The Bombay High Court cut a capital gains assessee’s stay deposit to 20% of correctly computed tax, finding that adding the full cost of a second flat ignored the proportionate exemption formula.
The Bombay High Court has directed an assessee to pay ₹6,50,108, instead of the ₹38,75,018 fixed by the Assessing Officer, as the 20% deposit for stay of demand pending his appeal. It held that adding the entire ₹4,78,45,668 cost of a second flat to income was manifestly incorrect, since Section 54F(1)(b) of the Income Tax Act, 1961 charges only a proportion of the capital gain where the new house costs less than the net consideration [Nilesh Ramesh Modi v. Income Tax Officer, Ward-16(3)(1), Mumbai & Ors., 2026-juristway.com-3351-HC(Bombay)-IT].
The writ petition was decided by Justice B.P. Colabawalla and Justice Farhan P. Dubash. For Assessment Year 2024-25, the petitioner had transferred tenancy rights and shares for an aggregate consideration of ₹11,07,02,110. On 13 Jul 2023 he agreed to buy Flat Nos. 4106 and 4107 in Piramal Mahalaxmi for ₹4,88,82,168 and ₹4,78,45,668, intending to use them as one residential house, and claimed exemption of ₹9,99,99,793 under Section 54F.
The assessment under Section 143(3) read with Section 144B, dated 20 Feb 2026, allowed exemption for Flat No. 4106 and the Capital Gains Savings Scheme deposit of ₹32,72,000, but disallowed Flat No. 4107 as a separate unit. The Revenue relied on the developer’s reply under Section 133(6) that the flats had separate entrances and kitchens. The computation sheet, however, showed capital gains of ₹13,24,63,226, more than the total sale consideration.
The petitioner appealed to the CIT(A) and sought rectification under Section 154. On 17 Sep 2026 the rectification application was rejected as the issues were pending in appeal, and stay under Section 220(6) was granted subject to payment of 20% of the demand within seven days.
The Court expressly declined to decide whether two contiguous units can be one residential house, or the Revenue’s contention that the 2015 change from “a residential house” to “one residential house” defeats the claim. It decided only the computation of the 20% deposit. The petitioner’s working of capital gains at ₹2,93,47,526 under Section 54F(1)(b) was not disputed by the Revenue’s counsel, giving tax of ₹32,50,541 after credits. The Revenue’s affidavit did not explain how ₹13,24,63,226 had been arrived at.
The Court directed payment of ₹6,50,108 within one week and stayed recovery of the balance demand until the CIT(A) decides the appeal and for four weeks thereafter. It requested the CIT(A) to dispose of the appeal preferably by 31 Mar 2027.
2026-juristway.com-3351-HC(Bombay)-IT
