Circle rate applies for capital gains deemed consideration

Circle rate applies for capital gains deemed consideration and Section 54F applies to JDA flats subject to construction completion verification

Issue

Whether the Assessing Officer was justified in adopting the Joint Development Agreement (JDA) contract rate instead of the official stamp duty circle rate for determining deemed sale consideration under Section 48, and whether exemption under Section 54F can be granted for residential flats allocated under a JDA pending verification of construction completion timelines.

Facts

The assessee entered into a Joint Development Agreement (JDA) for the transfer of landed property during Assessment Year 2014-15.
For computing Long-Term Capital Gains (LTCG), the assessee adopted a deemed sale consideration of Rs. 760 per sq. ft., which reflected the Sub-Registrar’s official circle rate for stamp duty valuation.
The assessee also claimed capital gains exemption under Section 54F in respect of two residential flats to be constructed and received under the JDA.
The Assessing Officer (AO) rejected the circle rate and instead adopted Rs. 1,100 per sq. ft.—the estimated construction cost figure specified in the JDA—to compute the deemed sale consideration.
The AO further denied the Section 54F exemption on the ground that the assessee failed to furnish proof demonstrating the completion of construction within the statutory time frame.
The CIT(A) confirmed the AO’s adoption of the Rs. 1,100 per sq. ft. rate and the disallowance of the Section 54F exemption.

Decision

The Tribunal held that the value specified in a JDA cannot automatically be treated as the fair market value of the property when a lower circle rate fixed by the Sub-Registrar for stamp duty purposes exists; hence, the AO ought to have accepted the deemed consideration of Rs. 760 per sq. ft. adopted by the assessee.
The Tribunal held that when the Revenue taxes deemed consideration on the date of transfer under a JDA (even before physical possession or actual consideration is fully realized), it must synchronously extend the corresponding benefit of Section 54F exemption for the residential flats allocated to the assessee under the same JDA.
Because the specific factual details regarding the completion of construction of the flats were not available on record, the Tribunal set aside the issue to the file of the AO for the limited purpose of verifying compliance with the construction completion conditions under Section 54F.

Key Takeaways

Circle Rate vs. Contractual Estimates for Deemed Consideration: For computing capital gains on JDA transfers, the official stamp duty circle rate prevailing on the transfer date serves as the benchmark for deemed consideration over unverified construction cost estimates stated in agreements.
Symmetry in JDA Taxation: The Revenue cannot adopt a hypocritical approach by taxing deemed consideration on the execution of a JDA while simultaneously withholding Section 54F exemption on the residential space to be constructed under the same JDA.
Remand for Completion Verification: Section 54F exemption claimed on flats acquired under a JDA requires factual verification of the completion of construction within the 3-year statutory limit from the date of transfer.

IN THE ITAT HYDERABAD BENCH ‘B’

Smt. Nagabhushana Pamala

Income-tax Officer

Ravish Sood, Judicial Member
and G. Manjunatha, Accountant Member

I.T.A.Nos.133 to 136 (Hyd) of 2026
[Assessment years 2014-15 and 2017-18]

JULY 1, 2026

Pawan Kumar, CA and Ms. Santi Pavan Kumar, Adv. for the Appellant. K. Prasad, Sr. A.R. for the Respondent.

ORDER

Manjunatha G., Accountant Member.- The four appeals filed by the assessee are directed against the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [in short “NFAC”], Delhi, dated 26.11.2024, pertaining to the assessment years 2014-15 and 2017-18. Out of the four appeals, two appeals arise from assessments completed u/s 147 r.w.s. 144 of the Income-tax Act, 1961 and the remaining two appeals arise from penalty orders passed u/s 271(1)(c) of the Act. Since facts are identical and common issues are involved in all the appeals, the same were heard together and are being disposed of by this single consolidated order for the sake of convenience and brevity.

