Claim As Residential House, No Basic Amenities For Habitation Found; Delhi ITAT Upholds Disallowance Of Deduction U/s 54

Section 54 of the Income Tax Act, indicates that an individual or HUF selling a residential property can avail tax exemptions from Capital Gains if the capital gains are invested in the purchase or construction of residential property.

The Bench of the ITAT comprising of Saktijit Dey (Vice President) and M. Balaganesh (Accountant Member) observed that “the assessee had not constructed the residential house within the prescribed time and in fact had not constructed a residential house at all on or before 25.09.2017 which could be construed as a residential house, habitable for its dwelling. Accordingly, deduction u/s 54 had been rightly denied by the AO in the instant case.” (Para 9)

Facts of the case:

During the year under consideration the assessee sold a property on which he earned capital gain of Rs. 5,63,74,550/-. The assessee claimed deduction u/s 54 in the return of income. The AO observed that the property that was subject matter of transfer, was a residential property The date of transfer being 25.09.2014, as per the provisions of Section 54, the assessee in order to claim deduction u/s 54, should have purchased a new residential property on or before 25.09.2016 or should have constructed a new residential property on or before 25.09.2017. In the opinion of the AO, this condition was not satisfied by the assessee. The assessee was asked to show cause as to why deduction claimed u/s 54 should not be disallowed as the construction of the house was not completed but no eply was filed by the assessee on the appointed date. On the basis of the report submitted by the Inspector, the AO denied deduction u/s 54 in the sum of Rs. 5,63,74,550/-.

The CIT(A) allowed the deduction u/s 54 after observing that the house is located in a rural area, where no particular norms for construction are prescribed by the local Authorities and assessee cannot be forced/expected to observe all those norms, which are particularly prescribed by Municipal Authorities for urban housing.

Observations of Tribunal:

The Bench noted that the only effective issue to be decided in this appeal is as to whether the assessee would be eligible for claiming deduction u/s 54, when none of the basic amenities are present on the subject mentioned property for which deduction u/s 54 is claimed by the assessee.

The Bench observed that though the assessee might be intending to construct a full-fledged residential house on the agricultural land purchased by him, it is clear that such residential house, having the basic amenities was not constructed by the assessee on or before 25.09.2017.

The Bench further observed that the Inspector of Income-tax along with Office Superintendent had physically visited the site and had confirmed that the alleged house did not even have the basic amenities.

Therefore, on finding that reliance placed on two certificates of Sarpanch and Architect is thoroughly misplaced, ITAT allowed the Revenue's appeal.

Counsel for Appellant/Department: Vivek Kumar Upadhyay

Counsel for Respondent/Taxpayer: Rakesh Gupta

Case Title: DCIT verses Sandeep Hooda

Case Number: ITA No. 5670/DEL/2019

Click here to read/download the Order