Case Law Details

Case Name : Rajeev B. Shah v. ITO (ITAT Mumbai)
Appeal Number : ITA No. 262/Mum/2015
Date of Judgement/Order : 07.07.2016
Related Assessment Year : 2010-11
Courts : All ITAT (6435) ITAT Mumbai (1922)
Advocate Akhilesh Kumar Sah

Claiming Of Deduction Under Section 54F Of The Income Tax Act, 1961 When Property Builder Could Not Complete The Flat While Assessee Fulfilled Condition Under Above-Mentioned Section.


Section 54F of the Income Tax Act, 1961 (for short ‘the Act’) deals with Capital gain on transfer of certain capital assets, not to be charged in case of investment in residential house.

A lot of appeals are arising in respect of claim of deduction under section 54 of the Act. Recently, in Rajeev B. Shah vs. ITO [ITA No.262/Mum/2015, decided on 08/07/2016], the appellant raised the grounds before ITAT Mumbai that the CIT(Appeals) committed a gross error of law and facts in rejecting the claim of deduction under section 54F of the Act, made by the appellant for purchasing a residential house under construction against the sale of land and he failed to appreciate the facts that the appellant complied with all the requirements of provisions of section 54F and made full investment within the prescribed time.

Facts & Decision of the case in brief:

In the above-mentioned appeal, the appellant during the year in question sold one plot of land for a consideration of Rs.19,35,325/- and claimed deduction of investment made in under construction flat in the month of March,2010 amounting to Rs.18,60,000/- under the provisions of Section 54F of the Act. The AO disallowed the claim of the assessee for deduction under section 54F of the Act for the reason that the assessee had not registered the document for his claim for purchase of property even after 3 years of the said investment of capital gains in property. He also made a passing reference that the genuineness of the investment in question is not proved. Accordingly, he disallowed the claim. Aggrieved, the assessee preferred appeal before the CIT (A), who also confirmed the action of the AO.

On appeal before the ITAT Mumbai, the ITAT observed that the appellant sold a plot of land at Rajkot, Gujarat for a consideration of Rs.19,35,325/- on 09-02-2010. The appellant had earned Long Term Capital Gains of Rs.14,81,284/-. The appellant invested a sum of Rs.15,00,000/- on 12-03-2010 and Rs.3,60,000/- on 19-03- 2010 for buying a residential flat under construction in the project “LA – CITADEL” from Seth Developers Pvt. Ltd. and Poonam Builders. The Developer allotted Flat No.602 of 6th Floor in the project for a sum of Rs.1,43,96,800/- on the terms & conditions given in the letter of allotment issued to him by the Builder dated 16-03- 2010.The appellant also paid further amount in joint partnership. This investment was made by two co-owners viz. Mitesh K. Patel 60% and the appellant Rajeev B. Shah 40%. They made investment to the tune of Rs.43.10 lacs and appellant’s share was Rs.18,60,000/-. The AO rejected the claim of deduction under section 54F of the Act only on the ground that the property is incomplete and registered document was not filed by the assessee in respect to the claim of deduction under section 54F of the Act. The learned Counsel for the appellant explained that this happened due to the fact that the builder was avoiding the customers due to disputes and the project was also stalled and there was no further progress in construction of the project. To prove his point, the assessee filed civil suit before the Hon’ble Bombay High Court.

The ITAT observed that when the appellant was not able to get the title of the flat registered in his name or unable to get the possession of the flat, which was under construction, due to fault of the Builder, the appellant cannot be denied deduction under section 54F of the Act. It was a fact that the appellant had invested amount of Rs.18,60,000/- in purchase of residential house within the stipulated period prescribed under section 54F of the Act. But, it was not in the appellant’s hand to get the flat completed or to get the flat registered in his name, because it was incomplete. The intention of the appellant was very clear that he had invested almost the entire sale consideration of land in purchase of this residential flat. It was another issue that the flat could not be completed and the matter was pending before the Hon’ble Bombay High Court seeking relief by the appellant by filing suit for direction to the Builder to complete the flat. It was impossible for the appellant to complete other formalities i.e. taking over possession for getting the flat registered in his name and this cannot be the reason for denying the claim of the assessee for deduction under section 54F of the Act. In view of the above facts of the case, the ITAT held that the appellant was entitled for deduction under section 54F of the Act, because the appellant had already invested a sum of Rs.18.60 lakhs in the residential property under construction within the time limit prescribed under section 54F of the Act.


The above-mentioned ruling of the ITAT, Mumbai will help many assessees but this may not be applicable in each and every case because facts & circumstances of a case may differ.

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