Mohan Lal Jain Vs ACIT (ITAT Delhi)
In a recent decision, the Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Mohan Lal Jain Vs. ACIT, has reiterated the importance of adhering to the provisions of Section 54 of the Income Tax Act, 1961, for taxpayers seeking exemption on capital gains arising from the sale of a residential property.
The case revolved around an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], challenging the denial of exemption claimed under Section 54 of the Act. The assessee had declared a Long Term Capital Gain (LTCG) of Rs. 35,58,612/- from the sale of a property situated in Dwarka, Delhi, for the Assessment Year 2017-18.
The crux of the matter was whether the assessee fulfilled the conditions laid down in Section 54 to avail the exemption. As per Section 54, to claim exemption on LTCG arising from the sale of a residential property, the taxpayer must, within a specified period, either purchase another residential house or construct a residential house. The specified period is within one year before or two years after the date of transfer of the old house, or within three years from the date of transfer of the old house if the taxpayer opts for construction.
The ITAT observed that the assessee had entered into an agreement to purchase a new residential villa before the sale of the old property. However, the construction of the new property had commenced much before the execution of the sale deed of the old property. The tribunal noted discrepancies in the documentation provided by the assessee regarding the acquisition and possession of the new property.
The ITAT concurred with the findings of the CIT(A) that the assessee failed to satisfy the conditions stipulated under Section 54. The tribunal emphasized that the law mandates the acquisition or construction of the new residential property within the prescribed timelines. In this case, since the construction of the new property began before the sale of the old property, the requirements of Section 54 were not met.
Furthermore, the ITAT highlighted the significance of documentary evidence in supporting claims for exemption under Section 54. In the absence of credible documentation substantiating the acquisition or construction of the new property within the statutory timeframe, the tribunal upheld the decision of the lower authorities to deny the exemption.
In conclusion, the ITAT upheld the denial of exemption under Section 54 and dismissed the appeal filed by the assessee. This ruling underscores the importance for taxpayers to adhere strictly to the statutory timelines and furnish documentary evidence to substantiate claims for exemption on capital gains under Section 54 of the Income Tax Act, 1961.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the Assessee against the order of Learned Commissioner of Income Tax(Appeals), National Faceless Appeal Centre [“Ld. CIT”, for short], dated 03/02/2023 for the Assessment Year 2017-18. Grounds of the assessee are as under :-
“1. That the Commissioner of Income Tax (Appeals) (hereinafter referred as Ld. CIT(A)) has erred in law and facts of the case while upholding the total income of the appellant at Rs. 1,39,60,530/- as against a total income of Rs. 1,04,01,920/- declared by the appellant in the return of income. In the return of income appellant had claimed deduction u/s 54 of the act against the above declared income under the head Long Term Capital Gain and Ld. ACIT, Circle 63(1), Delhi (hereinafter referred as Ld. AO) alleged in his order that the new property has not been purchased by the appellant within the time period specified by provisions of section 54 of the Act, thereafter Ld. CIT(A) sustain the addition of Rs.35,58,612/- As Such, the addition is bad in law and may please be deleted.
2. That the Ld. CIT (A) has erred in law and facts of the case while confirming the addition made by the Ld. AO amounting to Rs. 35,58,612/- u/s 54 of the Income Tax Act, 1961 on account of disallowance of deduction claimed without appreciating the submissions of the Appellant. As such, the addition of Rs. 35,58,612/- is bad in law and may please be deleted.
3. That the Ld. CIT (A) has erred in law and facts of the case while confirming the addition of Rs. 35,58,612/- u/s 54 of the Income Tax Act, 1961 on account of disallowance claimed, appellant had offered for tax income from Long Term Capital Gain of 35.58,612/-being income arising from sale of property situated at Flat No.2001, 10 Floor, Nishant Cooperative Housing Society Ltd., Plot No.5, Sector-198, Dwarka. The date of transfer is is 28 February 2017. The said property was transferred for a total sale consideration of Rs. 1,38,00,000/- and the Long-Term Capital Gain is of Rs.35,58,612/-. As such, the addition is of Rs. 35,58,612/- is bad in law and may please be deleted.
4. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and facts of the case while confirming the addition made by the Ld. AO amounting to Rs. 35,58,612/-u/s 54 of the Income Tax Act, 1961 on account of alleged unaccounted income received under the garb of exempted Long-Term Capital Gains without appreciating the submissions of the Appellant. As such, the addition of Rs. 35,58,612/- is bad in law and may please be deleted.
5. That the appellant craves leave to add, alter or delete any ground of appeal during the course of hearing.”
3. Brief facts of the cases are that, the assessee filed return of income declaring at Rs. 94,02,280/- on 30/10/2017 thereafter revised return declaring total income of Rs. 1,04,01,920/- was filed on 30/03/2019. In the return of income, the assessee had offered for tax income from Long Term Capital Gain (‘LTCG’ for short) of Rs. 35,58,612/- being income arising from sale of property situated at Flat No. 2001, 10th floor, Nishant Co-operative Housing Society, Plot No. 5, Sector-19B, Dwarka, the said property was sold/transferred for a total sale consideration of Rs. 1,36,00,000/- and the Long Term Capital Gain of Rs. 35,58,612/- was computed as under:-
