Income Tax - deduction u/s 54

This query is : Resolved

CA Mayur Sojrani (Querist)
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20 October 2010 Hey hi guys , hear is one good and really good pratical case in my article ship training which i want to share with you all & required your suggestion & comments.( The below case has been picked by the ITO in the Assessment and has not allowed the deduction u/s 54)

The case is regarding claiming deduction under section 54 of the income tax Act :

Year of Purchase of Original House : 2001 -02

Date of Sale of original house : 22/06/2006

Date of Agreement of New House: 03/06/2005

(Reinvested total amount Rs. 51.37 lakhs)

Date of Possession of New House : 04/03/2006

(Reinvested)

Payment towards re-invested house : Rs. 1,00,000 (Paid on 20/05/2005)

(initial Payment)

Payment toward re-invested house (IDBI

Loan disbursement of Rs. 50 Lacs on 22nd June,2005)

Whether we can claim the reinvestment benefit under section 54

venkatraman shrinivas

venkatraman shrinivas (Expert)
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21 October 2010 In order to avail the benefit of exemption under section 54, he conditions laid down are: a) the assessee should have purchased a house one year before or two yrs after the sale of the property whose gain is the subject matter of taxation. Or should have constructed within a period of 3 years after the sale. For this purpose, if the investment could not be made within 6 monhs, he sale proceeds ought to be deposited in the Capital Gains Investment account and i is from his account only that funding of either the purchase or construction should take place.
In the given case, from the data furnished i is seen that the investment in the house was over one year before the sale had taken place as the loan has been obtained from he bank. The assessing Officer cannot, in the given circumstances reject the claim for exemption under section 54. If he does so, it can be agitated on appeal where success is certain. Bu that would be a vexatious course as one should furnish factual material to convince the assessing Officer.