The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), held that the claim of capital gain exemption under Section 54 of the Income Tax Act, 1961 on construction of residential house completed within 3 years is allowed and the penalty levied under Section 271(1)(c) of the Income Tax Act was deleted.
The assessee Hemant Shridhar Phatak booked two flats in the joint name with his wife on 18/4/2011, sold his another flat on 04/08/2012, the possession of the flats was received by the assessee on 26/11/2014. The assessee in its return of income claimed an exemption of Rs.45,46,285 under Section 54 of the Income Tax Act on long-term capital gains from sale of a residential house.
The Assessing Officer during scrutiny assessment stated that the assessee had booked the residential flats, beyond one year before the date of transfer of a residential house and the possession of flat was received after two years from transfer of a residential house, hence, the assessee is not eligible to claim exemption under Section 54 of the Income Tax Act. The AO initiated penalty proceedings under Section 271(1)(c) of the Income Tax Act after disallowing assessee’s claim of exemption under Section 54 of the Income Tax Act.
Aggrieved against the assessment order, the assessee filed appeal before Commissioner of Income-Tax (Appeals) [CIT(A)]. The CIT(A) vide impugned order upheld the findings of the Assessing Officer and dismissed appeal of the assessee.
Further aggrieved, the assessee filed an appeal before the ITAT.
The Authorized Representative of the assessee Devang Divecha, pointed that when the flats were booked they were under construction. It is only after completion of construction in 2014 that the possession of the flats was handed over to the assessee. He asserted that one of the conditions under Section 54 of the Income Tax Act for claiming exemption is that the assessee has within a period of three years after the date of transfer of long term capital asset has constructed one residential house in India.
The Departmental Representative Dinesh Chourasia, submitted that new property was acquired by the assessee beyond the time limit as specified under Section 54 of the Income Tax Act for claiming benefit of exemption.
The Bench comprising of Vikas Awasthy, Judicial Member and Amarjit Singh, Accountant Member held that the assessee is eligible to claim exemption under Section 54 of the Income Tax Act as the construction of residential house completed within three years from the relevant date.
The Tribunal further observed that merely for the reason that the assessee had made claimed of exemption under Section 54 of the Income Tax Act which was not acceptable to the Assessing Officer, penalty under section 271(1)(c) of the Income Tax Act cannot be levied, thus deleted the penalty levied under Section 271(1)(c) of the Income Tax Act.
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