ITAT Mumbai: Exemption under section 54 cannot be denied for delay in possession due to builder’s fault

Fact and Issue of the case

The appellant had e-filed his return of income on 26.08.2015 declaring total income at Rs.2,00,07390/-. During the year, the appellant had claimed deduction u/s.54 of the IT Act, 1961 amounting to Rs.3,42,58,350/-. Therefore, the appellant was requested to submit the detailed note on satisfaction of condition u/s.54 of the IT Act for claiming deduction alongwith supporting evidence. In response to the above, appellant had furnished details of the transactions of sale & purchase of property. From the submissions furnished by the appellant, AO had made the following observations:

i. , The appellant had sold flat on 19.12.2014 for Rs.4,50,00,000/-

ii. The capital gains received from the above sale was invested by the appellant in property vide agreement dated 01.12.2014.

iii. The appellant got allotment letter on 01.12.2012.

iv. New investment had been made by the appellant during the period from 28.10.2012 to 21.06.2016 i.e not exclusively after the date of transfer of old assessee.

v. The eligible amount of capital gains claimed by the appellant showed period of investment from 24.12.2013 to 25.08.2015.

vi The appellant had not submitted any evidence of completion of the construction and possession of the house property wherein the appellant had invested capital gains.

It was observed by the AO from the above that the appellant had not satisfied, the basic condition i.e. completion of house property within 3 years from the date of transfer for being eligible to claim deduction u/s.54 of the IT Act.

AO noted assessee explanation as under:-

a) Part and advance purchases consideration paid before the date of agreement of purchase of new assets date 19.12.2014 should be considered as made on 19.12.2014 being appropriation of advance.

b) The new asset (purchased under construction) is completed in June 2017 but demand of final payment on possession is not made by builder upon non receipt of occupation certificate, should be treated as sufficient compliance of provisions of section 54

c) Exemption provisions i.e. section 54 is beneficial in nature should be construed liberally.

The AO was not satisfied, he held as under:-

i. Even though the appellant had submitted a letter from Developer stating that the construction is complete, there is no specific date mentioned in the letter;

ii. The letter of the Developer is contradictory to the fact that the Developer itself has-updated status on RERA site on 02.11.2017 as “On-going project and revised date of completion is mentioned as 31.08.2018;

iii The assessee is yet to make the final payment in respect of the investment transaction. iv Occupation Certificate is not yet received. v The assessee has not got possession of the property.

vi The circular no. 471 & 972 referred by the assessee were for specific schemes. Circular 471 is about reckoning of holding period. The Central Board of Direct Taxes (CBDT) issued a circular (No.471, dated 15th October, 1986), where it has clarified that for flats under self-financing schemes of the DDA; the holding period shall begin from date of the allotment letter.

During the assessment proceedings, the appellant had requested the AO to take liberal view with regard to deduction u/s.54. In this regard AO held that though liberal view can be taken while allowing deduction u/s.54 as it a beneficial section, however, the decisions cannot be applied mechanically.

Considering the facts of the case in light of the legal position, it was held by the AO that the appellant does not fit into the scheme of the things envisaged in section 54 of the IT Act and the claim of the appellant was not legally tenable. Accordingly, deduction of Rs,3,42,58,350/- claimed by the appellant u/s.54 of the IT Act was disallowed and added to the total income of the appellant. Aggrieved by the above addition, the appellant is in appeal. Against the above order, assessee appealed before ld.CIT(A).

Ld.CIT(A) noted that assessee submission and placing reliance from certain case laws from Hon’ble Bombay High court allowed the appeal. Against the above order, revenue is in appeal before us.

Observation of the Tribunal

The Tribunal has heard both the parties and perused the records. Ld. DR supported the order of the AO. On the other hand, Ld. Counsel of the assessee supported the order of Ld.CIT(A). He submitted that assessee has complied with all the requirements of claiming exemption/deduction under section 54 of the IT Act. He submitted that assessee has made the payment to the builder within the stipulated time. There was some issue of obtaining the completion certificate by the builder. Hence, there was some delay in handling over the possession. He submitted that this cannot be a reason to deny the exemption of section 54 on the touchstone of decision of Hon’ble Bombay High court in the case of Girish L. Ragha Panaji vs DCIT in income tax appeal no. 66 of 2015.

Furthermore, he submitted that assessee has made the necessary payments and on the touchstone of decision of Hon’ble Supreme Court in the case of Sanjeev lal vs CIT in Civil Appeal Nos.5899-5900 of 2014 adverse inference against the assessee cannot be made in this regard.

Upon careful consideration, we find that assesssee has complied with the condition mention under section 54 of the IT Act to claim the exemption. As pointed out by the Ld. Counsel of the assessee above, the handing over of the possession was delayed due to fault on the part of the builder and assessee has complied with the necessary condition of payment as required. There is a due agreement and part amount was paid. Accordingly, in such situation, the decision of Hon’ble Supreme court in the case of Sanjeev Lal (supra) provides that part payment will also suffice the ingredients of transfer for the purpose of section 54 of the IT Act.

In this view of the matter, in our considered opinion, ld.CIT(A) has passed a reasonable order duly relying upon the decision of Hon’ble Bombay High court. Hence, we do not find any infirmity in the order of ld.CIT(A). Hence, this appeal by the revenue stands dismissed.