Denial of LTCG Tax Exemption Not Allowed Due to Builder’s Error in Apartment Assignment

The tax benefits cannot be refused to the taxpayer because of an error made by the builder in assigning the apartment, the Mumbai Bench of Income Tax Appellate Tribunal (ITAT) ruled.

The bench of Rahul Chaudhary (Judicial Member) and Om Prakash Kant (Accountant Member) noted that the petitioner cannot be penalized for the mistake executed via the developer or seller by allocating a flat to the petitioner and subsequently selling that flat to Mr C.N. Jha. The developer/seller accepted the mistake and accommodated the petitioner by allocating a similarly placed flat in the same building.

Read Also: Delhi ITAT: Section 54 Deduction Could’t Disallowed for Not Depositing LTCG In Capital Gain Account Scheme

The petitioner, an individual resident taxpayer furnished the original income return. The case of the petitioner was appointed for scrutiny.

At the time of the assessment proceedings, the petitioner seeks to furnish the information about the purchase or the sale of the property and the exemption claimed under section 54.

The petitioner answering to that furnished that the petitioner had obtained, in the former year, consideration for his share of the sale of property located at Nepean Sea Road, Mumbai. As per the petitioner, the sale transaction resulted in capital gains and income.

But, since the petitioner had paid Rs 12,00,00,000/- for the purchase of a residential flat, the payment was for the cost of the purchase, along with the stamp duty, pre-possession charge, service tax, etc. The petitioner under Section 54 was authorized to claim deductions. Thus in the hands of the petitioner, no capital gain income was levied to tax.

The submission of the petitioner was rejected by the assessing officer and brought to tax capital gains income of Rs 11,27,41,786 in the petitioner’s hands. The assessing officer witnessed that no registered sale act proves the purchase of the new flat or asset. The new flat or asset purchased information stated in the possession letter was not the same as the flat or asset for which the payment of Rs 12,00,00,000 was stated to have been made via the petitioner. In the discrepancies, the claim of the petitioner for deduction under Section 54 cannot be permitted.

An individual or HUF under Section 54 of the Income Tax Act, selling a residential property can claim the tax exemptions from capital gains if the capital gains are invested in the purchase or construction of residential property.

The tribunal ruled that the refusal of the exemption was not justified since the assessees could not be penalized for the mistake performed by the builder in allotting the flat.