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Facts
The assessee sold a residential property in Noida, generating a capital gain of Rs. 2,42,65,406/- (with full value of consideration per Section 50C at Rs. 2,77,24,000/-). She claimed an exemption of Rs. 2,22,50,000/- under Section 54 for reinvestment in a flat in Gurugram. The Assessing Officer denied the deduction, citing lack of registration, non-deduction of TDS, the property being under construction, and payments made via a third-party consultant, along with the builder not recognizing the amount as income.
Held
The Tribunal upheld the decision of the Ld. CIT(A) allowing the Section 54 deduction. It confirmed that a registered sale deed is not mandatory, a flat buyer agreement is sufficient, payments through a verifiable third party are permissible, and the builder's accounting treatment is irrelevant to the assessee's claim. The Tribunal noted that the project was under construction, and substantial payments were made within the stipulated period.
Key Issues
Whether the Ld. CIT(A) erred in deleting the addition by allowing deduction under Section 54 of the Income Tax Act, 1961, despite the new property not being registered, being under construction, payments made through a third party, and non-deduction of TDS.
Sections Cited
143(3), 54, 50C, 2(47), 53A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH, ‘F’: NEW DELHI
Before: SHRI ANUBHAV SHARMA
ORDER PER AMITABH SHUKLA, AM,
This appeal has been preferred by the Revenue against order dated 30.10.2019 of Ld. Commissioner of Income Tax (Appeals)-14(2), New Delhi (hereinafter referred to as ‘ld. CIT(A)), in Appeal no.Del/CIT(A)-5/0211/2017- 18, arising out of order dated 18.12.2017 passed u/s 143(3) of the Income Tax Act, 1961, by ACIT, Circle-14(2), New Delhi, pertaining to Assessment Year 2015-16. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
That on the facts and circumstances of the case & in law, the ld. CIT(A) has erred in deleting the addition of Rs.2,22,50,000/- made by Assessing Officer on account of disallowance of deduction u/s 54 of the Income Tax Act, 1961. 3. The only issue raised by the appellant/Revenue through its solitary grounds of appeal is regarding the deletion of addition of Rs.2,22,50,000/- made by the ld. Assessing Officer by disallowing appellant’s claim of deduction under section 54 of the Act.
4. Brief factual matrix of the case is that the appellant/assessee is an individual and during the year under consideration, the assessee has sold her residential property at Sector-31, Noida resulting into capital gain of Rs.2,42,65,406/- (taking full value of consideration as per section 50C of the Act at Rs.2,77,24,000/-, against the indexed cost of acquisition of Rs.34,58,594/-). The appellant claimed exemption u/s 54 of the Act for Rs.2,22,50,000/-, shown as reinvestment for purchase of flat at Sector-111, Gurugram, Haryana.
The ld. Assessing Officer denied the appellant’s claim of deduction under section 54 of the Act holding that ,the property is not registered in the name of appellant, appellant had not deducted any TDS, the property was under construction, and payment was not made by the appellant directly but through one M/s K. N. Consultants Pvt. Ltd.- who was a loan recipient from the appellant, the seller, builder had not accounted for amounts received from the appellant as its income for the year under consideration. Before the ld. CIT(A), the appellant had contended that the sale of its property on which capital gain has arisen is not in dispute. It was argued that it is not mandatory to have registered agreement for claiming deduction under section 54 of the Act. Further, it was stated that it was not necessary for the seller builder to disclose the impugned income. The appellant had submitted that a combined reading of section 2(47) of the Act r.w.s 53A of the Transfer of Property Act alluded that a “transfer” of property had taken place. It was further argued that there is nothing in law to bar payment through a loan recipient for and on behalf of the buyer so long as the transactions were verifiable.
Per Contra, ld. Sr. DR, Ms. Harpreet Kaur Hansra, argued in favour of the order of the ld. Assessing Officer.
The ld. Counsel for the assessee reiterated all the arguments taken before the ld. CIT(A) and requested for sustaining the same.
We have heard rival submissions in the light of material available on record. The ld. CIT(A) has discussed the issue in detail in para 5.6 to para 5.10 of his order, which is reproduced hereunder:-
“……..5.6 On going through the contention of the appellant, it is observed that a flat buyer agreement has been duly entered between the appellant and the builder for the project Capital Gateway, Sector-111, Gurugram, Haryana. The appellant has been allotted a flat no. J-303 in the said project with customer ID DR0712. It is undisputed that payments have been made within the specified period for which claim has been made u/s 54 of the Act. Therefore, certainly there is a right exists in the said property for the appellant looking to the fact and various judgments relied upon by appellant. As elaborately discussed by appellant, it is not necessary to have a registered deed for claim u/s 54 of the Act. This is also supported by various judgments, including the judgments of Jurisdictional High Court. Even if there is no sale deed however, there is a buyer's agreement which confers the right to the appellant. It is also undisputed that the project is under construction and physically verified by the AO. 5.7 With regard to the contention that the builder has not recognized this amount as income, it is to be mentioned that the builder has confirmed the payments received and duly shown in its books. It is the accounting treatment of builder with regard to the recognition of revenue and has no bearing on the claim of appellant u/s 54 of the Act. 5.8 Regarding the payments through third party, it is seen from the details provided that payments have been made through cheque by M/s KN Consultants Pvt. Ltd., to whom the loans were given by appellant since 2007-08 onwards. This entry for payment is adjusted with this outstanding loan, which is now given to the builder. This transaction has no ambiguity nor any defect has been pointed out and duly confirmed by all the parties. The AO has taken this argument for rejection of deduction u/s 54 on the basis that they all are related persons and therefore, this transaction is "arranged". However, looking to the facts and carefully considering the findings of the AO in the assessment order, nowhere it is evidenced that how this transaction is arranged or bogus. There is nothing prevents appellant to invest in residential building of her employer and the loans are given way back in 2007-08. Further, delay in submission of return cannot justified that these transactions are either after thought or "arranged". 5.9 The appellant has also brought to the notice about the circulars of CBDT (Circular No. 471, dated 15.10.1986 and Circular No. 672, dated 16.12.1993). As per the said circular the intention of legislature was to invest in the acquisition of a residential house and completion of construction or occupation is not required. This circular was made applicable in respect of allotment of flats/houses by co-operative societies and other institutions etc. Therefore, considering the same, the claim of appellant seems to be a legitimate claim. In plethora of judgments, it has been held that registration/possession or agreement is not precondition for claim of deduction. 5.10 Therefore, looking to the facts and circumstances of this case and considering the claim of appellant where it has entered into the flat buyers agreement, made substantial payments, project is under construction, registration is not required as decided by various courts, the payment made through third party which was duly confirmed and no adverse material brought on record, no infraction of law has been brought towards this claim and the bona-fide claim is made as per the provisions of section 54 of the Act and looking to the discussions in foregoing paragraphs and submission of appellant, the claim of appellant u/s 54 is directed to be allowed. Accordingly, the appellant gets full relief for this disallowance. These grounds of appeal are allowed……….”
9. Upon consideration of the impugned observations of the ld. CIT(A), we are in total agreement with these findings on the matter. We are of the considered view that the Revenue has not been able to counter the arguments of appellant/assessee. We are therefore of the considered view that there is no case for intervention with the findings of the ld. CIT(A) at this stage. We therefore confirm the order of the ld. CIT(A) and dismiss the grounds of appeal raised by the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 17th December, 2025.