No exemption available if the construction done before the date of capital gain
The ITAT Pune, in the case of Mahadev Dasu Jadhav vs. ITO, Ward-1, Latur (ITA No. 24/PUN/2025, dated March 28, 2025), upheld the denial of deduction under Section 54F of the Income Tax Act, 1961. ITAT held that the house was already under construction before the sale, it did not qualify as a new residential house as per Section 54F
Let us have a Short Overview of the case:
• The Assessing Officer (AO) gathered information that the assessee had sold a plot measuring 50R at Khadgaon, Latur for ₹17,26,000/- on 18.01.2007.
• A notice under Section 148 of the Income Tax Act, 1961 was issued, seeking details such as the return of income, bank statements, and capital gains computation.
• The assessee did not respond directly but was represented by an Authorized Representative before the AO under proceedings initiated via Section 143(2).
• The assessee claimed exemption under Section 54F, contending that the sale proceeds were utilized for constructing a residential house.
Findings of the Assessing Officer (AO):
• The plot was purchased on 09.04.2003, and permission for construction was granted on 29.06.2005.
• The AO disallowed the deduction under Section 54F, reasoning that:
• The purchase of the plot (09.04.2003) was 3 years and 7 months prior to the sale (18.01.2007), exceeding the time limit prescribed under Section 54F.
• The sanction for construction was obtained on 30.06.2005, i.e., 1 year and 6 months before the sale.
• The assessee failed to provide evidence that the house was actually constructed within the prescribed period.
• As a result, the AO denied the deduction under Section 54F and computed long-term capital gains (LTCG) at ₹11,95,150/-, passing an assessment order on 20.03.2015.
Appeal before CIT(A):
• The assessee challenged the AO’s order before the Commissioner of Income Tax (Appeals) [CIT(A)].
• CIT(A) confirmed the disallowance, holding that:
• The house was constructed before the sale of the property, violating the conditions of Section 54F.
• Since the assessee failed to prove that the construction was done after the sale of the original asset, the exemption was rightly denied.
Appeal before ITAT Pune:
• The assessee argued that Section 54F permits construction of a new residential house within 3 years from the date of transfer of the original asset.
As per Section 54F, the exemption is available if:
The new residential house is purchased within one year before or two years after the date of sale, or
• The new house is constructed within three years from the date of sale.
• The relevant time frame in this case was:
• Purchase period: 19.01.2006 to 18.01.2009.
• Construction period: 19.01.2007 to 18.01.2010.
2. Construction Was Completed Before the Sale
The plot was purchased on 09.04.2003 (beyond the eligible period).
The sanctioned plan was approved on 30.06.2005 (before the sale).
The valuation report (Page No. 1) indicated construction was completed in 2005-06, 2006-07, and 2007-08.
Since the house was already under construction before the sale, it did not qualify as a new residential house as per Section 54F.
The verbatim relevant part of the order is as under:
“On perusal of the valuation report in page no.1 which clearly shows the year of construction in completion is given between years 2005-06, 2006-07 and 2007-08. Therefore, it is clear that the assessee is neither purchased a house within one year nor constructed house within specified period contained in provisions u/s 54F of the Act. Therefore, we find no infirmity in the order of Ld. CIT(A) in confirming the order of Assessing Officer.”
The Copy Of the order is as under:
