The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the capital gain exemption under Section 54 of the Income Tax Act, 1961 cannot be disallowed in a case where the assessee, due to ignorance of the law, claimed deduction under section 54F instead of section 54.
The Assessing Officer while disallowing assessee’s claim has observed that mere letters issued by the real estate development company allotting flats to the assessee do not confer ownership rights, hence, the assessee cannot be considered to be the owner of the flat to claim the deduction. It was also held that the exemption cannot be granted since the assessee claimed deduction under section 54F instead of section 54 of the Act.
The Tribunal, relying on the judicial precedents and the CBDT circulars, noted that once the assessee makes an investment in the purchase of flats and flats are allotted in its name, the conditions of section 54 of the Act are satisfied.
Allowing the claim of the assessee, the Tribunal observed that “if the assessee invests the capital gain in purchase/construction of a new residential house, it is eligible to claim deduction under section 54 of the Act. Merely because the assessee, by ignorance of law or mistake, has claimed deduction under section 54F instead of section 54 of the Act, such ignorance of law/mistake on the part of the assessee cannot be utilized to its disadvantage by the Assessing Officer. The duty of the Assessing Officer is to correctly compute the real income of the assessee in accordance with the statutory provisions. While the Assessing Officer is empowered to disallow any deduction claimed by the assessee if it is not in accordance with provisions of Act, in the same manner, he is duty bound to allow the deduction to the assessee if the assessee is eligible for such deduction under the provisions of the Act,” the Tribunal said.
It was, therefore, held that since the capital gain arises from the sale of the residential house, the assessee is eligible to claim deduction under section 54 of the Act and the restrictions imposed under the proviso to section 54F(1) of the Act will not apply to the assessee.To Read the full text of the Order CLICK HERE