Mustansir I Tehsildar Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, adjudicated an appeal filed by the assessee for Assessment Year 2013–14 against the order of the Commissioner of Income-tax (Appeals), which had confirmed partial denial of deduction under section 54 of the Income-tax Act.
The assessee had sold a 1/3rd share in a residential flat on 05.12.2012, resulting in long-term capital gain of ₹78.36 lakh. Prior to this sale, the assessee had booked a flat in an under-construction project and made substantial payments from 2007 to 2009, along with additional payments before and after the date of transfer. The total investment in the new flat amounted to ₹104.70 lakh, exceeding the capital gain, and the assessee claimed full deduction under section 54 treating the acquisition as “construction.”
The Assessing Officer, however, treated the transaction as a “purchase” and restricted deduction only to payments made within the prescribed period, allowing deduction of ₹7.28 lakh and disallowing the balance. The CIT(A) upheld this view.
Before the Tribunal, the assessee argued that booking of a flat under construction constitutes “construction,” and that completion within three years from the date of transfer is the relevant condition. The Tribunal accepted this contention, relying on judicial precedents, and held that such transactions should be treated as construction rather than purchase. It further held that commencement of construction prior to sale is not relevant, and since possession was obtained within three years, the statutory condition was satisfied.