2. The brief facts of the case are that the assessee filed her return of income for A.Y. 2014-15 on 23.03.2016, admitting the total income of Rs.11,44,163/-, which consists of income from capital gain derived from transfer of property. The assessee had entered into Joint Development Agreement on 30.10.2013 along with her son, Shri P. Sai Kumar Reddy, for development of land to an extent of 1,139.80 Sq. Yd., which was in the name of assessee and her son. The land on the name of assessee is 489.80 Sq. Yd. and the extent of land on the name of her son was 650 Sq. Yd. The above land was originally acquired by the father-in-law of the assessee late P. Narayana Reddy on 05.04.1956. The land was gifted by a valid gift deed to the assessee from her husband, late P. Keshava Reddy, on 12.11.1998. After demise of Shri P. Keshava Reddy, the assessee and her son dwelling upon the land in the ratio of 43% and 57%, i.e., 489.80 Sq. Yd. and 650 Sq. Yd., respectively. The assessee had entered into a Joint Development Agreement with M/s. Sri Radha Madhav Developers, Tirupati on 30.10.2013 and as per the Joint Development Agreement, the market value of the construction cost was specified at Rs.1,100/-per Sq. Ft. for the purpose of payment of stamp duty.

3. The assessee filed her return of income for the year under consideration on 23.03.2016 and disclosed the long-term capital gain arising out of transfer of property in pursuance to Joint Development Agreement dated 30.10.2013 and computed longterm capital gain of Rs.11,44,163/- by taking into account the deemed sale consideration on total built-up area received from the builder and valued @ Rs.760/- per Sq. Ft. based on the certificate from the Sub-Registrar, Renigunta. After considering the relevant cost of acquisition, computed capital gain of Rs.33,96,914/- and by claiming exemption u/s 54F of the Act, for two flats, admeasuring 2675 Sq. Ft. has claimed exemption of Rs.22,52,751/- and reported taxable capital gain of Rs.11,44,163/-.

4. The case has been subsequently reopened u/s 147 of the Act, and notice u/s 148 of the Act, dated 31.03.2021 was issued and served on the assessee. In response, the assessee filed the return of income on 23.04.2021 admitting the same income at Rs.11,44,163/- by claiming exemption u/s 54F of the Act. During the course of assessment proceedings, the A.O., by taking into account the details submitted by the assessee, including the copy of Joint Development Agreement, observed that the assessee had computed deemed value of consideration on super built-up area received from the builder by applying a rate of Rs.760/- per Sq. Ft., whereas as per the Joint Development Agreement, cost of construction was specified at Rs.1,100/- per Sq. Ft. for payment of stamp duty. The A.O. has further submitted that, the assessee had taken only 43% of share in the property, even though there is no clear evidence for adopting 43% share. Therefore, the A.O. recomputed the long-term capital gain arising out of transfer of property by taking into account the developed area received by the assessee from the builder, which was at 9,340 Sq. Ft., and adopted Rs.1,100/- per Sq. Ft. to arrive at deemed consideration of Rs.1,02,74,000/- and the assessee being 50% shareholder in the property, (in the absence of sharing ratio mentioned in the JDA) considered her share of consideration at Rs.51,37,000/- and observed that the assessee has admitted only deemed consideration of Rs.34,56,700/- for the purpose of computation of capital gain. Therefore, the difference amount of Rs.16,80,300/-has been added under the head of “Long-term capital gains”. The A.O. further noted that the assessee had claimed deduction u/s 54F of the Act, to the tune of Rs.22,52,751/-, however, for claiming exemption, the assessee is required to file complete details. Since the assessee had not filed any evidence as called for and only given an explanation, the A.O. disallowed exemption u/s 54F of the Act, for Rs.22,52,751/-.

5. Aggrieved by the assessment order, the assessee preferred appeal before the learned CIT(A). Before the learned CIT(A), the assessee submitted that the assessee is having 43% share in the property as per gift deed, which confers the right to the assessee and accordingly computed long-term capital gain by taking into account 43% share in the super built-up area received from the builder. The assessee further submitted that the A.O. had wrongly considered sale consideration of Rs.1,100/- per Sq. Ft. on the basis of Joint Development Agreement, whereas the actual fair market value of property was at Rs.760/- per Sq. Ft., which is supported by the Sub-Registrar’s Office on the basis of circle rate. Since the cost admitted by the developer for the purpose of payment of stamp duty is only an estimated cost to be incurred for construction and hence, the same cannot be considered. The assessee had also submitted details with regard to exemption claimed u/s 54F of the Act, and claimed that she had filed the return of income in the year 2016 after receipt of physical possession of the constructed area from the builder and the reason given by the A.O. that the assessee has not proved completion of construction on or before three years for claiming exemption u/s 54F of the Act, is incorrect.

