The Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has disallowed the taxpayer’s claim under Section 54 of the Income Tax Act, 1961 stating that the taxpayer failed to construct a residential house within the stipulated three-year period from the date of transfer of the old house.
The assessee filed return of income declaring at Rs. 94,02,280/- on 30/10/2017 thereafter revised return declaring total income of Rs. 1,04,01,920/- was filed on 30/03/2019. In the return of income, the assessee had offered for tax income from Long Term Capital Gain (‘LTCG’)of Rs. 35,58,612/- being income arising from sale of property situated at Flat No. 2001, 10th floor, Nishant Co-operative Housing Society, Plot No. 5, Sector-19B, Dwarka , the said property was sold/transferred for a total sale consideration of Rs. 1,36,00,000.
The assessment order came to be passed on 18/12/2019 by making disallowance of Rs. 35, 58,612/-on the Ground that the Assessee has not fulfilled the conditions of Section 54 of the Act. Aggrieved by the assessment order dated 08/12/2019, the assessee preferred an Appeal before the CIT(A), the CIT(A) vide order dated 03/02/2023, dismissed the Appeal filed by the assessee.
Mr. Rohit Jain, representing the assessee submitted that the CIT(A) committed error by observing that the assessee has not purchased any new property within the time specified in the provision of Section 54 of the Income Tax Act, thus, erroneously sustained the addition of Rs. 35,58,612/-.
Further submitted that the possession of incomplete bare shell (new asset) was received by the assessee on 13/08/2016 which was not habitable in as much as unfinished items including floor, tiles, internal doors, bathroom fittings etc., therefore, the assessee under took balance ‘construction activity’ spending more than 75 lakhs complete the Villa and made it habitable in 2018 therefore, the assessee is entitled to claim the benefit, thus the addition made by the A.O. which has been sustained by the CIT(A) is bad in law.
Mr. Shweta Yadav, representing the revenue submitted that the assessee has not purchased any new property or constructed any residential house after execution of the Sale Deed, since the Assessee has violated the conditions of provision under Section 54 of the Income Tax Act, the A.O. rightly made disallowance which has been confirmed by the CIT (A) and the same requires no interference.
The bench observed that the assessee had sold his Residential property on situated at Flat No. 2001, 10th floor, Nishant Co-operative Society, Plot No. 5 Sector 19B, Dwarka dated 28/02/2017 in the Financial Year 2013-14 itself for total sale consideration of Rs. 1,36,00,000 resulting in Long Term Capital Gain of Rs. 35,58,612.
Moreover, the assessee entered into an agreement to sale on 18/02/2014, which explicitly conferred certain absolute rights to the assessee, as detailed earlier. In order to avail the benefits outlined in Section 54 of the Income Tax Act, whereby a taxpayer must acquire another residential house within a year before or two years after the transfer of the old house, or construct a residential house within three years from the date of transfer, the assessee must fulfill one of these conditions. However, it is noteworthy that the assessee has not met either of these stipulations as prescribed under Section 54 of the Income Tax Act, 1961.
The two member bench of the tribunal comprising N.K.Billaiya ( Accountant member) and Yogesh Kumar U.S ( Judicial member) found no error or infirmity in the orders of the lower authorities in denying the benefit of deduction to the assessee under Section 54 of the Income Tax Act, accordingly, ITAT found no merit in the Ground of Appeal of the assessee.
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