Bought Flat Without Paying Entirely? ITAT Still Grants Full 54F Deduction!

The assessee in this matter before the tribunal received about Rs. 50.6 lakh from his housing society as compensation for surrendering his tenancy and possession rights under a Joint Development Agreement. He declared it as a long-term capital gain and claimed exemption under Section 54F under the Income Tax Act, by showing he invested Rs. 51 lakh in a residential flat, wherein 25 lakh were paid by him and 26 lakh were said to be paid by the developer directly to the seller. While the flat was purchased in March 2012, the developer’s payment actually happened three years later, in March 2015, despite a joint confirmation dated 01.06.2012.

The Assessing Officer (AO) limited the exemption to 25 lakh, claiming that the remaining 26 lakh were paid past the statutory deadline. This decision of the AO was upheld by the CIT(A).

Issue raised: Whether the assessee was eligible for deduction under Section 54F on the full amount of Rs. 50,59,270, including Rs. 26 lakh paid later by the developer directly to the seller on behalf of the assessee, based on a prior binding agreement.

ITAT’s Decision: The Hon’ble ITAT held that the assessee was entitled to the full deduction under Section 54F. The Tribunal find merit in the assessee’s argument that the Rs. 26 lakh was essentially “invested” when the Developer agreed to pay the seller via a signed letter dated 01/06/2012, which was also countersigned by the seller, confirming that the assessee owed no money. Furthermore, the 26 lakh debt owed to the seller was shown on the developer’s balance sheet for FY 2012–13.

As such, ITAT held that the assessee’s discharge of liability within the allotted time was not invalidated simply because the amount was paid later i.e., March 30, 2015.

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