6. The learned CIT(A), after considering relevant submissions of the assessee and also taking note of the details submitted by the assessee, observed that as per the details submitted by the assessee, including the relevant gift deed, the assessee’s ownership in the impugned property is at 43% and her son’s share was at 57%. Therefore, the A.O. has erred in taking 50% share of the property while computing capital gains. The learned CIT(A) further observed that, the assessee herself adopted valuation of Rs.1,360/- per Sq. Ft. (Rs.760/- per Sq. Ft. for the constructed area and Rs.500/- per Sq. Ft. for the parking area) while calculating the capital gain, which was sold in the subsequent year, and has adopted Rs.760/- per Sq. Ft. Further, the registered document clearly shows the cost of construction was considered at Rs.1,100/- per Sq. Ft. Therefore, the Ld. CIT(A) observed that, the A.O. was right in adopting the cost of construction at Rs.1,100/- per Sq. Ft. for the purpose of deemed consideration to compute the capital gains derived from transfer of property. Accordingly, reworked the computation of capital gains by taking into account 43% share for the assessee and after allowing relevant cost, has arrived at net sale consideration of Rs.43,58,034/- for the assessee and since the assessee has adopted deemed consideration of Rs.34,56,700/-, the difference amount of Rs.9,01,334/- has been added to the long-term capital gains. In other words, out of the addition made by the A.O. for Rs.16,80,300/-, the learned CIT(A) has restricted the addition to Rs.9,01,334/-.

7. Insofar as the exemption u/s 54F of the Act, the learned CIT(A) upheld the addition made by the A.O. on the ground that the assessee has not submitted any credible evidence to establish that the flat was constructed within three years from the date of sale of property. The purchase/construction of new property was not completed within the prescribed period after the transfer of the original asset, and the assessee has failed to deposit the amount of the capital gains in Capital Gain Deposit Scheme within the time prescribed. Hence, the A.O. has rightly disallowed exemption u/s 54F and therefore, rejected the explanation of the assessee and upheld the action of the A.O.

8. Aggrieved by the order of the learned CIT(A), the assessee is now in appeal before the Tribunal.

9. The learned counsel for the assessee, Shri Pawan Kumar Chakrapani, C.A. and Ms. Santi Pavan Kumar, Advocate, submitted that, the learned CIT(A) erred in sustaining addition of Rs.9,01,334/- by considering the deemed sale consideration at Rs.1,100/- per Sq. Ft., even though the assessee had justified the fair market value of the property as on the date of transfer at Rs.760/- per Sq. Ft. and in support of her contention, filed relevant certificate from the Sub-Registrar, which is based on the circle rate prescribed by the Government for payment of stamp duty. The learned counsel for the assessee further submitted that the consideration agreed for the Development Agreement is only an estimated cost of construction to be incurred by the developer for the purpose of stamp duty, but it is not the actual cost of construction incurred by the developer and based on the above rate, the A.O. cannot compute the deemed value of consideration. Therefore, he submitted that the consideration adopted by the assessee as per the certificate of the Sub-Registrar should be accepted.

10. The learned counsel for the assessee further, referring to the claim of exemption u/s 54F of the Act, submitted that the assessee has claimed deduction u/s 54F for two flats bearing nos. 411 and 412 and the same has been retained for her residential purpose. Further, the assessee has also furnished relevant evidence to prove that the construction was completed on or before the due date as prescribed u/s 54F and further, once the A.O. has taxed the deemed consideration on the date of Joint Development Agreement, then the exemption claimed by the assessee for deemed investment in acquiring a new flat also should be allowed without going into other conditions. The A.O. and the learned CIT(A), without appreciating the relevant facts, simply disallowed the claim of the assessee. Therefore, he submitted that the claim made by the assessee should be allowed or, in the alternative, the matter may be remanded back to the A.O. for further verification.

