Veena Chadha Vs Assessing Officer (ITAT Delhi)
Flat Booked, Builder Failed: Can Section 54 Exemption Still Be Claimed?
A taxpayer who invests in a new residential flat within the prescribed time should not lose Section 54 relief merely because the builder fails to complete the project or execute a registered sale deed. The Delhi Bench of the ITAT has expressed this view in Veena Chadha v. Assessing Officer, ITA No. 5762/Del/2026, AY 2015–16, decided on 28 September 2026.
The Tribunal did not finally quantify or grant the exemption. It restored the matter to the AO to verify the capital gains computation and the documents supporting the investment. Its clear direction, however, was that non-completion of the purchase, in circumstances beyond the assessee’s control, cannot by itself defeat an otherwise admissible Section 54 claim.
How the dispute arose
The assessee had not filed a return for AY 2015–16. Information available to the Department showed that she had sold an immovable property. After issuing a notice under Section 148A(b), the Department reopened the assessment.
During reassessment, the assessee explained that the property sold at Munirka, New Delhi, was jointly owned with her husband and that her 50% share of the sale consideration was ₹55,00,200. She claimed an indexed acquisition cost of ₹35,92,814, resulting in a long-term capital gain of approximately ₹19.07 lakh. She also claimed to have invested in a new residential property and sought exemption under Section 54.
The AO rejected her explanation for want of adequate supporting documents. He treated the entire ₹55,00,200 as short-term capital gain and denied the Section 54 claim. The CIT(A) also declined relief, observing, among other things, that the new flat had not been conveyed through a registered purchase deed.
Thus, the dispute had two connected parts. The first was the correct computation and character of the gain on the old property. The second was whether the payments towards a flat that the builder failed to deliver could qualify for Section 54 relief.
Investment made, but possession never delivered
Before the Tribunal, the assessee produced documents relating to the acquisition and sale of the Munirka property. She also filed the booking documents and agreement dated 12 November 2014 for the new flat with Supertech Ltd., along with documents concerning the housing loan from Indiabulls Housing Finance Ltd., the tripartite agreement and her claim in the proceedings involving the builder.
According to the assessee, payments towards the new flat had been made within the statutory period. The project, however, was not completed, possession was not delivered and insolvency proceedings were subsequently initiated against the builder. She argued that a default by the developer, occurring after she had committed and paid the funds, was beyond her control.
The Department maintained that the lower authorities had not received the documents needed to verify the old property’s cost, the sale computation and the alleged purchase of the new property. It therefore supported the rejection of the claim.
What the Tribunal held
The ITAT accepted that the long-term capital gain computation required verification. The documents concerning the purchase and sale of the old property had not been placed before the AO, so the Tribunal did not simply substitute the assessee’s figures for the assessment figures.
On the Section 54 question, however, the Tribunal disagreed with rejecting the claim merely because the new flat was not completed or conveyed through a registered deed. It noted the booking agreement, the payments and the loan documents produced before it. The failure to obtain possession resulted from the builder’s inability to complete the project and the ensuing insolvency proceedings.
Referring to judicial decisions on the beneficial purpose of Section 54 and the meaning of investment in a residential house, the Tribunal held that the assessee could claim the deduction if the other statutory conditions were satisfied. Completion of the purchase could not be insisted upon as a standalone ground for denial where the assessee had paid towards the flat within time and the later failure was attributable to the builder.
The matter was therefore sent back to the AO for the limited purpose of verifying the computation of long-term capital gain and examining the Section 54 claim in light of the documents now filed. The appeal was allowed for statistical purposes.
Author’s comment
This decision is useful where an assessee has booked a flat and substantially invested within time, but possession or registration is delayed by the developer. The Tribunal has drawn a sensible distinction between the taxpayer’s required act of investment and the builder’s subsequent failure to deliver. Section 54 relief should be tested on the transaction and the statutory conditions, rather than rejected solely because the final conveyance never took place.
Equally, the remand is an important part of the ruling. Payment alone was not treated as an automatic exemption. The AO must still verify the old asset’s holding period and cost, the assessee’s share of the sale, the amount and timing of payments for the new flat, and the resulting eligible deduction. The claim regarding stamp duty as part of the old property’s acquisition cost also belongs in that computation.
