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Facts
The assessee claimed exemption under Section 54 for the cost of a residential flat. The Assessing Officer (AO) restricted the exemption to the amount mentioned in the registered sale deed and stamp duty, disallowing the additional amounts paid for construction and finishing.
Held
The Tribunal held that the cost of acquisition for Section 54 exemption includes not only the purchase price but also incidental and necessary expenses to make the property habitable. Therefore, the entire investment made by the assessee should be considered for exemption.
Key Issues
Whether additional payments made to the builder for construction and finishing over and above the registered sale deed value are includible in the cost of acquisition for exemption under Section 54.
Sections Cited
147, 139(1), 148, 143(2), 142(1), 54, 194-IA
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S. R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM:
This appeal has been preferred by the Assessee against the order dated 29.03.2025 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “ld.CIT(A)”], which arises out of the assessment order dated 28.03.2022 passed u/s.147 of the Income Tax Act, 1961[hereinafter referred to as “the Act”] passed
:-2-: ITA. No.:1483/Chny/2025 by the National Faceless Assessment Centre, Delhi [hereinafter referred to as the “AO”] for the Assessment Year 2014-15.
The Appellant has raised the following grounds of appeal:-
1. The AO erred in restricting exemption u/s.54 to a sum of Rs.3,18,67,700/- when the total payment to the Developer towards the purchase of the new flat was Rs.6,16,32,285/- thereby disallowing a sum of Rs.2,97,64,585/-.
2. The appellant submits that both the AO and the CIT(A) failed to appreciate that the residential flat in question was purchased from the Developer as part of a project that was under construction at that relevant time. At the time of registration, the value was towards the undivided share of land and an incomplete bare-shell construction that existed on that date. The additional amount was paid by the appellant over and above the value for which the Developer had registered the sale deed, in order to make the incomplete structure into a habitable residence. Such additional payment is, therefore, to be considered as a cost of construction in the appellant’s hand.
3. The CIT(A) erred in confirming the disallowance based merely on the basic legal document (i.e., registration deed and the stamp duty) ignoring the fact that: • The total amount actually paid by the appellant to make the flat habitable was Rs.6,16,32,285/- ; • It took several months after the registration of the sale deed for the Developer to complete the construction of the residential flat in accordance with the terms listed in the Agreement for Sale, and convert the bare-shell that existed at the time of registration of the sale deed, into a habitable residence, and hand-over the apartment to the appellant; • Such additional payment was contemporaneous with the purchase of the flat and was not in the nature of subsequent expenses on renovations/alterations/beautification; • That all sums, including that which are over and above the registration value, were paid to the Developer even prior to the registration. • All flats sold by the Developer in this project have used the same model for purchase, sale deed registration and subsequent completion of construction; :-3-: ITA. No.:1483/Chny/2025 • All payments were made by the appellant only through proper banking channels and were acknowledged by the Developer.
4. The AO and CIT(A) grossly erred in concluding that payments made in addition to the cost of acquisition stated in the registration deed for modifications, alterations, customizations, or amenities subsequent to registration, cannot be considered as a part of cost of acquisition.
5. The appellant seeks to lead in additional evidence in the form of an independent, approved valuer’s report that values the flat at Rs.5.62 crores making the total cost of Rs.5.82 crores inclusive of stamp duty and registration charges Rs.0.19 crores. This is clear indication that the value adopted by the AO and confirmed by the CIT(A) is grossly wrong and deserves to be interfered with. The appellant prays that the additional evidence submitted be considered by the Hon’ble ITAT in the interest of justice.
6. For these and such other grounds as may be adduced at the time of hearing, the appellant prays that exemption u/s.54 be granted to the full extent of the cost of new flat being Rs.6,16,32,285/-
The brief facts of the case are that the assessee, an individual, filed her return of income for the A.Y.2014-15 u/s.139(1) of the Act on 30.07.2014, declaring a total income of Rs.49,02,590/-. In the said return, the assessee claimed exemption u/s.54 of the Act amounting to Rs.6,16,32,285/-.
Subsequently, the assessment was reopened by issuance of notice u/s.148 of the Act on 31.03.2021. In response thereto, the assessee filed her return of income on 05.05.2021 declaring the same total income as was declared in the original return. Thereafter, the AO issued notice u/s.143(2) of the Act on 06.09.2021 followed by notice u/s.142(1) of the Act on 01.12.2021.