11. The learned Sr. A.R. for the Revenue, Shri K. Prasad, on the other hand, submitted that the Development Agreement is an agreement between the assessee and the builder and as per the agreement, both the parties agreed the cost of construction at Rs.1,100/- per Sq. Ft. and also paid stamp duty. Since the evidence considered by the A.O. clearly shows the deemed consideration at Rs.1,100/- per Sq. Ft., but going to the third-party evidence filed by the assessee for claiming Rs.760/- per Sq. Ft. is incorrect. Further, the assessee has not furnished any proof of completion of construction of flats within three years, which is a pre-condition for claiming exemption u/s 54F of the Act and that the learned CIT(A), after considering the relevant facts, has rightly allowed partial relief to the assessee and sustained addition towards capital gains and also denied the exemption u/s 54F of the Act. Therefore, he submitted that the addition made by the A.O. should be upheld.

12. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee along with her son entered into a Joint Development Agreement on 30.10.2013 for development of 1,139.80 Sq. Yd. of land and received a super built-up area of 9,340 Sq. Ft. It is also not in dispute that the land in question was initially purchased by the father-in-law of the assessee, Late P. Narayana Reddy on 05.04.1956 and the same has been gifted to her husband, late Sri P. Keshava Reddy, on 12.11.1998 and after demise of her husband, the property in question was devolved upon the assessee and her son in the ratio of 43% and 57%, respectively. The assessee computed long-term capital gains by taking into account 43% share of super built-up area received from the builder and adopted Rs.760/- per Sq. Ft. to arrive at deemed value of consideration, which is based on the certificate issued by the Sub-Registrar as per the circle rate prevailing at the relevant point of time. The A.O. computed the deemed consideration by taking into account Rs.1,100/- per Sq. Ft., which was based on the Joint Development Agreement dated 30.10.2013, where the value of construction was specified at Rs.1,100/- per Sq. Ft. Insofar as the share in the property, there is no dispute because, the learned CIT(A) has accepted the contention of the assessee and adopted 43% share to the assessee from the super built-up area received from the builder. As regards the computation of deemed sale consideration, the A.O. and learned CIT(A) have adopted Rs.1,100/- per Sq. Ft. on the basis of the Development Agreement and going by the rates specified therein, it is only an estimated cost, but not the actual cost incurred by the developer for construction of flats. Further, there is no clarity as to whether it is the circle rate for payment of stamp duty or the estimated construction cost agreed by the developer. On the basis of the cost specified in the Joint Development Agreement, it cannot be said that, the market value of the property as on the date of transfer was at Rs.1,100/- per Sq. Ft., particularly when the circle rate for payment of stamp duty was at Rs.760/- per Sq. Ft. Since the assessee has adopted Rs.760/- per Sq. Ft. adopted by the SRO, in our considered view, the A.O. ought to have accepted the deemed consideration as claimed by the assessee at Rs.760/- per Sq. Ft. The learned CIT(A), without appreciating the relevant facts, simply accepted Rs.1,100/- per Sq. Ft. on the basis of the reasons given by the A.O. Thus, we set aside the order of the learned CIT(A) on this issue and direct the A.O. to adopt Rs.760/- per Sq. Ft. for the purpose of computing deemed sale consideration.

13. Coming back to the denial of exemption u/s 54F of the Act. There is no dispute with regard to the fact that the assessee has reinvested in two flats in pursuant to the Development Agreement and claimed that the above two flats are retained for her residential purpose. In fact, the A.O. has not disputed the fact that the assessee has retained two flats for her residential purpose, but the A.O. denied the claim of exemption u/s 54F of the Act, only on the ground that the assessee has not furnished any proof for completion of house property within three years from the date of transfer of original asset. In our considered view, when the A.O. is taxing the deemed consideration on the date of transfer of original asset as per the Joint Development Agreement, even though the assessee has not received any consideration, then the A.O. also need to allow exemption u/s 54F as claimed by the assessee on the basis of two flats to be constructed by the builder, received by the assessee and also retained for the purpose of residential use without going into verifying the other conditions, including the condition of construction of building within three years from the transfer of property, because the construction of building on or before the due date is not in the hands of the assessee. Further, it was the claim of the assessee that the construction of building was completed within two years from the date of transfer of original asset and after receipt of physical possession of the constructed portion of building, she had filed the return of income for the year under consideration. Since the assessee claimed that the construction of building was completed when she had filed the return of income for the year under consideration and further, the assessee cannot be asked to perform the impossibility of performance, in our considered view, the exemption claimed u/s 54F should be allowed as claimed by the assessee. However, since the facts with regard to details of completion of construction of building were not with the A.O. and the assessee has not furnished any details, in our considered view, the issue needs to be set aside to the file of the A.O. to verify the limited fact with regard to satisfying the conditions of completion construction to allow exemption u/s 54F of the Act. The A.O. is directed to verify the issue and allow exemption claimed u/s 54F of the Act, as claimed by the assessee.

