Date Of Possession Of New Property To Be Considered As Date Of Acquisition; ITAT Allows Deduction

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the date of possession of new property to be considered as date of acquisition and the assessee is entitled to deduction under Section 54 of the Income Tax Act on the purchase of new property.

The bench of Raj Kumar Chauhan (Judicial Member) and Prashant Maharishi (Accountant Member) has observed that the date of possession of new property should be considered as the date of acquisition of the property. By entering into an agreement to purchase, the assessee has acquired the right to purchase the property and did not purchase it as it was under construction.

As per provisions of Section 54 of the Income Tax Act, if the assessee has, within a period of one year before or two years after the date on which the transfer took place, purchased, or constructed, within a period of three years after that date, one residential house in India, then instead of the capital gain being charged to income tax as income of the previous year in which the transfer took place, in this case it would be exempt.

The assessee/appellant is a non-resident individual. Information was received from the Assistant Commissioner of Income Tax that the assessee has sold the flat jointly owned with his wife for a consideration of Rs. 138 lakhs on 10/2/2011. Therefore, notice under Section 148 was issued.

The assessee did not comply with the notices, and therefore the assessment was completed under Section 144(1), treating the gain of Rs. 4,567,000 as the assessee share of 50% on the sale of property as short-term capital gain and adding it to the total income of the assessee. The CIT confirmed the addition.

The coordinate bench passed an order setting aside the matter to the file of the assessing officer for de novo adjudication. Therefore, notice under Section 142(1) was issued to the assessee.

During the course of assessment proceedings, it was explained to the assessing officer that the assessee purchased the property on 31/1/2006 as per the allotment or reservation letter issued by the builder on payment of Rs. 1 lakh. The assessee submitted the provisional allotment letter dated January 31, 2006, issued by the builder allotting the flat. Therefore, the assessing officer was requested to consider the date of allotment as the date of acquisition of property and compute the capital gain as a long-term capital gain as the holding period of the property by the assessee in that case is more than 36 months. In the original assessment order, the AO considered it a short-term capital gain.

The draft assessment order under Section 144C(1) was passed, determining the total income of the assessee. The assessee approached the dispute resolution panel, which rejected the objections of the assessee as per direction. Thus, the final order under Section 144C (13) read with Section 147 lead with Section 254 of the Income Tax Act was passed at the total income of Rs. 3,597,395.

The issue raised is that, in respect of capital gain arising from the sale of flat number 1802 as per an agreement dated 10/2/2011, the assessee is eligible for deduction under Section 54 of the Act for the purchase of a new residential flat where the date of agreement to sell the new property is July 25, 2009, but the date of granting possession is February 2, 2011.

The assessing officer claimed that the date of purchase of the new property was July 25, 2009. The window available for the assessee is one year prior to the date of sale of the property, i.e., 10/2/2011. As the assessee purchased the property on July 25, 2009, the assessee cannot be given a deduction under Section 54.

The assessee contended that it got possession of the property on 02/02/2011; therefore, the date of purchase of the property should be considered the date of possession of the property on 02/02/2011, which falls within one year prior to the date of 10/2/2011, and therefore the assessee is eligible for deduction under Section 54.

The tribunal held that, according to Section 54, deductions are allowable if the assessee purchases the property. In this case, by agreement dated July 25, 2009, the 2009, the assessee “acquired the right to purchase” a house that was under construction on February 2, 2011. When the house was handed over to the assessee, when it was inhabitable, the assessee purchased the house.

Counsel For Appellant: Vimal Punmiya

Counsel For Respondent: Soumendu Kumar Dash

Case Title: Sunil Amritlal Shah Versus The Income Tax Officer(IT)

Case No.: ITA No. 4069/MUM/2023

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