LTCG Tax Exemption Can't Be Denied Due To An Error Made By The Builder In Assigning Apartment: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that tax benefits cannot be denied to taxpayers due to an error made by the builder in assigning the apartment.

The bench of Rahul Chaudhary (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that the appellant or taxpayer cannot be penalized for the mistake committed by the developer or seller by allotting a flat to the appellant and thereafter selling the same flat to Mr. C.N. Jha. Clearly, the developer/seller had accepted the mistake and accommodated the appellant by allotting a similarly placed flat in the same building.

The appellant/assessee, an individual resident assessee, filed the original return of income. The case of the appellant was selected for scrutiny. During the course of the assessment proceedings, the appellant was asked to provide the details of the purchase or sale of property and the exemption claimed under Section 54. In response, the appellant submitted that the appellant had received, during the previous year, consideration for his share of the sale of property located at Nepean Sea Road, Mumbai. According to the appellant, the sale transaction resulted in capital gains and income.

However, since the appellant had paid INR 12,00,00,000/- towards the purchase of a residential flat, the payment was towards the cost of the purchase, including stamp duty, pre-possession charge, service tax, etc. The appellant was entitled to claim deductions under Section 54. Therefore, no capital gain income was chargeable to tax in the hands of the appellant.

However, the Assessing Officer rejected the submission of the appellant and brought to tax capital gains income of INR 11,27,41,786 in the hands of the appellant. The assessing officer noted that there was no registered sale deed evidencing the purchase of a new flat or asset. The details of the new flat or asset purchased mentioned in the possession letter were different from the flat or asset towards which the payment of INR 12,00,00,000 was said to have been made by the appellant. In the discrepancies, the appellant's claim for deduction under Section 54 could not be allowed.

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

The tribunal held that the denial of exemption is unjustified as the taxpayer cannot be penalized for a mistake committed by the builder in allocating the flat.

Counsel For Appellant: Snehal Shah

Counsel For Respondent: Sanyogita Nagpal

Case Title: Mukesh Harilal Mehta Versus Income Tax Officer

Case No.: ITA No. 2256/MUM/2023

Click Here To Read The Order