14. In the result, the appeal filed by the assessee for A.Y. 2014-15 is allowed for statistical purposes.

ITA No.134/Hyd/2025

15. This appeal relates to penalty levied u/s 271(1)(c) of the Act, on addition made by the A.O. towards computation of long-term capital gains arising out of transfer of property in pursuant to JDA and denial of exemption claimed u/s 54F of the Act.

16. The issue of computation of long-term capital gains and consequent denial of exemption u/s 54F of the Act has been considered by us in ITA No.133/Hyd/2025 for A.Y. 2014-15, where the issue of computation of capital gain and consequent addition made by the A.O. has been deleted. Insofar as the denial of exemption u/s 54F of the Act, although in principle, we accept the claim of the assessee, but for the limited purpose of verification of facts, the issue has been set aside to the file of the A.O. Therefore, in our considered view, once the addition on which the A.O. levied penalty u/s 271(1)(c) of the Act, has not survived and further, the other issue has been set aside to the A.O. for further verification, then the penalty levied by the A.O. u/s 271(1)(c) of the Act, on both the additions has no legs to stand. Therefore, we set aside the order of the learned CIT(A) and restore the issue of levy of penalty u/s 271(1)(c) of the Act, to the file of the A.O. The A.O. is directed to reconsider the issue of penalty u/s 271(1)(c) of the Act, after giving effect to the order of the Tribunal in ITA No.133/Hyd/2025 and reconsider the issue of penalty u/s 271(1)(c) of the Act, if need arises.

17. In the result, the appeal filed by the assessee is allowed for statistical purposes.

ITA No.135/Hyd/2025 for A.Y. 2017-18

18. The only issue that came up for our consideration from this appeal is addition made by the A.O. towards long-term capital gains by taking into account deemed consideration at Rs.1,100/-per Sq. Ft. as against Rs.760/- per Sq. Ft. considered by the assessee. The A.O. made addition of Rs.19,40,234/- towards longterm capital gains computed by the assessee in pursuant to the Development Agreement by taking into account Rs.1,100/- per Sq. Ft. on the basis of cost of construction agreed by both the parties in the Joint Development Agreement, dated 30.10.2013 as against Rs.760/- per Sq. Ft. as considered by the assessee as per the certificate issued by the Sub-Registrar, Renigunta. The learned CIT(A) allowed partial relief to the assessee, where the learned CIT(A) restricted the addition made by the A.O. to Rs.16,75,681/-by taking into account 50% share for the assessee.

19. The learned counsel for the assessee submitted that the longterm capital gains computed by the A.O. and upheld by the learned CIT(A) is consequential to the appeal filed by the assessee for A.Y. 2014-15, because if the assessee succeeds for A.Y. 2014-15 on the issue of exemption u/s 54F of the Act, then the assessee will get deduction towards cost of acquisition of property while computing the capital gains an amount equal to exemption u/s 54F and therefore, the matter may be remanded to the file of the A.O. for verification and decide the issue after giving effect to the order of the Tribunal for A.Y. 2014-15.

20. The learned Sr. A.R. for the Revenue, on the other hand, supporting the order of the learned CIT(A) submitted that, although the assessee seeks remand of the issue to the file of the A.O., but the fact remains that since the learned CIT(A) has considered the issue and allowed relief to the assessee, there is no error in the order of the learned CIT(A) to remit the issue back to the file of A.O. Therefore, he submitted that the order of the learned CIT(A) should be upheld.

