The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has recently held that capital gain exemption under Section 54 is not allowable in cases where the builder has not started construction of house.
It was also contended that the Commissioner of Income Tax (Appeals) [CIT(A)] has wrongly concluded that it is a case where the developer was not having necessary approval from the government to construct residential units and that it is not a case that the assessee was not offered possession.
The approval of the zonal plan and delivery of possession happened by 18.08.2022 whereas the land was purchased on 17.12.2014.
Section 54 of the Income Tax Act allows for an exemption on long-term capital gains tax for individuals and HUF (Hindu Undivided Family) if the proceeds from the sale of a long-term capital asset, such as a residential property, are invested in the purchase or construction of another residential property within a specified time frame.
However, if the builder of the new property does not start construction within the specified time, the exemption is not allowable, as per this ruling.
The representatives of the assessee, Inder Paul Bansal, Vivek Bansal and Mayank Banka contended that “CIT(A) has wrongly concluded that it is a case where the developer was not having necessary approval from the government to construct residential units and that it is not a case that assessee was not offered possession.”
On behalf of the assessee, it was further submitted that assessee in his own wisdom did not consider it proper to take possession without the approval of zonal plan which will not make the investment in plot as being debarred from claiming the exemption as the construction is permissible up to the period of three years from the date of transfer of Long-term Capital Asset.
On behalf of the revenue, Pradeep Gautham submitted that, “There may be many intervening factors which make it unreasonable and against the rules of prudence to expect the investor to also have completed the construction in three years. But then the law requires the gain to be statutorily invested.”
The Income Tax Appellate Tribunal (ITAT) Bench of Judicial Member Anubhav Sharma and Accountant Member Shamim Yahya observed, “There is no evidence of any construction activity or of the fact that assessee has invested the proceeds in statutory deposits and then spent any proceeds of the sales consideration of two properties he had sold, into the construction over this plot”, as no construction had begun.
On observing the above, the tribunal held that the exemption claim was rightly rejected by the authorities.
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