For similar cases, the strongest record would include the old property’s purchase and sale deeds, builder allotment and agreement, bank statements, loan disbursement records, payment receipts, and evidence of the builder’s default or insolvency. In Veena Chadha, those documents gave the assessee an opportunity to establish the claim on remand, while the Tribunal removed non-registration and non-possession alone as reasons to refuse it.
Cases Discussed
- Sanjeev Lal v. CIT, 365 ITR 389 (Supreme Court)
- CIT v. Kuldeep Singh, 270 CTR 561 (Delhi High Court)
- CIT v. R.L. Sood, 245 ITR 727 (Delhi High Court)
- Smt. Shashi Varma v. CIT, 224 ITR 106 (Madhya Pradesh High Court)
- CIT v. Sambandam Udaykumar, 345 ITR 389 (Karnataka High Court)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order dated 20.12.2025 of the National Faceless Appeal Centre, Delhi [hereinafter referred to as the ‘Ld. CIT(A)’] arising out of the assessment order dated 04.01.2024 passed under section 147 r.w.s. 144B of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by Assessment Unit, Income Tax Department (hereinafter referred to as the ‘AO’) pertaining to Assessment Year (A.Y.) 2015-16.
2. Grounds of appeal filed by the Assessee are reproduced as under:
“1. That on the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) [“Ld. CIT(A)”] erred in upholding the reassessment proceedings initiated under Section 147 of the Income-tax Act, 1961 (“the Act”).
2. That the Ld. CIT(A) has grossly erred in law as well as on facts in sustaining/confirming the arbitrary and unsustainable demand of Rs. 42,46,480/- (Demand Identification No Against Original Demand: 2023201537003267622T) without proper appreciation of the facts and circumstances of the case, thereby violating the principles of natural justice.
3. That the Ld. CIT(A) has failed to correctly appreciate the taxable income of the Appellant for the relevant Assessment Year and has wrongly sustained the assessment at a figure higher than the actual taxable income, whereas the income of the Appellant falls below the maximum amount not chargeable to tax.
4. The Ld. CIT(A) failed to appreciate that there was no escapement of taxable income since the Appellant’s 50% share of Long-Term Capital Gains (LTCG) amounting to ₹19,07,186 was completely reinvested up to ₹37,23,484.13 within the statutory window, resulting in a nil tax liability and rendering the initial non-filing of the ITR perfectly bona fide.
5. That the Ld. CIT(A) grossly erred in sustaining the additions made in the reassessment order despite himself explicitly re-characterizing the transaction as a Long-Term Capital Gain (LTCG) under Section 250, thereby completely overriding and rejecting the Ld. Assessing Officer’s core finding that the transaction resulted in a Short-Term Capital Gain (STCG).
6. That the impugned assessment order and the appellate order suffer from fatal inconsistencies an assessment demand computed on the basis of individual rates for STCG cannot legally survive once the appellate authority has judicially accepted the asset to be Long-Term in nature.
7. That the Ld. CIT(A) has erred in upholding the computation of alleged capital gains arising on sale of the property without granting the lawful exemption available to the appellant under Section 54 of the Income Tax Act, 1961, despite the Appellant having fulfilled the prescribed conditions under the Act.
8. That the Ld. CIT(A) failed to appreciate that the Appellant had substantially complied with Section 54 by investing ₹37,23,484.13 (Appellant’s 50% share) between October and November 2014, which vastly exceeded the entire computed capital gain of ₹19,07,186, thereby fully satisfying the statutory intent of utilizing equivalent funds for housing.
9. That while filing the return of income, the Appellant inadvertently did not consider the stamp duty amount paid on acquisition of the property while computing the Indexed Cost of Acquisition and consequential Capital Gains. The total stamp duty paid on purchase of the property amounted to Rs. 2,50,000/-, out of which the Appellant’s 50% share was Rs. 1,25,000/-. The said amount, being an integral part of the cost of acquisition, ought to have been included in the computation of Indexed Cost of Acquisition. Consideration of the same would result in a lower computation of Capital Gains.
