No Denial of Capital Gains Deduction u/s 54 once Requisite Conditions are Met: ITAT [Read Order]

In a significant decision, the Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) overturned the findings of the Commissioner of Income Tax (Appeals) [CIT(A)] regarding the eligibility of the assessee to claim deduction under Section 54 of the Income Tax Act, 1961.

The tribunal directed the Assessing Officer (AO) to recompute any capital gains, considering the deduction under Section 54 as claimed by the assessee.

The case stemmed from the scrutiny of the assessee's return, during which details of property transactions and exemption claimed under Section 54 of the Income Tax Act were demanded.

Representing the appellant was Snehal Shah, while Sanyogita Nagpal represented the respondent department.

 The appellant explained that they had received sale proceeds during the relevant year from the sale of a property, resulting in capital gains income. However, the appellant had also made payments toward purchasing a residential flat, including stamp duty, pre-possession charges, and service tax, justifying their claim for deduction under Section 54.

Despite the appellant's submissions, the Assessing Officer rejected the claim, citing discrepancies such as the absence of a registered sale deed for the new flat and inconsistencies in the details mentioned in possession letters. The CIT(A) had upheld the AO's decision, denying relief to the assessee.

The tribunal bench, however, noted that the appellant had indeed made payments for a new residential flat, comprising various components such as payment against the flat, service tax, taxes, and pre-possession charges.

The bench remarked that the appellant should not be penalized for errors made by the developer/seller, who had acknowledged the mistake and allotted a similar flat in the same building to the appellant. Furthermore, the unregistered agreement for the sale of the flat was executed within the specified period of 2 years from the transfer of the original capital asset.

The tribunal bench, comprising Rahul Chaudhary (Judicial Member) and Om Prakash Kant (Accountant Member), noted that the appellant had received an occupation certificate for the Rustomjee Oriana project, where the purchased flat (Flat No. B-902) was located on 07/11/2015. The bench also observed that the possession of the flat was granted to the appellant on 15/03/2016.

Based on these facts, the tribunal bench concluded that the appellant satisfied the conditions outlined in Section 54 and should be allowed the deduction.

To Read the full text of the Order CLICK HERE

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