Capital Gain Exemption Allowable On Construction Of Residential House Completed Within 3 Years: ITAT

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT), has held that the claim of capital gain exemption under Section 54 of the Income Tax Act, 1961 on construction of residential house completed within 3 years is allowed and removed the penalty levied under Section 271(1)(c) of the Income Tax Act.

To claim exemption under section 54, the taxpayer should purchase another house within a period of one year before or two years after the date of transfer of old house or should construct another house within a period of three years from the date of transfer.

The Assessing Officer held that the assessee had booked the residential flats, beyond one year before the date of transfer of a residential house and the possession of flat was received after two years from transfer of a residential house, hence, the assessee is not eligible to claim exemption u/s. 54 of the Act.

The Authorised Representative of the assessee, emphasised that when the flats were booked, they were still under construction. It was only upon the completion of construction in 2014 that the assessee received possession of the flats. He contended that one of the conditions under Section 54 of the Income Tax Act to claim exemption was the construction of one residential house in India within three years after the date of transfer of the long-term capital asset.

On the other hand, the Departmental Representative, argued that the assessee acquired the new property beyond the specified time limit outlined in Section 54 of the Income Tax Act to claim the exemption.

Order:

No contrary decision is brought to the notice of the Bench. In light of facts of the case and decisions referred above, we accept the appeal of assessee. The assessee is eligible to claim exemption u/s. 54 of the Act as the construction of residential house completed within three years from the relevant date,” the bench consisting of Vikas Awasthy, Judicial Member, and Amarjit Singh, Accountant Member said while setting aside the impugned order and allowed the appeal of the assessee.

Additionally, the Tribunal noted that merely because the Assessing Officer rejected the assessee’s claim for exemption under Section 54 of the Income Tax Act, it did not warrant the imposition of a penalty under Section 271(1)(c) of the Income Tax Act. Consequently, the penalty levied under Section 271(1)(c) of the Income Tax Act was removed.