10. That the Ld. CIT(A) erred in denying the exemption under Section 54 purely on the hyper-technical grounds of non-receipt of physical possession and the absence of a registered conveyance deed, completely ignoring the fact that the absolute execution of these documents was rendered impossible due to third-party builder default and subsequent Insolvency Proceedings (IBC) initiated in 2022.
11. That the Ld. CIT(A) failed to appreciate that the subsequent frustration of the construction contract and builder insolvency were circumstances entirely beyond the control of the Appellant, and a bona fide taxpayer who has fully parted with their funds cannot be penalized for a developer’s structural default.
12. That the Ld. authorities below failed to appreciate that sourcing the reinvestment through a sanctioned housing loan and bank disbursals does not disentitle the Appellant from claiming exemption under Section 54. The section mandates the utilization of an equivalent amount towards a residential asset and does not require a literal tracking of the exact currency notes received from the sale transaction.
13. That the Ld. CIT(A) failed to appreciate that Section 54 is a beneficial provision meant to promote housing and must be construed liberally. The Ld. CIT(A) erred in ignoring the uniform judicial ratio that substantial investment within time constitutes compliance, as established by the following binding authorities:
➢ Sanjeev Lal v. CIT (365 ITR 389) (Supreme Court)
➢ CIT v. Kuldeep Singh (270 CTR 561) (Delhi High Court)
➢ CIT v. R.L. Sood (245 ITR 727) (Delhi High Court)
➢ Shashi Verma (Smt.) v. CIT (224 ITR 106) (Madhya Pradesh High Court)
➢ CIT v. Sambandam Udaykumar (345 ITR 389) (Karnataka High Court)
14. That the uniform ratio laid down in the aforementioned judicial pronouncements is that Section 54 requires the substantial investment of capital gains within the prescribed time, not the physical possession or formal registration of the property. Once the assessee has fulfilled their obligation by parting with the funds, a default by the builder resulting in the non-delivery of possession, being a factor entirely beyond the assessee’s control, cannot be used by the Revenue to defeat a legitimate claim for exemption.
15. That the Ld. CIT(A) has wrongly upheld the determination of taxable capital gains on the impugned transaction, whereas in fact no capital gain arose to the Appellant (entirely invested u/s 54), and consequently, no tax liability is attracted.
16. That the Ld. CIT(A) has erred in confirming the levy of interest under Sections 234A, 234B, and 234C of the Income Tax Act, 1961, which is illegal, unwarranted, and contrary to law, particularly when no taxable income was assessable in the hands of the Appellant during the relevant Assessment Year.
17. That the That the levy and continued charging of interest commencing from 21.10.2025 at the rate of 1% for every month or part thereof on the original demand amount of Rs. 42,46,480/-, particularly when the demand itself is disputed and under challenge, has resulted in an excessive and unwarranted burden upon the Appellant and therefore deserves to be deleted/withdrawn.
18. The Appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at or before the time of hearing.”
3. Brief facts of the case are that the assessee was a non-filer for A.Y. 2015-16 but as per the information available with the Department, she had sold an immovable property for Rs. 55,00,200/- during the year. Accordingly, a notice u/s 148A(b) was issued to her on 22.03.2022 requesting her to explain the transaction, to which no reply was submitted. Hence, an order u/s 148A(d) and notice u/s 148 of the Act, were issued on 4.4. 2022 for reopening of the assessment.
3.1 During the course of assessment proceedings, the assessee claimed that a new property had been purchased during the year from the sale proceeds of the property no. BF-5D (3rdFloor) DDD Flats, Munirka, New Delhi owned jointly with her husband.
It was further explained by the assessee that her share in the property sold was 50% and therefore her share out of sale consideration was Rs. 55,00,200/-. Out of the same, the assessee claimed deduction of Rs. 35,92,814/- as purchase price after indexation, resulting in Long Term Capital Gain (LTCG) of Rs. 19,07,180/-. Further, a new property valued at Rs. 52,50,000/- had been purchased by her and deduction u/s 54 of the Act was claimed by her against the capital gains arising out of the impugned transaction. However, in the absence of proper supporting documents, regarding the two transactions, the AO rejected the assessee’s explanation and taxed the entire amount of Rs. 55,00,200/- as Short-Term Capital Gain and also rejected the claim of deduction u/s 54 of the Act as also denied refund of Rs. 55,000/-. The assessment was finalized u/s 147 r.w.s. 144B at an income of Rs. 55,00,200/- vide order dated 04.01.2024.
