Azizul Ghani Vs ITO (ITAT Delhi)
Section 54 Exemption Allowed in Full Despite Minor Delay: ITAT Delhi Grants Relief for Purchase & Construction under Collaboration Agreement
The Delhi Bench of the ITAT allowed the appeal of Azizul Ghani (AY 2015-16) and granted full exemption under section 54, reversing the orders of the Assessing Officer and NFAC which had restricted the exemption to ₹35 lakh against the assessee’s claim of ₹7.01 crore.
The assessee had sold a residential property on 12.09.2014 for ₹7.20 crore and entered into a collaboration agreement for purchase of land and construction of a new residential house at New Friends Colony, Delhi. Substantial payments towards land rights and construction (about ₹6 crore) were made within the statutory period. The final sale deed of the new property was registered on 26.09.2017, i.e., about 14–15 days beyond three years from the date of transfer of the original asset.
The Tribunal held that substantial compliance with section 54 is sufficient, and a marginal delay in registration cannot defeat a beneficial exemption provision when construction and investment are otherwise completed within time. It further held that:
- Capital Gains Account Scheme is not mandatory where the assessee has otherwise invested the capital gains within the prescribed period.
- Source of investment need not be the same sale consideration, as “money has no colour”.
- Cost of the new residential house includes cost of land, construction, and incidental expenses, and construction may commence even prior to the date of sale of the original asset.
The ITAT also noted that the Inspector’s report was never confronted to the assessee, and that documentary evidence such as bank statements, invoices, construction bills, approved plans and registered deeds clearly established compliance with section 54.
Accordingly, the Tribunal set aside both the assessment order dated 22.12.2017 and the NFAC order dated 17.03.2025, and directed the AO to allow the entire exemption under section 54 as claimed.
FULL TEXT OF THE ORDER OF ITAT DELHI
