Section 54 exemption turns on actual possession of the new home, not just registration, and the deduction was allowed.

Section 54 exemption for capital gains can turn on when the assessee acquires the new residential property in substance, not merely on the date of registration. The Tribunal treated actual possession, supported by the possession letter and occupation certificate, as the decisive factor, and relied on precedent that completion of payment and handing over of possession are the substance of purchase. On the facts, possession of the new property was obtained before transfer of the original property and within the statutory period, so the deduction was available and the addition was deleted.

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Issues: Whether the assessee is entitled to deduction under section 54 of the Income-tax Act, 1961 for capital gains where the new residential property was in possession before the transfer of the original property.

Analysis: The Tribunal examined the dates of execution, possession and registration of the sale and purchase agreements and the payment schedule. It treated the decisive criterion for acquisition under the statute as the date of actual possession of the new residential property, supported by the possession letter and the occupation certificate issued by the municipal authority. The Tribunal relied on precedent that the substance of purchase is the completion of payment and handing over of possession rather than mere date of registration of the agreement. Applying that legal framework to the facts, the Tribunal found that possession of the new property was obtained on 09.11.2015 and the original property was transferred on 26.04.2016 (effective possession), which falls within the statutory period prescribed for claiming the exemption.

Conclusion: The assessee is entitled to the deduction under section 54 of the Income-tax Act, 1961; the addition of Rs. 3,37,72,765/- made by the Assessing Officer is deleted and the appeal is allowed.

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