Taxpayer Alert: ITAT Denies Section 54 Tax Relief Over Unregistered Sale Agreement:

Taxpayer Alert: ITAT Denies Section 54 Tax Relief Over Unregistered Sale Agreement

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. 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. Issue Raised: 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. ITAT Held: In the present case, going by the facts brought on record by the PCIT in light of assessment order passed by the Assessing Officer, it is a clear case of erroneous order passed by the Assessing Officer which caused prejudice to the interest of the Revenue. This is evident from the claim of exemption under sec.54 of the Act on the basis of an un-registered sale agreement for purchase of property from wife of the assessee. Although, the Assessing Officer has issued show cause notice u/sec. 142(1) of the Act and called for relevant details to verify the claim of exemption u/sec 54F of the Act and also the assessee has furnished relevant details including copy of sale agreement for purchase of new asset, but, in our considered view, although, the claim of exemption u/sec. 54F is based on an un-registered agreement with the related party, but, the Assessing Officer has failed to verify the issue in light of relevant provisions of the Act including provisions of Registration Act, 1908 which render the assessment order erroneous and prejudicial to the interest of the Revenue. Unless a property is conveyed by a registered deed in terms of the Registration Act, 1908, the title of the property will not be transferred to the purchaser and, therefore, it cannot be said that, the said transfer is a "valid transfer" and the person who purchased the property has got a valid title and right over the property. In the present case, an unregistered agreement claimed to have been entered into by the assessee with his wife is between the two related parties and further, the assessee is also failed to file relevant evidences to prove that he has made a honest effort to register the property by presenting the document before the registering authority and in absence of any evidence, the averments made by the assessee on the basis of the recitals of an un-registered sale agreement, cannot be considered as evidentiary value.