ITAT Relief: Section 54 Exemption Not Lost Due to Builder Delay

The assessee had sold a property in February 2012, deposited Rs. 2 crore in a Capital Gains Account in May 2012, and booked a new under-construction property for Rs. 1.60 crore. A balance of Rs. 42 lakh was still owed, though, because the builder failed to obtain the Occupation Certificate. Of this amount, Rs. 37.88 lakh was considered an unutilised capital gain and was subjected to taxation as “income from other sources.”

Issue Before the Tribunal: Whether exemption under Section 54 of the Income Tax Act can be denied for the portion of capital gain unutilized within the statutory 3-year window due to the builder’s failure to obtain a possession/occupation certificate, despite the assessee having booked and partly paid for a new residential property?

Tribunal’s Decision: The ITAT granted relief to the assessee, accepting his position that he could not utilise the full capital gains within the three-year window under Section 54 due to the builder’s failure to deliver possession. The Tribunal held that the assessee had no control over the delay in possession and relied on past rulings, including Bal Kishan Atal v. ACIT and the Delhi High Court’s ruling in CIT v. R.L. Sood. It was highlighted that as the assessee was unable to use the capital gains for no fault of his own. The tribunal removed the addition of Rs. 37,88,384, thereby validating the claim under Section 54.

Thus, allowing the appeal in full, the Hon’ble tribunal found the addition of Rs. 37.88 lakh unsustainable and deleted it favouring the assessee.

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