In a recent ruling, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) disallowed the claim of deduction under Section 54 of the Income Tax Act,1961, because the taxpayer failed construct a residential house within the prescribed time.
The issue to be decided was whether the assessee would be eligible for claiming deduction under Section 54 of the Income-tax Act,1961.
The assessee Sandeep Hooda on 31.03.2016 declaring total income of Rs. 1, 27, 54,600/-. During the year under consideration the assessee sold a property for Rs. 6,88,00,000/-, on which he earned capital gain of Rs. 5,63,74,550/-.The assessee claimed deduction under Section 54 of the Income Tax Act to the tune of Rs. 5, 63, 74,550/- in the return of income. The AO observed that in the instant case the property that was subject matter of transfer, was a residential property which was sold on 25.09.2014 in favour of Shri Kore for Rs. 6,88,00,000/-.The date of transfer being 25.09.2014, as per the provisions of Section 54 of the Act, the assessee in order to claim deduction under Section 54 of the Income Tax Act, 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 observed that assessee had only entered into an agreement to sell on 12.03.2015 with M/s Vera Edu Infra Pvt. Ltd. for purchase of 1.75 acres of agricultural land, on which he was desirous to construct a residential building. The learned AO observed that based on oral discussion with the AR of the assessee on the status of construction of the house, the house had not been constructed till 13.11.2017.
Dr. Rakesh Gupta, representing the assessee confirmed that there was no electricity supply, water connection in the subject mentioned property for which deduction under Section 54 of the Income Tax Act was claimed and even the approved map for construction of the house was not submitted by the assessee.
The CIT( A ) observed that the house is located in a rural area, where no particular norms for construction are prescribed by the local Authorities and assessee cannot be forced/expected to observe all those norms, which are particularly prescribed by Municipal Authorities for urban housing. He stated that the assessee had produced a copy of certificate dated 29.08.2015 issued by the Sarpanch of the village, certifying that the assessee had constructed the house and lived occasionally there on that address.
The assessee also produced a copy of the certificate issued by an Architect Avinash Vaidya dated 11.09.2017 certifying that the assessee’s house consisted of 2 rooms with toilet, kitchen and garden at the address specified by the assessee. Hence, he held that the assessee had duly invested in the residential property, thereby making him eligible for deduction under Section 54 of the Income Tax Act.
The two member bench of the tribunal comprising Sakti Dey ( Vice President ) and M. Balaganesh ( Accountant member ) had no hesitation to hold 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 of the Income Tax Act had been rightly denied by the AO in the instant case. ITAT considered opinion, was thoroughly misplaced. With these observations, the grounds raised by the revenue are allowed. Accordingly, appeal of the revenue was allowed.
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