Exemption u/s 54 cannot be denied merely due to mistake by the developer

Mukesh Harilal Mehta vs. ITO 16(3)(1) (ITAT Mumbai) Appeal Number: ITA No. 2256/MUM/2023

Facts

1. 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 § 54 of the Income Tax Act.

2. The appellant responded that it received a sale consideration of INR 14,40,00,000 as his share from the sale of property. The sale transaction resulted in capital gains income of INR 11,27,41,786. However, since the appellant had paid INR 12,00,00,000/- towards the purchase of a residential flat, being payment towards the cost of the purchase including stamp duty, pre-possession charge, service tax, etc., the appellant was entitled to claim deduction under Section 54 of the Act in respect of the same.

3. However, AO rejected the submission and brought to tax capital gains income of INR 11,27,41,786/-. AO noted that there was no registered sale deed evidencing the purchase of a new flat or asset. Further, 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.

ITAT Mumbai was held as under

1. The denial of exemption under Section 54 of the Income Tax Act is unjustified, as the appellant cannot be penalized for the mistake committed by the developer or seller in allocating the flat.

2. The appellant cannot be penalized for the mistake committed by the developer or seller by allotting Flat No. B-702 to the appellant and thereafter selling the same flat to Mr. C.N. Jha. Clearly, the developer/seller had accepted the aforesaid mistake and accommodated the appellant by allotting a similarly placed flat (i.e., Flat No. B-902) in the same building.

3. The appellant is entitled to claim deduction under Section 54 of the Act in respect of the payment of INR 12,00,00,000/- as claimed by the appellant. Accordingly, the addition of INR 11,27,41,786/- made by the Assessing Officer, which was confirmed by the CIT (A), is set aside.