The Ahmedabad Bench of Income Tax Appellate Tribunal ( ITAT ) allowed the claim for tax deduction under Section 54 of the Income Tax Act, 1961, for an investment in a new residential property.
The assessee, Umesh Sumanlal Shah, filed his return of income for the assessment year 2012-13 on 21.03.2014, declaring a total income of Rs. 43,560. However, the Income tax Assessing Officer (AO) reopened the assessment under Section 147 of the Income Tax Act on the grounds that the assessee sold an immovable property for Rs. 45,00,000 during the assessment year 2012-13 but did not furnish the transaction details despite receiving a notice under Section 133(6) of the Act.
Subsequently, a notice under Section 148 of the Income Tax statute was issued on 29.03.2019, and the assessee filed a revised return declaring the same total income.
The AO disallowed the claim of the assessee for income tax deduction under Section 54 of Rs. 29,19,742, citing that the assessee had not purchased any residential property against the capital gain and had only made an agreement to sell, which was not duly stamped and registered as per law. This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre ( NFAC ), Delhi.
The assessee, represented by Parin S. Shah, contended that the sale consideration of Rs. 45,00,000 was shown in the original return of income under the Long Term Capital Gain ( LTCG ) schedule.
It was argued that he had paid the full consideration of Rs. 25,00,000 and had taken possession of the new residential property within the assessment year, supported by bank statements and Municipal Tax bills listing him as the occupier.
The assessee further submitted that the transaction qualifies as a transfer within the meaning of Section 2(47)(v) of the Act, supported by the registered agreement to sell and the possession taken. The decision of the Supreme Court in Suraj Lamp & Industries Pvt. Ltd. was argued to be inapplicable in this case.
C.S. Sharma, representing the revenue, maintained that the AO and CIT(A) were justified in disallowing the deduction under Section 54. The revenue emphasised that the sale deed was not properly registered and cited the decision of the Supreme Court in Suraj Lamp & Industries Pvt. Ltd., which mandates that deeds of conveyance must be duly stamped and registered.
The bench of Suchitra Kamble found merit in the assessee’s contentions. It noted that the assessee had indeed shown consideration in his return of income and had made an investment in the new residential property, evidenced by the Municipal Tax bill and bank statements.
The Income tax appellate bench observed that the assessee had provided details, including a registered sale deed and payment of Municipal Tax, which indicated a legal transfer of the property.
The Tribunal distinguished the present case from the decision in Suraj Lamp & Industries Pvt. Ltd. and relied on the Supreme Court’s ruling in Sanjeev Lal vs. CIT, which held that a valid transfer could take place through an agreement to sell if the subsequent sale deed execution was delayed due to circumstances beyond the assessee’s control.
The ITAT allowed the assessee’s appeal, granting the deduction under Section 54 of the Income Tax Act.
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