Exemption u/s 54 duly available as construction of residential house completed within 3 years:

ITAT Mumbai held that the assessee is eligible to claim exemption u/s. 54 of the Income Tax Act as the construction of residential house completed within three years from the relevant date.

Facts- The assessee in its return of income claimed exemption of Rs.45,46,285/- u/s. 54 of the Act on long term capital gains from sale of a residential house. The assessee had sold a flat on 04/08/2012. The flat sold by the assessee was jointly owned by the assessee with his wife. The assessee booked two flats in the joint name with his wife on 18/4/2011. The possession of the flats was received by the assessee on 26/11/2014. The assessee claimed that since assessee has utilized long term capital gain arising from sale of residential house towards purchase of new residential house within the time specified u/s. 54(1) of the Act, the assessee is eligible to claim exemption u/s. 54 of the Act. AO held that the assessee had booked the residential flats, beyond one year before the date of transfer of a residential house and the possession of flat was received after two years from transfer of a residential house, hence, the assessee is not eligible to claim exemption u/s. 54 of the Act. Aggrieved against the assessment order, the assessee filed appeal before CIT(A). The CIT(A) vide impugned order upheld the findings of AO and dismissed appeal of the assessee. Hence, the present appeal.

Conclusion- Held that the assessee is eligible to claim exemption u/s. 54 of the Act as the construction of residential house completed within three years from the relevant date. Consequently, the impugned order is set-aside and appeal of the assessee is allowed.

Further, the Hon’ble members have held that merely because the assessee has claimed expenditure for which claim was not accepted or was not acceptable to the Revenue that by itself would not attract penalty u/s. 271(1)(c) of the Act. Thus, merely for the reason that the assessee had made claim of exemption u/s. 54 of the Act which was not acceptable to the Assessing Officer, penalty u/s. 271(1)(c) of the Act cannot be levied.