant is a distinct juridical person is erroneous and contrary to judicial discipline.

3. The learned CIT(A) erred in denying deduction under Section 54F in respect of Rs.8,50,00,000 deposited in the Capital Gains Accounts Scheme within the prescribed time limit. The deposit itself entitles the Appellant to exemption under Section 54F (4), and any withdrawal of exemption can arise only upon eventual non- utilisation, as provided in law.

4. The learned CIT(A) erred in not adjudicating upon and thereby implicitly upholding the Assessing Officer's baseless allegation that the transaction was a tax avoidance arrangement involving an artificial entity. Such allegation is unsupported by any material evidence and is legally untenable.

5. That the Appellant craves leave to add to, alter, amend or withdraw any of the above grounds of appeal at or before the time of hearing.”

3. As could be seen from the grounds raised, the substantive issue arising for consideration is in relation to disallowance of deduction claimed under section 54 of the Income Tax Act, 1961 ( in short the ‘Act’).

4. Briefly stated, the assessee is a private non-discretionary/ specific family trust created by Shri Vinay Somani and Mr. Shrilekha Somani as trustees and their daughter Ms. Vidushi Somani being the sole beneficiary. The trust came into existence on 31.03.2017 and 1,000 equity shares of M/s. Somani & Company Private Limited were settled as the corpus of the trust for the benefit of the sole beneficiary. In the previous year relevant to the assessment year under dispute, the assessee as also the trustees sold unquoted equity shares of M/s. Somani Co. Private Limited to M/s. Satguru Corporate Services Private Limited at the rate of Rs. 91,000/- per share. So far as the present assessee is concerned, it received total sale consideration of Rs.8,16,49,219/- on sale of 1,000 shares. The sale consideration was received by way of cheque amounting to Rs.9,10,00,000/- and an amount of Rs. 8,16,49,219/- in kind towards adjustment against the value of Flat No. 301, “Signia Isles”, Bandra Kurla Complex, (BKC), valued at Rs.15,63,98,521/- . After deducting the indexed cost of acquisition and brokerage aggregating to Rs. 10,61,252/-, assessee computed net capital gain of Rs.17,15,87,967-. Against the net capital gain, assessee claimed the following deductions:

i. under Section 54EC of the Act Rs.50,00,000/-.

ii