Deduction u/s 54 – Assessee cannot be blamed for the delay in housing projects by builder

Deduction u/s 54. Assessee cannot be blamed for the delay in housing projects by the builder as sections 54 and 54F are beneficial provisions.

In a recent judgment, ITAT has held that deduction u/s 54 can not be denied for the delay in housing projects by the builder 

ABCAUS Case Law Citation
ABCAUS 3604 (2022) (07) ITAT

Important case law relied referred:
CIT vs. Kuldeep Singh (2014) 49 taxman.com 167
CIT vs. Smt. Bharati C. Kothari (2000)
CIT vs. Bharti Mishra (2014) 222 Taxman.com
CIT vs. BS Shantha Kumri
Farida A Dungarpurwala vs. ITO (2014) 52 taxmann.com 527               

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming disallowance made by Assessing Officer (AO) of assessee’s claim of deduction under Section 54 of the Income Tax Act, 1961 (the Act).

The assessee was a resident individual who sold a residential house and claimed deduction under Section 54 of the Act in respect of long term capital gain towards constructing a new house. 

After examining the details called for, the Assessing Officer  observed, as per  Section  54  of  the  Act,  the  assessee  is required to invest the capital gain within a period of one year before or two years after the date of transfer of old asset towards purchase of new residential house or if the assessee within a period of three years  after the date of transfer constructed one residential house, will be  eligible to claim deduction under Section 54 of the Act. 

The Assessing Officer noted that as per the scheme of section 54, the assessee had booked flat on one week before the timeline prescribed. Further, he observed that till the end of two years only 34% work of the housing project was complete.

Thus, the AO observed, the condition of construction of residential house within a period of three years after the date of transfer of original asset was also not fulfilled. 

Thus, holding that the conditions of section 54(1) of the Act were not fulfilled, the Assessing Officer disallowed assessee’s claim of deduction under Section 54 of the Act. 

Before the Tribunal, the assessee relied upon the CBDT Circular No. 471 dated 5.10.1986 and 16.12.1993 and many judgments of Hon’ble High Courts and ITAT.

The Tribunal opined that the assessee cannot be put to blame for the laches of the builder. It is fairly well settled that sections 54 and 54F of the Act are beneficial provisions, hence, have to be interpreted liberally.

The Tribunal stated that if the assessee complies with the basic condition and makes investment accordingly, the benefit of the provision cannot be denied only because the builder did not complete the project in time, thereby, depriving the assessee of getting physical possession of the property. 

Thus, the Tribunal, applying the ratio laid down in the judicial precedents held that the assessee was eligible to claim deduction under Section 54 of the Act. 

Accordingly, the addition made on account of long term capital was deleted and appeal was allowed in favour of the assessee.

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