Booking of Flat with Builder can be treated as ‘Construction of Flat’ for the purpose of Sec 54: ITAT follows CBDT Circular [Read Order]

While hearing the case of Vineet Kumar Kapila, Delhi bench of Income Tax Appellate Tribunal, followed the circular issued by the Central Board of Direct Tax (CBDT), ruled that booking of flat with the builder has to be treated as construction of flat for allowing the benefit of Section 54 of the Income Tax Act 1961.

“As per the previous case laws and CBDT circular, booking of flat with the builder has to be treated as construction of flat by the assessee and hence period of three years would apply for construction of new house from the date of transfer of long term capital asset,” a division bench of the ITAT said.

Assessee in the instant case is an individual filed his return of income for the relevant assessment year. During the assessment proceedings the Assessing Officer (AO) observed that the assessee has sold his flat which resulting in Long Term Capital Gain amounting to Rs.1,44,14,836 and accordingly the assessee claimed deduction under section 54 of the Income Tax Act against the same.

Thereafter the AO noticed that the assessee has entered into an ‘Apartment Buyer Agreement’ and acquisition of new property by the assessee through ‘Apartment Buyer Agreement’, amounted to “purchase” of new house and that as per the provisions of section 54 of the Act the purchase should have been made before one year of the sale of Long Term Capital Asset or within two years of the sale. He was of the view that purchase of new house was not made within the period of one year before the sale of asset against which claim under section 54 of the Act has been made by the assessee. Accordingly he disallowed the claim of the assessee and added the same to the income of the assessee.

On appeal CIT(A) granted relief to the assessee by deleting the addition made by the AO. Aggrieved by the order of the authority Revenue approached the Tribunal on appeal.

While perusing the available material facts on records, the Tribunal bench comprising of Judicial Member H.S.Sidhu and Accountant Member Prashant Maharishi also upheld the order passed by the CIT(A) and observed that “in the present case also the flat booked with the builder by the assesse has to be considered as a case of construction of flat and the deduction claimed by the assessee under section 54 of the Act” and the same was rightly allowed by the CIT(A). The bench said.