Case Law Details
Charly Rocky Chitteth Vs ITO (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, adjudicated an appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) dated 22.09.2025 for Assessment Year 2016–17. The dispute concerned the disallowance of exemption claimed under Section 54 of the Income Tax Act and the consequent addition of ₹34,55,915 as long-term capital gains.
The assessee challenged the action of the Assessing Officer (AO) and the CIT(A), contending that the deduction under Section 54 had been wrongly denied without proper consideration of facts and legal provisions. It was argued that the authorities erred in treating the date of registration of the new property as the relevant date for determining eligibility under Section 54, instead of considering the date of possession and handover. The assessee submitted that the final payment for the new property was made on 06.02.2016 and possession was handed over on 14.04.2017, which fell within the prescribed time limit under Section 54.
The facts show that the assessee had agreed to purchase an under-construction flat in November 2014 and made payments totaling ₹38,87,600 between March 2015 and February 2016. The assessee sold an immovable property on 13.01.2016 for ₹49,80,000, resulting in a long-term capital gain of ₹34,55,915. This gain was invested in the purchase of a new residential flat, and exemption under Section 54 was claimed.
However, the AO disallowed the exemption on the ground that the new property had been registered on 28.11.2014, which was more than one year prior to the sale of the original asset. According to the AO, ownership was acquired on the date of registration, and therefore, the assessee did not satisfy the condition of acquiring a new property within the specified time frame. The CIT(A) upheld this view.
The assessee, through its authorised representative, argued that the issue involved a limited question and relied on earlier Tribunal decisions on similar facts. It was submitted that in comparable cases, including Bastimal K. Jain v. ITO, relief had been granted where the conditions of Section 54 were considered satisfied based on the timing of payments and possession rather than mere registration.
On the other hand, the Departmental Representative supported the orders of the lower authorities, contending that the assessee did not have a clear title to the property until the agreement was registered. It was argued that enforceable rights arose only upon registration, and therefore, the conditions for exemption were not fulfilled.
After considering the rival submissions and examining the record, the Tribunal noted that the AO had relied on the date of registration to deny the exemption. The Tribunal also took note of the assessee’s explanation that the property was under construction, and payments were made in stages within the relevant period.
The Tribunal referred to a coordinate bench decision in Sunil Amrit Lal Shah v. ITO (2024), where it was held that in the case of under-construction properties, the date of possession should be treated as the date of acquisition for the purpose of claiming deduction under Section 54F. It also referred to the decision in Bastimal K. Jain v. ITO, where similar relief was granted on comparable facts.
Applying the same reasoning, the Tribunal concluded that the conditions for claiming exemption under Section 54 were satisfied in the present case. It accepted the assessee’s contention that the relevant date should be considered based on possession and payment timelines rather than solely on the date of registration.
Accordingly, the Tribunal allowed all the grounds of appeal raised by the assessee and deleted the addition made by the AO. The order was pronounced on 10.04.2026.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by assessee is directed against the order of Ld. CIT(A) / NFAC dated 22.09.2025 for A.Y. 2016-17. The assessee has raised following grounds of appeal;
i. On the facts and in law, the Learned Assessing officer [ILL AO] erred in making addition of Rs. 34,55,915/- rejecting deduction claimed under section 54 by the appellant without considering the facts and circumstances of the case. The addition made is bad in law and liable to be deleted.
ii. On the facts and in law, the Learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in dismissing the appeal filed by the Appellant for claim of exemption under Section 54 of the Act without appreciating correct provisions of law and facts.
iii. On the facts and in law, the learned CIT(A) erred in confirming the order passed by the learned Assessing Officer without appreciating that the actual date of possession and handover of the purchased property was 14/04/2017, which is much after the date of sale of the original property. Therefore, the date of handover of the property ought to be considered as the relevant date for the purpose of Section 54, since the final payment was made by the Appellant on 06/02/2016 and possession was handed over on 14/04/2017, which is within the prescribed time limit under Section 54.
iv. On the facts and in law, the learned CIT(A) erred in misinterpreting the provisions of Section 54 of the Act by treating the date of the registration deed as the date of transfer. The registration was merely an act of part performance of the contract and did not, by itself signify that the Appellant had taken possession of the property. Therefore, the date of taking possession of the property ought to be considered as the relevant date for the purposes of Section 54 of the Act.