During the assessment year under consideration, the assessee had reported Long-Term Capital Gain of Rs.7,05,94,050/- arising from sale of an immovable property and claimed exemption u/s.54 of the Act to the extent of Rs.6,16,32,285/- in respect of payments made to the builder, M/s. Total
:-4-: ITA. No.:1483/Chny/2025 Environment Building Systems Pvt. Ltd., towards cost of acquisition and construction of a residential flat.
During the course of assessment proceedings, the AO called upon the assessee to furnish documentary evidence in support of the claim of exemption of Rs.6,16,32,285/- u/s.54 of the Act. In response, the assessee furnished copies of the Sale Deed, relevant Bank Statements, and a Certificate issued by the Builder confirming the purchase of Flat No. D5092. On examination of the Sale Deed No. 6360/13-14 dated 14.03.2014, the AO observed that the total consideration mentioned therein for the purchase of the property was Rs.3,01,77,700/-, on which Tax Deducted at Source u/s.194-IA of the Act amounting to Rs.3,01,777/- had been duly deposited. The AO further noted that the assessee had incurred registration charges and stamp duty aggregating to Rs.16,90,000/-. Consequently, the AO held that the assessee was eligible for exemption u/s.54 of the Act only to the extent of Rs.3,18,67,700/- (i.e., Rs.3,01,77,700/- plus Rs.16,90,000/-) and accordingly issued a show-cause notice to the assessee proposing to disallow the balance claim of Rs.2,97,64,585/-.
In response, the assessee submitted that she had made aggregate payments of Rs.6,16,32,285/- to the Builder towards cost of acquisition and construction of the residential unit and therefore, the entire amount ought to be considered for exemption u/s.54 of the Act. However, the AO was not satisfied with the explanation furnished by the assessee on the ground that no :-5-: ITA. No.:1483/Chny/2025 documentary evidence was submitted in support of such additional payments.
The AO, therefore, proceeded to disallow the claim of exemption to the extent of Rs.2,97,64,585/- and completed the assessment u/s.147 of the Act on 28.03.2022 determining the total income of the assessee at Rs.3,46,67,175/-, after denying the aforesaid portion of exemption claimed u/s.54 of the Act.
Aggrieved of the above order of the AO, assessee carried the matter before the ld.CIT(A) who vide order dated 29.03.2025 dismissed the appeal of the assessee.
During the course of appellate proceedings before the ld.CIT(A), the assessee submitted that all payments aggregating to a sum of Rs.6,16,32,285/- were made exclusively through banking channels, i.e., by way of cheque, demand draft, or bank transfer, to the developer, M/s.Total Environment Building Systems Private Limited, towards the purchase of a residential apartment in their ongoing project titled “Windmills of Your Mind,” which was under construction during the relevant period. It was contended that the said payments represented investment in a new residential house and, accordingly, the assessee had claimed exemption under section 54 of the Act.
The assessee further submitted before the ld.CIT(A) that out of the aforesaid total payments, a sum of Rs.3,18,67,648/- pertained to the registered value of the land component, while the balance amount of Rs.2,97,64,585/- represented expenditure incurred towards construction of the superstructure. It was thus contended that, in accordance with the provisions of section 54 of the :-6-: ITA. No.:1483/Chny/2025 Act, all amounts expended towards the cost of acquisition and construction of the new residential house are eligible for exemption.
10 The assessee further submitted that the “cost of the new residential property” would not be confined merely to the purchase consideration and stamp duty/registration charges, but would also include amounts incurred towards modifications, alterations, customizations, and additional amenities executed by the builder/developer on behalf of the purchaser, which are over and above the standard construction, in order to suit the specific requirements, lifestyle, and preferences of the assessee.
In view of the foregoing, the assessee contended that the AO had erred, both in fact and in law, in disallowing the claim of exemption u/s.54 of the Act to the extent of Rs.2,97,64,585/-, being the amount representing the cost of construction of the said residential unit.
The ld.CIT(A), after due consideration of the facts and contentions placed before him, upheld the disallowance made by the AO. The ld.CIT(A) observed that the AO had rightly placed reliance on the registered Sale Deed, which, being a legally enforceable document, carries greater evidentiary value as compared to the unregistered construction agreement produced by the assessee. The ld.CIT(A) further held that the AO had correctly appreciated the legislative intent underlying the provisions of Section 54 of the Act, wherein the benefit of exemption is restricted only to investment made towards the purchase or construction of a residential house. It was observed that allowing deduction
:-7-: ITA. No.:1483/Chny/2025 for subsequent expenditure incurred towards renovation, alteration or beautification would defeat the very object and purpose of the provision. In view thereof, the ld.CIT(A), vide impugned order dated 29.03.2025, dismissed the appeal of the assessee and confirmed the action of the AO in denying the claim of exemption u/s.54 of the Act.