21. We have heard both parties, perused the material available on record and had gone through the order of the learned CIT(A). The issue involved in the present appeal is computation of capital gains by taking deemed value of consideration in pursuant to the Development Agreement between the assessee and the developer on super built-up area received from the developer. We find that, an identical issue has been considered by us in assessee’s own case in ITA No.133/Hyd/2025 for A.Y. 2014-15, where the issue has been dealt with in detail and held that, the A.O. has wrongly taken Rs.1,100/- per Sq. Ft. for computing the capital gain as against Rs.760/- per Sq. Ft. considered by the assessee. The findings given by us in the preceding paragraphs nos. 14 and 15 in ITA No.133/Hyd/2025 for A.Y. 2014-15 shall equally apply to this appeal as well. Therefore, for similar reasons, we direct the A.O. to adopt the deemed value of consideration by taking into account Rs.760/- per Sq. Ft. for the purpose of computation of capital gains.

22. Insofar as the second argument of the assessee on the issue of computation of capital gains by taking into account the cost of acquisition of the property, we find that, the assessee has claimed exemption u/s 54F for two flats in A.Y. 2014-15. The assessee has sold the above two flats in F.Y. 2016-17 relevant to the assessment year under consideration and computed long-term capital gains. The A.O. disallowed deduction u/s 54F claimed by the assessee for A.Y. 2014-15. The assessee has challenged denial of exemption and the Tribunal in ITA No.133/Hyd/2025 has dealt with the issue and remanded the issue to the file of the A.O. for further verification. Since the issue involved in the present appeal with regard to computation of capital gain is dependent upon the outcome of the appeal filed by the assessee for A.Y. 2014-15 and further, the issue challenged by the assessee for A.Y. 2014-15 has been set aside to the file of the A.O., in our considered view, the issue involved in the present appeal needs to be set aside to the file of the A.O. for further verification. The A.O. is directed to verify the claim of the assessee after giving effect to the appellate order passed for A.Y. 2014-15 and then compute the capital gain for the year under consideration by taking into account the sale consideration and allow relevant cost of acquisition as per law. The A.O. is also directed to verify the other conditions, including the condition of selling the property within the prescribed period as per Section 54F of the Act.

23. In the result, the appeal filed by the assessee for A.Y. 2017-18 is allowed for statistical purposes.

ITA No.136/Hyd/2025

24. This appeal relates to penalty levied u/s 271(1)(c) of the Act, on addition made by the A.O. towards computation of long-term capital gains arising out of sale of two flats received pursuant to the Joint Development Agreement and consequential denial of deduction claimed by the assessee.

25. The issue of computation of long-term capital gains arising out of sale of two flats has been considered by us in the quantum appeal for the year under consideration, where the issue has been set aside to the file of the A.O. for fresh verification and computation after giving effect to the order of the Tribunal for A.Y. 2014-15. We further find that, the computation of capital gains for the year under consideration is directly dependent upon the outcome of the appellate proceedings for A.Y. 2014-15, where the issue of exemption claimed u/s 54F of the Act, and computation of deemed consideration arising out of the Joint Development Agreement has been restored to the file of the A.O. for verification. Therefore, in our considered view, once the very addition on which the A.O. levied penalty u/s 271(1)(c) of the Act, has been set aside to the file of the A.O. for fresh adjudication and the quantum proceedings have not attained finality, the penalty levied u/s 271(1)(c) of the Act, cannot survive independently. Accordingly, we set aside the order of the learned CIT(A) and restore the issue of levy of penalty u/s 271(1)(c) of the Act, to the file of the A.O. The A.O. is directed to reconsider the issue of penalty u/s 271(1)(c) of the Act, after giving effect to the order of the Tribunal in ITA No.135/Hyd/2025 and also after giving effect to the order passed in ITA No.133/Hyd/2025 for A.Y. 2014-15 and decide the issue in accordance with law.

26. In the result, the appeal filed by the assessee is allowed for statistical purposes.

27. To sum up, all the appeals of the assessee are allowed for statistical purposes.

Order pronounced in the Open Court on 1st July, 2026.