Assessee wins LTCG deduction u/s 54F for merged flats purchased within stipulated time period

ITAT Cuttack allowed the assessee's appeal regarding LTCG deduction u/s 54F. The AO had disallowed the deduction claiming the assessee purchased residential property beyond the two-year period and bought more than one residential unit (four flats). The tribunal held that the assessee's rights were created upon allotment within the stipulated time period, not upon possession. The four flats, though having different identification numbers, constituted a single residential unit as merged and registered together. The tribunal directed the AO to allow the entire deduction u/s 54F against the sale consideration.

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Issues: Disallowance of deduction claimed u/s. 54F of the Act for investment in new house property.

Analysis:
1. Issue of Disallowance of Deduction u/s. 54F: The assessee appealed against the disallowance of deduction claimed under section 54F of the Act for investing in a new house property. The assessee sold four pieces of land and invested the sale consideration in the acquisition of four flats in a project named "Khushi Classic." The Assessing Officer (AO) disallowed the deduction on the grounds that the flats were purchased beyond the two-year period from the date of the land sale and because the assessee purchased more than one residential house.

2. Assessee's Submission: The assessee contended that the flats were booked as one unit and paid for within the stipulated time period. The builder allotted the four flats to the assessee in 2015, although the final sale deed was executed in 2019. The flats were treated as a single unit by both the builder and the assessee, situated on the same floor and used as a single residential unit. The assessee fulfilled all conditions under section 54F for claiming the deduction.

3. Revenue's Argument: The Senior DR argued that the possession of the flats was given to the assessee in 2019, after four years from the land sale, justifying the disallowance of the deduction under section 54F.

4. Tribunal's Decision: The ITAT Cuttack Tribunal found that the entire sale consideration was invested in acquiring the four flats within a month of receiving the sale proceeds. The builder had allotted the flats to the assessee in 2015, and they were treated as a single unit. The Tribunal relied on the Supreme Court's decision in Sanjeev Lal Vs. CIT, emphasizing the creation of rights in the flats upon allotment in 2015, making the assessee eligible for the deduction under section 54F. The Tribunal directed the AO to allow the deduction, ruling in favor of the assessee.

5. Conclusion: The Tribunal allowed the appeal, emphasizing that the four flats constituted a single residential unit, fulfilling the conditions for claiming the deduction under section 54F of the Act. The decision highlighted the importance of the allotment date and the treatment of the flats as a unified residential unit, ultimately granting the deduction to the assessee.

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