2024 (4) TMI 55 - HC - Income Tax

LTCG - Deduction claimed u/s 54 - ITAT allowed claim - HELD THAT - We note that the issue of Long Term Capital Gain itself arises out of the Apartment Buyers Agreement 'Agreement for the property which was entered into by the assessees on 18 February 2016 and thus prior to the date of sale. ITAT has come to conclude that the aforesaid Agreement was in respect of an under construction flat and since the sale as well as the possession of the property in question had been completed within a period of three years from the date of sale of a residential house, the assessees would be entitled to be accorded relief. We note that the view as taken by the ITAT is also in consonance with the judgment rendered by this Court in Sh. Akshay Sobti 2020 (1) TMI 407 - DELHI HIGH COURT no substantial question of law arises.

Issues Involved:
1. Disallowance of deduction claimed u/s 54 of the IT Act, 1961.
2. Allowability of subsequent part payment of a loan for exemption u/s 54.
3. Treatment of purchase of under-construction flat as construction by the assessee.
4. Compliance with the time frame mandated by section 54 for construction/purchase of the house.

Issue-wise Summary:

1. Disallowance of deduction claimed u/s 54 of the IT Act, 1961:
The Commissioner challenged the ITAT's order dated 11 August 2023, questioning whether the ITAT erred in not considering the observation made by the AO in disallowing the deduction claimed by the assessee u/s 54 of the IT Act, 1961.

2. Allowability of subsequent part payment of a loan for exemption u/s 54:
The Commissioner also questioned whether the ITAT erred in considering the subsequent part payment of a loan taken from ICICI for the residential house as allowable for exemption u/s 54, despite the loan being applied for much earlier and based on an agreement dated 18/02/2016, more than one year before the date of sale of the property.

3. Treatment of purchase of under-construction flat as construction by the assessee:
Another issue raised was whether the ITAT erred in deleting the addition of Rs. 4,04,38,315/- on account of exemption u/s 54 by treating the purchase of the under-construction flat as construction by the assessee, considering the agreement for purchase was made on 18.02.2016, thus making it a purchase of house property.

4. Compliance with the time frame mandated by section 54 for construction/purchase of the house:
The Commissioner further questioned whether the ITAT erred in considering that the construction/purchase of the house happened within the time frame mandated by section 54, given that the agreement was entered on 18/12/2016, outside the mandated period, and thus the part payment within the mandated period cannot be eligible for deduction u/s 54.

Judgment:
The High Court noted that the issue of Long Term Capital Gain arose from the Apartment Buyers Agreement dated 18 February 2016, prior to the date of sale. The ITAT concluded that the Agreement was for an under-construction flat, and since the sale and possession were completed within three years from the date of sale of the residential house, the assessees were entitled to relief. The Court found that the ITAT's view was in consonance with the judgment in Principal Commissioner of Income Tax-17 New Delhi vs. Sh. Akshay Sobti, which held that acquisition of a flat through allotment by a builder should be treated as construction of a flat by the assessee. The Court dismissed the appeals, finding no substantial question of law and no reason to interfere with the ITAT's order.

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