ITO Vs Vaibhav Vijay Sawant (ITAT Mumbai)
The ITAT Mumbai dismissed the Revenue’s appeal and upheld the assessee’s claim for deduction under Section 54 of the Income Tax Act in respect of long-term capital gains arising from sale of a residential flat. The assessee had invested the entire capital gains amount of Rs.2.52 crore in under-construction flats in the “Millionist-14” project and received allotment letters from the developer, along with making substantial payments exceeding the claimed deduction. The Assessing Officer denied the deduction on the ground that possession had not been handed over, no registered purchase agreement existed, and the project was delayed. However, the Tribunal held that investment in an under-construction property, supported by allotment letters and proof of payment within the prescribed period, amounted to sufficient compliance under Section 54. Relying on CBDT Circulars and several judicial precedents, the Tribunal observed that delay in construction beyond the assessee’s control could not defeat the exemption claim. Accordingly, the order of the CIT(A) allowing the deduction was upheld.
Issue: Whether deduction under section 54 can be denied merely because the new residential flats were under construction, possession was not handed over, and the purchase agreement was not registered within the prescribed period, despite substantial investment and allotment of flats by the builder.
