ACIT vs. Sagar Nitin Parikh (ITAT Mumbai)

The sold a flat on 27.03.2008 and generated Long term capital gain of Rs.1.55 crores thereon. The assessee claimed deduction u/s 54 of the Act pertaining to the cost of another flat. The assessee had booked the flat with M/s Life Style Property Venture in the year 2004 and the agreement was registered on 01-12-2004. He paid the consideration in instalments as per the agreement. He finally got the possession on 30th June, 2007. The assessee claimed that the date of possession of flat should be considered as the date of purchase of flat, where as the AO took the view that the date of purchase should be considered as the date of entering of agreement, viz., 1.12.2004. Since the deduction u/s 54 of the Act could be availed, inter alia, only if the residential house was purchased within one year prior to the date of house giving rise to capital gain and since the date of purchase of flat, according to AO, fell beyond the period of one year, the AO rejected the claim for deduction u/s 54 of the Act. The CIT(A), however, agreed with the contentions of the assessee and accordingly allowed the deduction u/s 54 of the Act. On appeal by the department to the Tribunal HELD allowing the appeal:

The booking of a flat which is going to be constructed by a builder has to be considered as a case of “Construction of flat”. Deduction u/s 54 is available only if the assessee constructs a new house within three years after the date of transfer. In the instant case, the assessee has constructed a house prior to the date of transfer of original house, in which case, the assessee is not entitled to claim deduction u/s 54 of the Act in respect of the cost of new flat (Hilla J.B.Wadia 216 ITR 376 (Bom), ACIT Vs. Sunder Kaur Sujan Singh (3 SOT 206) and Kishore H Galaiya Vs. ITO (137 ITD 229) followed)