3.2 Aggrieved, the assessee preferred an appeal before the CIT(A). The CIT(A) upheld the order of the AO after observing that the assessee could not substantiate her claim with proper documentary evidences.
3.3. Further aggrieved, the assessee has filed an appeal before the Tribunal.
4. Before us, the Ld. AR has submitted that the CIT(A) rejected the assessee’s submissions with regard to investment of capital gains in the new property on the ground of non-submission of evidences regarding purchase of the property. Before us, the Ld. AR has furnished the following documents: –
i. Purchase documents of the original property
ii. Documents relating to sale of the original property
iii. Documents relating to purchase / investment in the new residential property.
iv. Booking documents evidencing the date of booking of the flat with Supertech Ltd.
v. Documents evidencing the assessee’s claim / suit as a financial creditor against Supertech Limited.
vi. Loan sanction / loan letter from Indiabulls Housing Finance Limited (IHFL)
vii. Tripartite Agreement entered into between the assessee, Supertech Limited (Builder) and Indiabulls Housing Finance Limited (IHFL)
viii. Booking Form and other supporting documents / evidences relating to the transaction with Supertech Limited.
4.1 Further, Ld. AR has placed reliance on the following decisions to support his contention that even though the project could not be completed as the builder company went into liquidation and the matter remains pending before the NCLT, the assessee had made all the requisite compliances u/s 54 of the Act on his part and, therefore, he could not be denied the benefit of deduction on account of investment in residential property u/s 54 of the Act.
(i) Sh. Sanjeev Lal Etc. Etc. v. CIT, Chandigarh & Anr., Civil Appeal Nos. – 5899-5900 of 2014, wherein the Hon’ble Supreme Court had held as under:
“22. In addition to the fact that the term “transfer” has been defined under Section 2(47) of the Act, even if looked at the provisions of Section 54 of the Act which gives relief to a person who has transferred his one residential house and is purchasing another residential house either before one year of the transfer or even two years after the transfer, the intention of the Legislature is to give him relief in the matter of payment of tax on the long term capital gain. If a person, who gets some excess amount upon transfer of his old residential premises and thereafter purchases or constructs a new premises within the time stipulated under Section 54 of the Act, the Legislature does not want him to be burdened with tax on the long term capital gain and therefore, relief has been given to him in respect of paying income tax on the long term capital gain. The intention of the Legislature or the purpose with which the said provision has been incorporated in the Act, is also very clear that the assessee should be given some relief. Though it has been very often said that common sense is a stranger and an incompatible partner to the Income Tax Act and it is also said that equity and tax are strangers to each other, still this Court has often observed that purposive interpretation should be given to the provisions of the Act. In the case of Oxford University Press v. Commissioner of Income Tax [(2001) 3 SCC 359] this Court has observed that a purposive interpretation of the provisions of the Act should be given while considering a claim for exemption from tax. It has also been said that harmonious construction of the provisions which subserve the object and purpose should also be made while construing any of the provisions of the Act and more particularly when one is concerned with exemption from payment of tax. Considering the aforestated observations and the principles with regard to the interpretation of Statute pertaining to the tax laws, laws, one can very well interpret the provisions of Section 54 read with Section 2(47) of the Act, i.e. definition of “transfer”, which would enable the appellants to get the benefit under Section 54 of the Act.”
(ii) In CIT vs. Kuldeep Singh in ITA No. 117/2014, Hon’ble jurisdictional High Court in the light of above decision of the Hon’ble Apex Court have held that the word ‘Purchase’ is not to be restricted to registered sale deed or even possession but has a wider connotation.
