Case Law Details
Brief of the case
In the case of Shri Hasmukh N. Gala vs. ITO, ITAT has held that if assessee has invested substantial amount in new property, also received letter of allotment for new property then AO can’t denied exemption available u/s 54 of the Income Tax Act 1961.
Facts of the case
1. Assessee had declared sale of a residential property vide sale agreement dated 8/12/2009 for a total consideration of Rs.1,02,55,000/-. After considering the indexed cost of acquisition of Rs.14,17,904/-, the long term capital gain was computed at Rs.88,37,096/-. The relevant capital gain was claimed as exempt under section 54 of the Act on the strength of having acquired a new residential house being Flat Nos. 1 & 2 on 4th Floor in C-Wing, Ramniwas Building, Malad (E). The investment in acquisition of the new residential house was claimed by the assessee based on an advance of Rs.1.00 crore given to the builder as booking advance through a cheque dated 6/2/2010. The assessee produced a copy of receipt of payment and allotment letter dated 15/10/2010 from the builder to justify acquisition of the new residential house.
2. The Assessing Officer noted that in the instant case, even after two years of the date of transfer of old house the construction of the new property was not completed and that assessee had not gained possession of the new premises also. He, therefore, held that assessee did not comply with the requirements of section 54 of the Act in as much as it could not be said that assessee had purchased a new residential house within the period prescribed therein. The Assessing Officer was of the view that giving of advance could not be treated as equivalent to ‘purchase’ for the purpose of section 54 of the Act, because no agreement was executed and that the advance money could be returned at any time. For the said reasons, the Assessing Officer disallowed the exemption claimed under section 54 of the Act.
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Very informative write up. Merely going by the book restrictively defeats the spirit of the law. Hats off to the assessee for not giving up when his claim for exemption was turned down in the first two rounds.