Aggrieved of the above order of the ld.CIT(A), assessee is in appeal before us.
The ld.AR, appearing on behalf of the assessee, submitted a paper book containing evidence in support of the payments made through the banking channel to the Builder in accordance with the terms stipulated in the agreed term sheet. The ld.AR, while reiterating the submissions advanced before the lower authorities, vehemently contended that the assessee is entitled to the benefit of exemption u/s.54 of the Act, and accordingly, prayed that the same be allowed.
Per contra, the ld.DR vehemently supported the order of the ld.CIT(A) and submitted that the assessee is not entitled for exemption u/s.54 of the Act to the extent of Rs.2,97,64,585/-. Thus, the ld.DR prayed for upholding the order of the ld.CIT(A) by dismissing the appeal of the assessee.
We have carefully considered the rival submissions, perused the material available on record, the paper book filed by the assessee, and the orders of the authorities below. The assessee has claimed exemption u/s.54 of the Act
:-8-: ITA. No.:1483/Chny/2025 amounting to Rs.6,16,32,285/-, whereas the AO restricted the said exemption to Rs.3,18,67,700/-, thereby disallowing a sum of Rs. 2,97,64,585/-. The only issue that, therefore, arises for our adjudication is the quantum of exemption allowable to the assessee u/s.54 of the Act.
From the material placed before us, it is evident that the assessee, on 04.03.2014, entered into an Agreement for Sale with M/s. Total Environment Building Systems Pvt. Ltd. (hereinafter referred to as “the Builder”) for purchase of a residential apartment admeasuring 5924 sq. ft. in the project titled “Windmills of Your Mind” for a total consideration of Rs.5,49,99,500/-. Out of the said amount, a sum of Rs.3,60,37,500/- was stated to be attributable to the undivided share of land and the basic cost of the unit, while the balance amount of Rs.1,50,00,000/- was towards the completion of the apartment unit by way of finishing works.
Subsequently, on 14.03.2014, a registered sale deed was executed between the assessee and the Builder for a total sale consideration of Rs.3,01,77,700/-, and the assessee paid stamp duty of Rs.16,90,000/- thereon.
Thus, the aggregate investment as reflected in the registered sale deed amounted to Rs.3,18,67,700/-, which amount was accepted by the AO as the basis for allowing exemption u/s.54 of the Act.
Upon perusal of the Builder’s confirmation letter dated 15.05.2014, we find that it is clearly stated that the consideration of Rs.3,01,77,700/- recorded in the registered sale deed represents only the cost towards the undivided share
:-9-: ITA. No.:1483/Chny/2025 of land and the basic “shell” of the unit, which comprised merely the structural framework consisting of supporting pillars and slabs without internal walls, flooring, electricals, plumbing, or other habitable features. The total consideration of Rs. 5,49,99,500/-, as per the original agreement, was intended to cover the entire cost of the apartment in a habitable and usable condition, including civil finishing, carpentry, plumbing, electrical, and other allied works necessary to make the premises a complete residential house.
We, therefore, find merit in the contention of the assessee that the consideration reflected in the registered sale deed does not represent the entire investment made in acquiring the new residential house as contemplated u/s.54 of the Act. The exemption u/s.54 of the Act cannot be restricted only to the cost of the undivided share of land and the bare structure, when the assessee has demonstrably incurred additional expenditure towards rendering the apartment habitable.
Upon perusal of the bank statements and receipts placed on record, we find that the assessee had made total payments aggregating to Rs.5,81,40,485/- to the Builder upto 14.03.2014. In addition, the assessee had incurred stamp duty of Rs.16,90,000/- and registration charges of Rs.3,02,610/-. The cumulative investment, therefore, aggregates to Rs.6,01,33,095/- (Rs.5,81,40,485 + Rs. 16,90,000 + Rs. 3,02,610).
Considering the above facts and the settled position of law that for the purposes of section 54 of the Act, the cost of acquisition of the new residential
:-10-: ITA. No.:1483/Chny/2025 house includes not only the purchase price of the property but also all incidental and necessary expenses incurred to make the property habitable, we are of the considered opinion that the assessee is entitled to claim exemption u/s.54 of the Act in respect of the entire investment of Rs.6,01,33,095/-.
Accordingly, we direct the AO to allow exemption u/s.54 of the Act to the extent of Rs.6,01,33,095/- as against the restricted amount of Rs.3,18,67,700/- allowed in the assessment order. Thus, the grounds of appeal raised by the assessee are partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 09th October, 2025 at Chennai.