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Deduction u/s 54 is allowed even if the assessee purchased new residential house before the sale of another residential house owned by him – ITAT Mumbai



The Mumbai Tribunal in a recent decided case law has held that where the assessee has purchased the new residential house before the sale of the already owned residential house, the assessee is entitled to claim the benefit of the exemption u/s 54 of the Income Tax Act, 1961 provided that all the conditions stipulated in the section are met. 

Facts of case: 

  1. The assessee, an individual, has sold a house property in Feb, 2012 for a total consideration of Rs. 1.11 Crores. Out of this sale, the assessee has earned a long term capital gain of Rs. 83,04,453/-.
  2. The assessee has purchased a residential  flat of Rs. 1.25 crores  in April, 2011 out of hish savings account and a loan from United Bank of India. 
  3. The AO has rejected the claim of the assessee stating that the assessee has not utilized capital gains of Rs. 83,04,453/-for purchase of new residential house contending that the new residential house has been purchased out of own sources i.e. savings from saving bank account and bank loans. 
  4. On appeal to CIT(A), the CIT(A) too held that the appellant is not eligible for claim of deduction under section 54 of the IT Act since he has not utilized the sale consideration for the purpose of change of the new property. He has also not utilized the sale consideration of the purpose of repayment of the loan. He has also not deposited the capital gain from the sale of the old property in the capital gain account scheme. Thus the disallowance made by the AO Rs. 83,04,453/- is confirmed.

Before ITAT, Mumbai

Aggrieved, the assessee appeal before the Hon’ble ITAT and the following observations are made: 

  • After reading Section 54 of the Income Tax Act, 1961 it was observed that capital gains arising on the transfer of a house property which in the two years immediately preceding the date of its transfer was used by the assessee or a parent of his for self-residence is exempted from income tax if the assessee, within a period of one year before or after that date, purchases or within a period of two years after the date of such transfer constructs a house property for the purpose of his own residence.
  • The ITAT relied upon the judgement by Hon’ble Kerala High Court in the case of ITO v. K.C. Gopalan [1999] 107 Taxman 591 (Ker.), and Asstt. CIT v. Dr. PS Pasricha [2008] 20 SOT 468 (Mum.). 
  • And after considering all the facts the ITAT came to the view that the assessee has met with all the conditions stipulated under section 54(1) of the Act in the present case as the facts are clear and hence, the assessee is entitled to the claim of exemption under section 54 of the Act.


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