Agreement date for flat purchase is not eligible for Sec. 54 relief purchase date: ITAT

Case Details: Sanjay Vasant Jumde v. ITO - [2023] 148 taxmann.com 34 (Pune-Trib.)

Judiciary and Counsel Details

• • R. S. Syal, Vice-President & Partha Sarathi Chaudhury, Judicial Member
  • Nikhil Pathak for the Appellant.
  • Satyajit Mandal, CIT-DR, for the Respondent.

Facts of the Case

Assessee, a non-resident Indian, sold his bungalow and earned long-term capital gains during the relevant assessment year. Assessee entered into an agreement with builder for purchase of flat before one year preceding the year of sale. The possession of such flat was received after 2 months from the date of the sale of the Bungalow. Assessee claimed the cost of flat as deduction under section 54 on the long-term capital gains so earned and filed the return of income accordingly.

During the assessment proceedings, the Assessing Officer (AO) treated date of agreement with builder as date of purchase of flat. Thus, he held that the new property purchased by assessee was beyond one year preceding to sale of old property and assessee wasn’t entitled to section 54 exemption.

The Dispute Resolution Panel (DRP) also upheld the action of AO. Aggrieved by the order, assessee preferred an instant appeal to the Pune Tribunal.

ITAT Held

The Tribunal held that the assessee entered into agreement with the builder for acquiring a flat in the building. The agreement stated that the developer will construct the building and transfer the possession of flat to the assessee. The flat was not ready at the time of agreement and the building had to be constructed. Through this agreement, assessee received the right to acquire the flat after the construction of building.

This was an agreement for purchasing the flat and not a sale deed. If the flat was ready, there would have been a sale deed instead of an agreement. The possession letter was issued by the developer to the assessee after the sale date of the bungalow, which clearly shows that the assessee received possession of the new flat only after the date of sale.

Further, the relevant date to be considered is when the assessee paid full consideration amount of the flat becoming ready for occupation and obtained possession of the flat.

It was an unabated fact that at the time of execution of agreement, the residential property was not in existence. Therefore, the date of possession of the flat should be treated as the date of actual purchase to claim an exemption under section 54.