Possession date, not registration date, determines eligibility for sections 54/54F exemption on capital gains

ITAT Pune held that for exemption under sections 54/54F, the crucial date is when possession and control of new property is given to purchaser, not the registration date. The tribunal found that possession was taken within one year before sale of original asset as evidenced by sale deed, making the assessee eligible for deduction. CIT(A)'s finding that the document was fabricated was rejected as mere allegation without supporting evidence. The covenants in registered sale deed were deemed conclusive absent contrary evidence.

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Issues:
- Disallowance of exemption u/s 54F and 54 by AO
- Denial of deductions u/s 54 and 54F for the same transaction
- Claiming deductions u/s 54 and 54F simultaneously
- Eligibility of cash payment for exemption u/s 54 and 54F
- Treatment of non-existent flats in Joint Development Agreement

Analysis:

The appellant filed an appeal against the CIT(A)'s order for the assessment year 2016-17, challenging the disallowance of exemption u/s 54F and 54 by the Assessing Officer (AO). The AO denied the claim for deductions amounting to Rs. 98,97,654 and Rs. 63,60,146 under sections 54F and 54, respectively. The appellant sold two properties and claimed deductions for the capital gains on the sale by purchasing a new residential bungalow. The AO disallowed the claim based on the timing of the purchase and possession of the new property.

The main contention revolved around the possession date of the new property, crucial for determining eligibility for deductions u/s 54 and 54F. The AO argued that the property was purchased before one year prior to the sale of the original asset, thus disallowing the deductions. The CIT(A) upheld the AO's decision, considering the possession agreement as fabricated based on a statement made by the appellant under section 132(4) of the Act.

The appellant argued that possession of the new property was taken on 31.03.2015, and there was no legal bar to claiming deductions u/s 54 and 54F simultaneously for the same asset. The appellant emphasized the covenants of the sale deed and the timing of payments to support their claim for deductions.

The Tribunal analyzed relevant legal precedents, including decisions from the High Courts, to determine the eligibility for deductions u/s 54 and 54F. It was established that the crucial date for determining eligibility is when the property is purchased and possession is transferred to the purchaser. The Tribunal found in favor of the appellant, stating that the possession agreement was valid, and the appellant was entitled to deductions u/s 54 and 54F as claimed.

As a result of allowing the appeal, the additional grounds raised by the appellant were deemed redundant, and the appeal filed by the assessee was allowed on the 7th day of August 2024.

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