2024 (5) TMI 699 - AT - Income Tax

LTCG - deduction u/s 54 - window available for the assessee being one year prior the date of sale of the property - Relevance of date of possession or date of agreement - deduction denied as date of possession of the new residential premises exceeded one year window - HELD THAT - According to section 54 deduction is allowable if assessee purchases the property. In this case by agreement dated 25/07/2009, assessee acquired right to purchase a house which was under construction, on 2/2/2011, when house was handed over to the assessee, when it was inhabitable , assessee purchased house. In Akshay sobti ors. 2020 (1) TMI 407 - DELHI HIGH COURT as held that the provision in question is a beneficial provision for assessee s, who replace the original long-term capital asset with a new one - further held that booking of bare shell of a flat is a construction of house property and not purchase, therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the IT. Act. In this case also assessee has booked an under construction flat and same was handed over to the assessee on completion of construction. Further Coordinate bench in Bastimal K jain 2016 (6) TMI 1243 - ITAT MUMBAI has also held that he assessee's claim of deduction under section 54 was to be reckoned from the date of handing over of the possession of the flat by the builder to the assessee i.e. 11-9-2009, and if one took that date, the assessee was entitled to deduction under section 54 because the assessee had sold his residential flat on 24-2-2010. All other decisions relied on by the assessee also held that date of possession of new property should be considered as the date of acquisition of the property. In the assessee s own case while computing capital gain ld. AO has taken date of allotment as the date of acquisition of the property. Hence, we hold that assessee is entitled to deduction u/s 54 of the act on purchase of new property considering the date of possession , when it is completed, as the date of purchase of property as agreement to purchase the property was for under construction property. By entering into an Agreement to purchase assessee has acquired right to purchase the property and did not purchased the property as same was under construction. Section requires Purchase of property. Assessee appeal allowed.

Summary

Issues Involved:

1. Eligibility for deduction u/s 54 of the Income Tax Act.
2. Initiation of penalty proceedings u/s 271(1)(c) of the Act.

Summary:

Issue 1: Eligibility for Deduction u/s 54

01. These appeals concern the claim of exemption u/s 54 of the Income Tax Act by spouses, with identical assessment and appellate orders, thus disposed of by a common order.

02. ITA number 4069/M/2023 is filed by Mr. Sunil A Shah for AY 2011-12 against the assessment order passed u/s 144C(13) read with sections 147 and 254 of the Income Tax Act, 1961, dated 3/10/2023, determining total income at Rs. 3,597,395, denying the claim of deduction u/s 54.

03. ITA number 4070/M/2023 is filed by Mrs. Rita Sunil Shah for AY 2011-12 against the assessment order passed u/s 144C(13) read with sections 147 and 254 of the Income Tax Act, 1961, dated 3/10/2023, determining total income at Rs. 3,597,395, denying the claim of deduction u/s 54.

06. The assessee, a non-resident, sold a jointly owned flat for Rs. 138 lakhs on 10/2/2011. The assessment was completed u/s 144(1) treating the gain as short-term capital gain. The CIT(A) confirmed this addition, which was challenged before the ITAT, which set aside the matter for de novo adjudication.

08. The AO accepted the date of allotment (31/1/2006) as the date of acquisition, thus considering the gain as long-term capital gain. The indexed cost of acquisition was disputed but settled.

09. The assessee claimed deduction u/s 54 for a new flat purchased from Runwal CapitaLand India Pvt Ltd, with the agreement dated 25/07/2009 and possession granted on 02/02/2011.

010. As per section 54, the assessee must purchase a new residential house within one year before or two years after the date of transfer, or construct within three years.

011. The AO considered the date of the purchase agreement (25/07/2009) as the purchase date, thus denying the deduction u/s 54.

013. The dispute is whether the date of the agreement (25/07/2009) or the date of possession (02/02/2011) should be considered for deduction u/s 54.

016. The assessee relied on the Bombay High Court decision in CIT vs. Beena K Jain, where the date of possession was considered for exemption u/s 54F. Similar decisions were cited from various judicial precedents.

018. The Tribunal considered the rival contentions and judicial precedents, concluding that the date of possession (02/02/2011) should be considered the date of purchase for deduction u/s 54.

026. The Tribunal held that the assessee is entitled to deduction u/s 54, considering the date of possession as the date of purchase, as the agreement was for an under-construction property.

027. Ground no. 1 of both appeals was allowed.

Issue 2: Initiation of Penalty Proceedings u/s 271(1)(c)

04. Grounds 2 and 3 in ITA No. 4069/MUM/2023 pertain to the initiation of penalty proceedings u/s 271(1)(c) on account of disallowance of deduction u/s 54 and variance in the calculation of indexed cost of acquisition.

028. The Tribunal found these grounds premature and dismissed them for both appeals.

029. Accordingly, both appeals were partly allowed.

Order pronounced in the open court on 13.05.2024.