LTCG tax saving from sale of property: Builder’s error in allotting flat will not impact tax benefit claim, says ITAT

In a case dealt with by the Income-tax Appellate Tribunal (ITAT), Mumbai bench, a taxpayer Mukesh Harilal Mehta had claimed section 54 deduction under the Income-tax Act, 1961 in his Income-tax (I-T) return for the financial year 2014-15. The tax tribunal ruled that this assertion cannot be refuted due to an error made by the builder in assigning the apartment. The builder mistakenly allocated the apartment purchased by the claimant to another buyer. However, acknowledging this mistake, the builder assigned a similarly positioned apartment in the same building to Mehta, according to a Times of India news report.

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Mehta fulfilled all the necessary conditions. However, during assessment, the Income Tax (I-T) officer rejected the claim, citing the absence of a registered sale deed as evidence for the purchase of the new flat, stated ToI. Moreover, the particulars of the new flat stated in the possession letter differed from the one towards which payment had been made. The Income Tax Appellate Tribunal concluded that denying the exemption was unwarranted since Mehta shouldn’t be penalized for the builder’s error in allotting the flat, stated the ToI news report.

What is Section 54 tax benefit

Section 54 of the Income Tax Act, allows an individual or HUF to claim exemption on long term capital gains from selling a residential house property if the gains are invested in the acquisition, i.e., purchase or construction, of another residential property. However, certain conditions must be satisfied to claim this tax benefit. The new residential house property should be purchased either one year before the date of sale of old house or two years after the date of sale. In the case of constructing a new house, the individual must finish the construction within three years of the date of sale.

Also read: Tax benefits on home loan: How to save tax using your home loan

A taxpayer named Mukesh Harilal Mehta had claimed section 54 deduction under the Income-tax Act, 1961 in his Income-tax (I-T) return for the financial year 2014-15, as per a case heard by the Income-tax Appellate Tribunal (ITAT) in Mumbai. The tax tribunal upheld Mehta’s claim, stating that the builder had mistakenly allocated the apartment purchased by Mehta to another buyer. However, the builder rectified the mistake by assigning a similarly positioned apartment in the same building to Mehta, according to a report by Times of India.

Click here for your complete tax-saving guide

Despite fulfilling all necessary conditions, the Income Tax (I-T) officer rejected Mehta’s claim during assessment, citing the absence of a registered sale deed as evidence for the purchase of the new flat, as reported by ToI. Additionally, the details of the new flat mentioned in the possession letter did not match the one for which payment had been made. The Income Tax Appellate Tribunal concluded that denying the exemption was unjustified since Mehta should not be penalized for the builder’s mistake in allotting the flat, according to the ToI news report.

What is Section 54 tax benefit

Section 54 of the Income Tax Act allows individuals or HUFs to claim exemption on long-term capital gains from selling a residential house property if the gains are reinvested in the acquisition, either through purchase or construction, of another residential property. However, certain conditions must be met to claim this tax benefit. The new residential property must be purchased either one year before the date of sale of the old house or within two years after the sale. In the case of constructing a new house, the individual must complete the construction within three years of the sale date.

Also read: Tax benefits on home loan: How to save tax using your home loan