ITAT allows Capital Gain Exemption as Re-investment was made within Prescribed Period [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench restored the case to the AO for examining whether the assessee is entitled to deduction under section 54 of the Income Tax Act.

The assessee, Mr. Mahendrasingh Ramsingh is an individual, who is deriving income from salary. For the assessment year 2010-2011, the return of income was filed on 02.08.2011, declaring total income of Rs.7,48,390. The assessment under section 143(3) was completed by making addition to the salary income declared by the assessee.

Subsequently, the assessment was reopened by issuance of notice for the reason that the assessee had sold a flat in Mumbai for a consideration of Rs.62,91,500 and this flat, according to the AO, was purchased by the assessee vide a registered sale agreement only for a consideration of Rs.29,08,950.

According to the AO, the assessee’s declaration of income on sale of impugned flat as a long term capital gains (LTCG) and claiming deduction under section 54 was patently wrong.

The assessee submitted that the impugned flat which had given raise to capital gains was allotted to him and substantial payments were made thereafter by availing bank loan.

Hence, it was contended that the sale of the said flat is LTCG. This submission of the assessee was rejected by the AO and the assessment under section 143(3) read with section 147 of the Income Tax Act was completed vide order, wherein the income arising on sale of the impugned flat was treated as short term capital gains (STCG), and accordingly, deduction under section 54 of the Income Tax Act on reinvestment was denied.

The coram of B.R.Baskaran and George George K held that the assessee gets a right to the impugned property on the date of allotment letter and payment of instalment as per the terms is only a follow up action and taking delivery of possession is only a formality.

Therefore, reckoning the period from the date of allotment, the Tribunal held that the sale of impugned flats give rise to long term capital gains and not short term capital gains as held by the authorities below.

The ITAT held that reinvestment was made within the period specified under section 54. However, since the Assessing Officer and the CIT(A) had held that income arising on sale of impugned flat is short term capital gains, they did not have an occasion to consider the claim of deduction under section 54 on reinvestment.

Therefore, ITAT restored the case to the AO for the limited purpose for examining whether the assessee is entitled to deduction under section 54.

To Read the full text of the Order CLICK HERE

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