Delhi ITAT: Buy Residential House Within 3 Years from Old House Transfer, Condition for Tax Benefits U/S 54

The New Delhi ITAT after determining that the taxpayer does not file either of the conditions specified in section 54 of the income tax, ruled that no infirmity in the IT authority’s order in refusing the advantage of the deduction of the long-term capital gains to the taxpayer under section 54.

The Division Bench of N.K. Billaiya (Accountant Member) and Yogesh Kumar U.S (Judicial Member) noted that “For the purpose of claiming the benefit u/s 54 of the Act, within a period of one year before or two years after the date of transfer of old house, the taxpayer should acquire another residential house or should construct a residential house within a specified period of three years from the date of transfer of old house”. (Para 8)

The case facts, the taxpayer furnished the return stating Rs. 94,02,280/-, which was thereafter changed to Rs. 1,04,01,920/-. The assessee in its return had offered for tax income from Long Term Capital Gain (LTCG) of Rs. 35,58,612/- being income originating from the sale of property situated at Dwarka which was sold/transferred for a total sale consideration of Rs. 1,36,00,000/- and the LTCG of Rs. 35,58,612/- was calculated. Through making the disallowance of Rs. 35,58,612 the assessment order passed on the basis that the taxpayer does not satisfy the condition of section 54 of the act.

From the Agreement the Bench discovered that nowhere it is cited that the intended property to be sold by Piyush Aggarwal in favour of the taxpayer is either under construction or is an unfinished property.

Relatively, the construction of the property began much before the execution of the sale act of the residential property (Flat) by the taxpayer, Bench said.

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In the case, Bench remarked that according to the Agreement on 18/02/2014, the taxpayer has been provided full freedom to use, hold, enjoy, sell, and mortgage the Property to be purchased by the taxpayer, whereas on the other hand, the first party i.e. Peeyush Aggarwal will not have any privilege, title or interest on the stated property.

According to the taxpayer, the new Flat was purchased via sale endorsement on 18/02/2014, though afterwards, it was argued that the taxpayer purchased a Bare-Shell flat dated 13/08/2016, which is not backed by any of the documents, the bench noted.

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While the taxpayer has entered into an Agreement to Sell dated 18/02/2014 which itself gives specific absolute rights to the taxpayer, the Bench said.

Therefore, the taxpayers’ petition was dismissed by the ITAT.