ITAT Allows Full Section 54 Exemption Despite Minor Delay in Registration

ITAT Allows Full Section 54 Exemption Despite Minor Delay in Registration

The Delhi “C” Bench of the Income Tax Appellate Tribunal held that the assessee was entitled to the entire capital gains exemption under Section 54, rejecting the partial relief granted by the Assessing Officer and upheld by the CIT(A).

The Tribunal noted that Azizul Ghani had sold his property for ₹7.20 crore and reinvested the proceeds in acquiring land rights and constructing a new residential house through a collaboration agreement. Substantial payments toward land purchase and construction — amounting to over ₹7 crore — were made within the statutory three-year period. The mere fact that the sale deed for the new property was registered 15 days beyond three years was held to be a procedural delay, especially when construction stood substantially completed within time.

Use of Funds & Capital Gains Account Not Mandatory for Section 54 Relief

The ITAT further clarified that:

1. Capital gains need not be parked in a Capital Gains Account Scheme if the assessee has otherwise invested in construction within time
2. The same sale proceeds need not be directly traceable to construction expenses
3. Commencement of construction before sale of old property does not bar exemption
4. Relying on multiple High Court rulings, the Tribunal reaffirmed that Section 54 is a beneficial provision requiring liberal interpretation.
5. Since payments, bank statements, construction invoices, and final sale deed clearly established substantial compliance, the denial of exemption was held unsustainable.

The assessment order and appellate order were set aside, and full Section 54 exemption of ₹7.01 crore was allowed.