Assessee Still Eligible for Section 54F Income Tax Deduction even when Sale Deed Executed after Two Years: ITAT [Read Order]

In a significant ruling, the Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that an assessee is still eligible for a deduction under Section 54F of the Income Tax Act, 1961, even if the sale deed for a new residential property is executed beyond the two-year period.

The case involved an individual taxpayer who had sold a capital asset and reinvested the proceeds in a residential house. However, due to unforeseen circumstances, the execution of the sale deed for the new property was delayed beyond the stipulated two-year period. The assessing officer (AO) disallowed the Section 54F deduction, contending that the delay violated the conditions set under the provision.

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In appeal, the Commissioner of Income Tax (Appeals) upheld the decision of the assessing officer and stated that the execution of the sale deed within the prescribed statutory period was mandatory for claiming the deduction. The assessee then approached the income tax appellate tribunal, arguing that the substantial compliance with Section 54F of the Income Tax Act should be considered, even if there was a delay in the formal execution of the sale deed.

The tribunal bench of Judicial Member Astha Chandra and Vice President R K Panda ruled in favor of the assessee, stating that the primary objective of Section 54F is to encourage investment in residential property and provide relief to taxpayers.

The income tax appellate tribunal also noted that the assessee had fulfilled the substantial conditions of the provision by reinvesting the capital gains within the required timeframe, even though the formal documentation was completed later and went on to dismiss the appeal of the revenue.

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It held that mere procedural delays should not defeat the genuine claim of an assessee if the intent of the law is met. The bench observed that, “considering the fact that the assessee has admittedly entered into MoU and paid an amount of Rs.10.60 crores to M/s. Kumar Housing Corporation, which finds mention in the sale deed executed subsequently, therefore, merely because the assessee and his family members are the shareholders in KUD and that the sale deed has been executed after a period of two years, the assessee in our opinion cannot be denied the benefit of deduction u/s 54F of the Act.”

To Read the full text of the Order CLICK HERE

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