(iii) Further, in Sri Sambandam Udaykumar vs. DCIT in ITA No. 634/Bang/2010, the coordinate bench at Bangalore have observed, while dealing with section 54F, as under: –
“6.7.1. From the above, it emerges that –
(i) there was no dispute with regard to the fact that the assessee had invested Rs.2,16,61,670/- as on 31.10.2006 i.e., within twelve months from the date of realization of sale proceeds of shares;
(ii) the first installment to the tune of Rs.1.14 cores was paid on 27.1.2006 through a cheque bearing No.096345 dated: 27.1.2006 which has not also been disputed by the revenue;
(iii) As observed by the Hon’ble Tribunal in the case of Mrs. Seetha Subramanian vs. Asstt. CIT [(1996) 59 ITD 94 (Mad)], in order to get the benefit under s. 54F, the assessee need not complete the construction of the house and occupy the same. It is enough if the assessee establishes that the assessee had invested the entire net consideration within the stipulated period. This finding of the Hon’ble Tribunal got the seal of approval from the Hon’ble Madras High Court in the case of Sardarmal Kothari referred above.”
(emphasis supplied)
(iv) Smt. Shashi Varma vs. CIT [1997] 224 ITR 107 (MP), wherein it has been held as under:
“ 4……Section 54 of the Act of 1961 only says that within two years, the assessee should have constructed the house but that does not mean that the construction of house should necessarily be complete within two years. What it means is that the construction of house should be completed as far as possible within two years. In the modern days, it is not easy to construct a house within the time-limit of two years and under the Government schemes, construction takes years and years, Therefore, confining to two years’ period for construction and handing over possession thereof is impossible and unworkable under Section 54 of the Act. If substantial investment is made in the construction of house, then it should be deemed that sufficient steps have been taken and this satisfies the requirements of Section 54.”
(emphasis supplied)
4.2 In view of above decisions, Ld. AR has argued that the assessee could not be denied the benefit of section 54 of the Act for not receiving the possession and execution of purchase deed for no fault of his but entirely due to failure of the builder company and circumstances beyond the control of the assessee.
5. On the other hand, Ld. DR has strongly relied on the orders of the lower authorities. He has further submitted that requisite documents regarding sale of old property, computation of capital gain, and purchase deed of new property were not submitted before the AO and hence, the order of the AO was justified and deserves to be upheld.
6. We have heard the rival submissions and perused the material available on record. We note that the assessee has filed documents pertaining to purchase and sale of the old property before us. However, these were not submitted before the AO and therefore, the AO treated the entire sale consideration as short term capital gain and denied claim of deduction u/s 54 of the Act as well. Later, some documents were filed during the course of appellate proceedings but the claim of deduction under section 54 of the Act was rejected by the CIT(A) on the ground that the purchase deed of the new property had not been registered and on the basis of an unregistered document, deduction u/s 54 of the Act was not allowable.
6.1 In view of above factual matrix, in our considered view, firstly the computation of LTCG needs to be verified in the light of documents regarding purchase and sale of the property at Munirka. No verification could be done by the lower authorities as these documents were not placed before them.
Further, with regard to the rejection of the claim u/s 54 on the ground of non-registration of purchase deed, we note that the assessee had booked the purchase of flat with Supertech Ltd. vide agreement dated 12.11.2014 and made payments out of sale proceeds of the old property as well as after taking loan from M/s Indiabulls Housing Finance Ltd. Requisite documents in this regard, have been filed before us.
However, the assessee could not get the possession of the property within the stipulated time on account of the fact that the builder company failed to complete the project and insolvency proceedings were initiated against it. Thus, due to circumstances beyond the control of the assessee, the purchase of new property could not be completed even though payments had been made during the stipulated period for claiming deduction u/s 54 of the Act. In view of the peculiar facts and circumstances of the case and in the light of judicial pronouncements cited hereinbefore, we are of the considered view that the assessee is entitled to claim deduction u/s 54 of the Act if all other conditions are satisfied and the same cannot be denied merely because purchase could not be completed.
Since the requisite documents regarding both the transactions were not filed before the AO, we deem it appropriate to restore the matter to the AO for the limited purpose of verification of computation of LTCG and also consider the claim of deduction u/s 54 in the light of documents now filed by the assessee and allow the claim u/s 54 of the Act, in the light of above discussion, if otherwise admissible.
7. In the result, appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 28.09.2026
