Claim as Residential House having no Basic Amenities for Habitation is invalid: ITAT upholds Disallowance u/s 54 of Income Tax Act [Read Order]

The New Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) found that the claim of a residential house having no basic amenities for habitation is invalid and upheld the disallowance under section 54 of the Income Tax Act, 1961.

Section 54 of the Income Tax Act, indicates that an individual or Hindu Undivided Family ( HUF ) selling a residential property can avail of tax exemptions from Capital Gains if the capital gains are invested in the purchase or construction of residential property.

Sandeep Hooda, the assessee sold a property on which he earned a capital gain of Rs. 5,63,74,550/-. The assessee claimed a deduction under section 54 in the return of income. The AO observed that the property that was the subject matter of the transfer, was residential the date of transfer being 25.09.2014, as per the provisions of Section 54, the assessee to claim deduction under Section 54, should have purchased a new residential property on or before 25.09.2016 or should have constructed a new residential property on or before 25.09.2017.

The AO was of the view that the condition was not satisfied by the assessee and asked to show cause as to why the deduction claimed under section 54 should not be disallowed as the construction of the house was not completed but no reply was filed by the assessee on the appointed date. Based on the report submitted by the Inspector, the AO denied deduction under section 54 in the sum of Rs. 5,63,74,550/-.

The CIT(A) allowed the deduction under section 54 after observing that the house is located in a rural area, where no particular norms for construction are prescribed by the local Authorities and the assessee cannot be forced/expected to observe all those norms, which are particularly prescribed by Municipal Authorities for urban housing.

It was observed that though the assessee might be intending to construct a full-fledged residential house on the agricultural land purchased by him, it is clear that such a residential house, having the basic amenities was not constructed by the assessee on or before 25.09.2017.

The two-member Bench comprising Saktijit Dey (Vice President) and M. Balaganesh (Accountant Member) observed that the assessee had not constructed the residential house within the prescribed time and in fact had not constructed a residential house at all on or before 25.09.2017 which could be construed as a residential house, habitable for its dwelling. Accordingly, deduction under section 54 had been rightly denied by the AO.

The Bench further observed that the Inspector of Income-tax along with the Office Superintendent had physically visited the site and had confirmed that the alleged house did not even have the basic amenities. The Tribunal found that the basic amenities were not available in the subject mentioned property.

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