S. 54 Exemption cannot Be Denied Solely for Delay in Property Registration when Capital Gains are Timely Reinvested: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that relief under Section 54 of the Income Tax Act cannot be denied solely due to delay in registration of the new residential property when the capital gains have been timely reinvested, and remanded the matter back to the Assessing Officer (AO) for fresh verification.

Shri Indihaf Jamal Mohamed, the assessee, an individual, had sold a residential house property during the assessment year 2016-17 for a consideration of ₹60 lakh and did not initially file a return of income. Based on information received regarding the sale transaction, the AO reopened the assessment under Section 148 of the Income Tax Act.

In response, the assessee filed the return and claimed exemption under Section 54, stating that the sale proceeds were reinvested in a new residential flat. Although the registration of the new property was completed in January 2019, the assessee argued that the construction agreement was entered into in December 2015 and the entire consideration was paid within one year from the date of sale of the original property.

The AO disallowed the Section 54 exemption on the ground that the registration of the new property was completed beyond the prescribed period and also observed that sufficient documentary evidence had not been furnished. On appeal, the Commissioner of Income Tax (Appeals) passed an ex parte order and confirmed the disallowance, as there was no compliance from the assessee during the appellate proceedings.

Before the ITAT, the assessee’s counsel argued that the delay in registration was beyond his control and was attributable to the builder, while the entire sale consideration had been invested within the stipulated time. They also placed reliance on judicial precedents to argue that completion of registration is not a mandatory requirement for claiming exemption under Section 54, so long as the investment of capital gains is made within the prescribed period.

The Revenue counsel supported the orders of the lower authorities and argued that the exemption was rightly denied since the registration of the new property was completed well beyond the statutory time limit.

The single-member bench comprising George George K (Vice President) considered the arguments of both sides and examined the material available on record. The tribunal observed that the proceedings before the first appellate authority were completed ex parte and that the documentary evidence produced by the assessee was not properly examined at the assessment stage.

The tribunal explained that judicial precedents have consistently held that for the purpose of Section 54, what is relevant is the utilization of capital gains within the prescribed time, and not the date of registration or completion of construction. The tribunal pointed out that if the assessee is able to demonstrate that the sale proceeds were invested within the statutory period, the exemption cannot be denied merely due to delay in registration.

In view of these observations, the tribunal set aside the orders of the lower authorities and remanded the matter to the AO for fresh adjudication after examining the documents and evidence filed by the assessee. The appeal was allowed for statistical purposes.

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