An individual sold a commercial plot held since 2009 for Rs 1.60 crore. The agreement to sell was executed in January 2021, when Rs 15 lakh was received by account payee cheque, and the sale deed was registered in August 2022, falling in AY 2023-24. The stamp duty value on the registration date was Rs 2.05 crore; on the date of the agreement it was Rs 1.66 crore. Out of the net consideration the seller paid Rs 1.35 crore for a residential flat registered in his wife's name, funded entirely from his own bank account, and retained Rs 25 lakh which was never deposited in a capital gains account scheme before the due date for filing the return. He owns a one-half share in a house inherited from his father and no other residential property. The assessment adopts Rs 2.05 crore as the full value of consideration, declines to make a reference to the valuation officer on the footing that the assessee never asked for one, and denies the reinvestment exemption in full on three grounds - that the new house is not in the assessee's name, that he already owns a residential house, and that the unspent amount was not deposited in the specified account.
Compute the ratio of the stamp duty value to the stated consideration before arguing anything, because the substitution only bites where the stamp duty value exceeds the consideration by more than the tolerance band, and the band has changed over the years. Here Rs 2.05 crore against Rs 1.60 crore is well outside any version of the band, so the substitution is live and the fight moves to which date's value applies and whether a valuation officer's figure can displace the circle rate. Doing this arithmetic first also tells the client immediately whether the exemption limb or the substitution limb is the larger exposure, which decides where the effort goes.
The stamp duty value is deemed to be the full value of consideration for land or building only where it exceeds the actual consideration by more than the tolerance percentage, and that percentage has changed across years. If the difference falls inside the band for the relevant year, the entire substitution disappears and nothing further needs to be argued. Where it does not, the computation has to proceed on the deemed figure unless the value is displaced.
Where the stamp duty valuation exceeds the stated consideration, the officer must refer the valuation to the departmental valuation officer even where the assessee has not asked for such a reference. The absence of a request during the assessment is therefore not an answer, and the point can be taken in appeal with a request that the matter be sent back for the reference. Support the request with the actual condition of the property - encumbrance, access, litigation, tenancy - which is what the valuation officer will look at.
The provision permits the stamp duty value on the date of the agreement to be adopted where the agreement predates the registration and part of the consideration was received by a prescribed banking mode on or before the agreement date, and that amendment has been held curative and applicable retrospectively from the introduction of the section. Here the cheque of Rs 15 lakh received in January 2021 is the fact that carries this argument, and it must be evidenced by the bank statement and the agreement together. The year in which the transfer is charged is fixed by when the transfer is effected, so the two dates need to be kept separate in the computation.
On the first objection there is a genuine split - one High Court has allowed the exemption where the entire consideration came from the assessee but the new house was bought in the spouse's name, while another has refused it where the property was bought in a son's name, holding that the assessee must own the new asset or have legal title over it. On the same reasoning as the spouse cases, investment in agricultural land registered in a spouse's name has been held not to defeat the corresponding exemption where the funds belonged to the assessee. The reply should lead with the funding trail from the assessee's own account, since that is the fact on which the favourable line turns.
The exemption is unavailable where the assessee owns more than one residential house on the date of transfer, and joint or fractional ownership counts as ownership for that purpose. A one-half share in a single inherited house is therefore one house, not more than one, so the objection as framed does not defeat the claim. Establish the position as on the transfer date with the ownership documents, because a later acquisition is a different question.
Failure to deposit the unutilised consideration in the specified bank account before the due date for filing the return has been held fatal to the exemption, with relief confined to the amount actually spent. That failure does not travel to the amount actually invested, so the correct posture is to accept a proportionate denial on the unspent portion and defend the Rs 1.35 crore. Where investment has in fact been made, completion of construction, execution of the deed or occupation within the period has been held not to be a requirement, and the reinvestment window has been read as running to the extended due date for filing the return.
Cost of acquisition is what was paid, and for assets received by gift, will, inheritance or partition it is what the previous owner paid. Indexation has been removed for transfers on or after 23 July 2024, with a carve-out for a resident individual or Hindu undivided family selling land or building, so the transfer date decides which computation applies. Since the exemption is proportionate to the net consideration reinvested, every rupee added to the consideration by the substitution also changes the exemption fraction on the department's view of it, and the two limbs must be computed together rather than in sequence. Whether the substituted figure is the net consideration for that fraction at all is a divided question, and the library now holds an entry on each side of it - one confining the deeming fiction to the computation of the gain, so that the consideration recited in the deed governs the exemption, the other working the exemption out on the substituted figure. Both are marked unverified and both were written from digests rather than from the judgments, and no decision reconciling them was found, so compute on the substituted figure and argue for the lower one rather than the other way round. For transfers from AY 2024-25, later than this one, there is also a ceiling on the reinvestment that may be taken into account, which the library now covers; it does not touch this year but it changes the fraction where it applies.
The request for a valuation officer's reference is usually granted on appeal, and the reported value commonly lands between the declared consideration and the circle rate, so the substitution shrinks rather than disappears. The agreement-date argument succeeds where the part payment through a banking channel on or before the agreement date is clearly evidenced, and fails where it is not. On the exemption, the spouse-name objection is decided differently in different jurisdictions, the other-house objection on these facts should not survive, and the unspent portion is likely to be denied.