2015 (12) TMI 1815 - AT - Income Tax

Deduction u/s. 54 - substantive advances made for purchasing the house property in question to housing society/builder - capital gains for purchasing the residential house in question - HELD THAT - There can hardly be any quarrel that this statutory provision envisages three basic conditions to be fulfilled by the claimant assessee. First one is that the new property can be purchased within a period of one year before executing the sale deed. Second one is that the same can be purchased within two years after the sale deed. Third and final condition stipulates construction of a new house within three years from the date of transfer. It has come on record that the assessee has paid a gross sum of ₹ 1,15,00,000/- to the builder/housing society. This amount is almost equal to the gross sale price of ₹ 1,18,00,000/-. We repeat that conveyance deed in his favour is dated 31-03-2008. The builder thereafter applied for AUDA s permission on 24-012-2008 which finally came on 15-12-2009 prescribing some construction regulations. We are of the view in these facts that the same has to be read applicable from the date of application. The same falls within three years of 11-05-2006. We are further of the view that the assessee has already advanced a sum much more than the impugned capital gains for purchasing the residential house in question. A co-ordinate bench of the tribunal in SHRI HASMUKH N. GALA VERSUS ITO 2015 (8) TMI 1204 - ITAT MUMBAI allows a similar claim of section 54 deduction in case involving substantive advances made for purchasing the house property in question by holding the same to mean as purchase for the purpose of the impugned deduction - the assessee s act of having made substantive payment of ₹ 1,15,00,000/- to housing society/builder followed by his getting the specified residential house constructed satisfies all the necessary conditions stipulated in section 54 - Decided in favour of assessee

Summary

Issues:
- Disallowance of section 54 deduction for long term capital gains addition.
- Interpretation of provisions under section 54 of the Income Tax Act, 1961.
- Validity of the claim for exemption under section 54 based on the facts of the case.
- Applicability of circulars and case laws in determining eligibility for deduction under section 54.

Analysis:
1. Disallowance of section 54 deduction: The primary issue in this case revolved around the disallowance of the section 54 deduction by the Assessing Officer, resulting in the addition of long term capital gains. The Assessing Officer contended that the investments made by the assessee were treated as loans and advances to the builder, leading to the disallowance. However, the CIT(A) overturned this decision, stating that the appellant had fulfilled the conditions for claiming the deduction under section 54.

2. Interpretation of provisions under section 54: Section 54 of the Income Tax Act lays down specific conditions for claiming deductions related to long term capital gains. The tribunal analyzed the provisions of section 54, emphasizing that the claimant must fulfill the conditions of purchasing a new property within a specified period and completing construction within the prescribed time frame. The tribunal examined the timeline of events related to the investments made by the assessee and the subsequent construction of the residential property to determine compliance with section 54.

3. Validity of the claim for exemption under section 54: The CIT(A) scrutinized the facts of the case, highlighting that the appellant had sold a property and invested in a new residential property within the stipulated time frame. The appellant's payments towards land and construction were deemed valid for claiming the deduction under section 54. The delay in construction due to external factors beyond the appellant's control was considered while upholding the claim for exemption under section 54.

4. Applicability of circulars and case laws: The CIT(A) referenced various circulars and case laws to support the appellant's claim for exemption under section 54. Circulars related to construction schemes by cooperative societies and the treatment of investments for deduction purposes were cited. Case laws were also cited to establish precedents where similar claims for deductions under section 54 were allowed based on fulfilling the conditions specified in the law.

In conclusion, the tribunal upheld the CIT(A)'s decision to allow the appellant's claim for exemption under section 54, dismissing the Revenue's appeal. The analysis focused on the fulfillment of statutory conditions, interpretation of relevant provisions, and the application of circulars and case laws to support the appellant's eligibility for the deduction. The judgment emphasized the importance of meeting the criteria outlined in section 54 for claiming deductions related to long term capital gains.