2. Rival submissions of both the parties have been heard and record perused. The Ld. Authorised Representative (in short ‘Ld.AR’) of the assessee submits that very short question is involved in the present appeal. In November, 2014, the assessee agreed to purchase under construction flat. The assessee made various payments to the builder as per terms and conditions. The assessee made total payment of Rs. 38,87,600/- from 24.03.2015 to 06.02.2016. The assessee sold this flat said flat on 13th January, 2016 for total consideration of Rs. 49,80,000/-. On sale of such capital, the assessee earned long term capital gain of Rs. 34,55,915/-, which was invested in purchase of new residential flat. The assessee claimed exemption under Section 54 of Income Tax Act. The AO disallowed such long-term capital gain by taking view that the assessee is not eligible for such capital gain. The Ld. CIT(A) confirms the action of AO. The Ld. AR of the assessee submits that on identical facts in Bastimal K. Jain vs. ITO [2016] 76 taxmann.com 368 (Mumbai-Trib), the Tribunal allowed exactly similar relief to that assessee holding that vital condition of Section 54 are fulfilled as per the time limit prescribed under Section 54. The Ld. AR of the assessee furnished the detail of proceed of sale of flat and purchase of flat along with payment details.
3. On the other hand, the Ld. Sr. DR for the revenue supported the order of lower authorities. Ld. Sr. DR submits that the assessee was not having clear title of the property. The assessee got enforceable right in the property only when agreement was registered. Thus, the assessee does not fulfil the requisite conditions.
4. I have considered the rival submissions of both the parties and gone through the orders of lower authorities carefully. I find that during the assessment, the AO noted that the assessee has sold an immovable property for a consideration of Rs. 49,80,000/- on 13.01.2016 being flat No. 203, situated at 2nd Floor, Om Krishna Darshan Cooperative Housing Society. The AO further noted that the assessee purchased under construction property which was registered on 28.11.2014 bearing Flat No. 1502, 15th Floor, Cleremont, C-wing, Lodha Luxeria, Majiwade, Thane (W) for a consideration of Rs. 1.22 Crore. The assessee computed long term capital gain of Rs. 34,55,915/-, sale of property on 13.06.2016. The assessee claimed exemption of such long-term capital gain of investment new residential flat i.e. Flat No. 1502 at Cleremont, Thane. The AO was of the view that exemption under Section 54 is not available to the assessee as the flat was transferred to assessee only on 13.01.2016 i.e. more than one year after purchase of under construction property. The AO again issued show cause notice dated 19.11.2018 to justify claim of exemption under section 54. In response to such show cause notice, the assessee filed reply. The assessee in its reply submitted that purchase agreement was registered on 28.11.2014, however, payment was deferred as it was purchased under construction. The assessee made payment of Rs. 38,87,600/- from March, 2015 to February, 2016, which falls within the condition of Section 54 of the Act. The reply of assessee was not accepted by the AO by taking view that the assessee became owner of flat only on registration on 28.11.2014. Thus, the assessee has not acquired new property within a period of one year before the sale of flat and accordingly, exemption under Section 54 was not allowed. I find that on coordinate bench of Mumbai Tribunal in Sunil Amrit Lal Shah Vs ITO (2024) 162 taxmann.com 676(Mum -Trib) held that where the assessee sold a flat which was booked as under construction, which was handed over to the assessee on completion of construction, date of possession of new flat should be considered as date of its acquisition for assesses claim of deduction under section 54F. I further find that on similar set of fact, coordinate bench of Mumbai Tribunal in Bastimal K. Jain v. ITO (supra) also allowed similar relief. In the result, the grounds of appeal raised by the assessee are allowed.
5. In the result, all the grounds of appeal are allowed.
Order was pronounced on 10/04/2026 in open Court.
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