Smt. Payal Bansal Vs ITO (ITAT Delhi)
The appeal arose from an order passed by the Commissioner of Income Tax (Appeals) for Assessment Year 2015–16, against the assessment made under Section 143(3) of the Income-tax Act, 1961. The primary issue concerned partial denial of deduction under Section 54 in respect of long-term capital gains arising from the sale of a residential property.
The assessee had sold an undivided half share in a residential property located in East Punjabi Bagh, New Delhi, for a total consideration of ₹3.82 crore, resulting in long-term capital gains of ₹3.42 crore. To claim exemption under Section 54, the assessee invested the capital gains in two portions of a residential property bearing the same address—namely, the ground floor and the first floor. The investment amounted to ₹1.43 crore for the ground floor and ₹1.34 crore for the first floor. The assessee subsequently demolished the existing structure and reconstructed the property, incurring construction costs of ₹30.82 lakh, which were also claimed as part of the eligible deduction under Section 54. Additionally, a sum of ₹33.50 lakh was deposited in the capital gains scheme account.
During the assessment proceedings, the Assessing Officer held that the assessee had invested in two separate residential houses and restricted the deduction under Section 54 to only one house. The Assessing Officer also disallowed the construction cost incurred on the property for the purpose of exemption. On appeal, the Commissioner (Appeals) upheld the denial of deduction for the second unit but allowed 50% of the construction cost for computing capital gains.
