REEMA CHAWLA,DELHI V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INT. TAX 1(2)(1), NEW DELHI, DELHI

ITA 306/DEL/2025

AI Insights

This case involves Reema Chawla, the assessee, who appealed against the order of the ACIT, Circle International Taxation 1(2)(1), New Delhi, which denied her exemption under section 54 of the Income Tax Act, 1961, for long-term capital gains derived from the sale of a residential property. The main contention was whether the expenses incurred to make a new residential flat habitable and the payments made towards its cost were eligible for exemption under section 54. The Assessing Officer and the DRP had denied the exemption on grounds that the possession of the new flat was received before the sale of the original asset and that the construction was completed outside the permissible period. However, the Tribunal, referencing previous rulings and the specific circumstances of the case, ruled in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312975 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2022-2023
• Other Referred Cases: CIT Vs Bharati Mishra (2014) 265 CTR 374 (Del)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIZAY B. VASANTA
• Assessee Lawyers: AJAY VOHRA
• Keywords: Capital Gains
• Section: 143(3); 54

Judgement Text

"ITA No. 306/DEL/2025 [A.Y. 2022-23] Reema Chawla Vs.The A.C.I.T Page 1 of 11 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘D’ BENCH, NEW DELHI BEFORE SHRI SUDHIR KUMAR, JUDICIAL MEMBER, AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No. 306/DEL/2025 [A.Y. 2022-23] Reema Chawla Vs. The A.C.I.T A-47, Lower Ground Floor Circle Intl. Taxation Hauz Khas, South West Delhi 1(2)(1), New Delhi New Delhi PAN: AANPC 3495 N (Applicant) (Respondent) Assessee By : Shri Ajay Vohra, Sr. Adv Shri Deepesh Garg, Adv Ms. Aditi Garg, CA Shri Shavrya Jain, CA Department By : Shri Vizay B. Vasanta, CIT-DR Date of Hearing : 27.03.2025 Date of Pronouncement : 30.04.2025 ORDER PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the ACIT Cir. Intl Tax 1(2)(1), New Delhi dated 10.12.2024 for A.Y 2022-23. ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 2. The grounds of appeal raised by the assessee read as under: “1. That on the facts and circumstances of the case and in law, the final assessment order dated 10.12.2024 (signed on 12.12.2024) passed by the assessing officer ('AO') in pursuance of the directions of the Dispute Resolution Panel (hereinafter referred to as \"DRP\") under section 143(3) r.w.s.144C of the Income Tax Act. 1961 ('the Act\"), is bad in law and unsustainable. 1.1 That on the facts and circumstances of the case and in law, the impugned order passed by the assessing officer beyond the statutory time limit prescribed under section 153(1) of the Act is barred by limitation and bad in law. 1.2 That the assessing officer erred on facts and in law in completing assessment under section 143(3)/144C(13) of the Act, at an income of Rs. 1,90,91,566 as against income of Rs.41,88,818 returned by the appellant. 2 That the assessing officer/ DRP erred on facts and in law in denying exemption of Rs. 1,49,02,748 under section 54 of the IT Act qua long-term capital gains derived from sale of residential house (hereinafter referred as original asset) through investment of such gain in construction of new residential flat. 2.1 That the assessing officer/DRP erred on facts and in law in denying exemption on the ground that the condition of construction of a residential house within a period of three years from the date of sale is not satisfied in the case of the appellant. 2.2 That the assessing officer/ DRP erred on facts and in law in holding that the possession of the new residential flat was received by the appellant on 01.03.2021, i.e., before the date of transfer ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] of original asset on 05.07.2021, without appreciating that the new flat was a bare-shell flat and the appellant incurred construction expenses to make it habitable and finally received occupation and use certificate on 01.04.2022 from the builder. 2.3 That the assessing officer/ DRP erred on facts and in law in denying exemption holding that the amount to the extent of Rs.37,56,748 paid towards the cost of the new flat in financial year 2020-21 is not eligible for exemption as the payment is made prior to sale of original asset during the year under consideration. 3 That the assessing officer erred on facts and in law in levying and computing interest under section 234D of the Act.” 3. Ground No. 1 and 1.2 are general in nature. 4. Ground No. 1.1 has not been pressed by the ld. counsel for the assessee. The same is dismissed as not pressed. 5. The sole issue is with regard to the exemption u/s 54 of the Income-tax Act, 1961 [the Act, for short] on the expenses incurred for making the flat habitable. 6. Brief facts of the case is that the assessee is an individual having status of non-resident during the year under consideration. The assessee filed a return of Income declaring income of Rs ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 41,88,818/- on 28.07.2002, after claiming the exemption under section 54 of the Income Tax Act, 1961. 7. During the year under consideration, the assessee sold her share (50%) in a residential house located at N-45, First Floor, Panchsheel Park, New Delhi-110017 for Rs. 6,00,00,000/-. On the sale of this property, the assessee earned a long term Capital Gain of 1,65,14,103/-. Out of the said capital gains, a sum of R1,49,10,748 was claimed as exempt under section 54 of the Act. The said exemption has been claimed qua expenditure on purchase of under construction flat at “The Camellias, DLF” Gurugram and constitutes the following: • Rs.1,11,46,000 being expenditure incurred by the assessee to make the flat habitable pursuant to which final possession was received on 1.4.2022, and • Rs.37,50,748 towards payments of the cost of the residential flat. ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 8. The aforesaid said return was selected for scrutiny assessment vide notices dated 31.05.2023 issued under section 143(2) of the Act. Thereafter, pursuant to various notices and replies of the assessee, the assessing officer passed a draft assessment order dated 12.03.2024 under section 144C(1) of the Act, proposing disallowance of the entire deduction claimed by the assessee under section 54 of the Act, in respect of property purchased by her at The Camellias, DLF City, Phase-V, Gurgaon, on the ground that i) the date of purchase of the property as per the agreement being 18.2.2016, lies outside the permissible period for purchase or construction as mandated under section 54 of the Act ii) The date of possession [considered by the AO to be 01.03.2021] of the flat doesn't lie within the 3-year period for the construction of a new property from the date of sale of residential house, ie, 05.07.2021 and iii) The expenditure amounting to Rs.37,56,748 has not been incurred for the purpose of interior works during the year, but the payments made to the builder towards the cost of the flat, which was paid in financial year 2021-22. ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 9. On appeal before the DRP, the assessee did not succeed and therefore the assessee is before us. 10. At the very outset, the ld. counsel for the assessee submitted that the case of the assessee is squarely covered in favour of the assessee and against the Revenue by the decision of the ITAT, Delhi in assessee’s own case for the A.Y 2020-21. The ld. counsel for the assessee further submitted that the decision of the ITAT has been approved by the Hon'ble Delhi High Court therefore, exemption u/s 54 of the Act should be allowed to the assessee. 11. Per contra, the ld. DR relied upon the orders of the Assessing Officer. 12. We have heard the rival submissions and have perused the relevant material on record. We find that the ld DRP denied the benefit of section 54 to the assessee on the ground that the date of sale of property is 05.07.2021 whereas the possession of the DLF Flat (in respect of which exemption u/s 54 is claimed) was handed over to the assessee on 01.03.2021. Hence, the ld DRP held that it cannot be said that the condition in section 54 of construction of ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] one residential house within a period of three years from the date of sale is satisfied in case of the assessee as the construction was completed and possession was handed over on 01.03.2021 i.e., before the date of sale. On this background the ld DRP distinguished the decision of the Hon'ble ITAT and Hon'ble High Court in the assessee's own case for the AY 2020-21 as not applicable to the present proceedings for A.Y 2022-2023. 13. We find that the assessee has sold the property, on which the exemption under section 54 from capital gains arising from the said sale is being claimed, on 05.07.2021. The only objection of the ld AO/DRP has is that as the possession of the property constructed was received on 01.03.2021, hence the condition stipulated in section 54 of construction of one residential house within a period of three years from the date of sale is not satisfied. The ld AO/DRP held that as the date on which property sold is 05.07.2021, the construction of one residential house in India should have started after 05.07.2021. According to the ld AO/DRP, as the construction of one residential house in India was completed and possession taken on 01.03.2021, the case is not eligible for exemption u/s 54. ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 14. We find from the facts of the case that the AO/DRP has mistakenly considered that the one residential House was constructed and possession given on 01.03.2021. The facts of the case shows that the assessee earned capital gains from sale of the old property on 05.07.2021 for which she is claiming deduction u/s 54 of the IT Act. The builder handed over the possession of bare flat to the assessee, which was not habitable, on 01.03.2021. The assessee had to further incur an amount of Rs.1,11,46,000 to make the flat habitable and also to make a further payment of Rs.37,50,748 towards the cost of the residential flat prior to the sale of old property. Upon such payments, the assessee received the possession of the completed habitable flat on 1.4.2022 which is within three years of sale of old property. 15. We find that the coordinate Bench of ITAT, Delhi in assessee’s own case for A.Y 2020-21 in ITA No. 398/DEL/2023 vide order dated 11.8.2023 had, following the hon’ble Delhi Court in the case of CIT Vs Bharati Mishra (2014) 265 CTR 374 (Del), held that in section 54 there is no stipulation that the construction must begin after the ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] date of sale of old assets. It further held that the assessee can not be denied the benefit of deduction under section 54 on the ground that construction of house had commenced before the sale of old assets. The coordinate bench of the ITAT further held that the expenditure incurred to make the flat habitable (within the three year period of the date of sale of old property) as also the payments made to the builder towards cost of flat before date of sale, is eligible for benefit u/s 54 of the Act. We also find that the Revenue went in appeal before the Hon'ble Jurisdictional High Court in ITA No. 168/2024 and another in assessee’s own case against the order of the Tribunal. Their Lordships declined to interfere with the order of the ITAT and dismissed the appeals of the Revenue. 16. After considering the material on record and perusing the Tribunal order and the order of the Hon'ble High Court [supra], we are of the considered opinion that the expenditure incurred to make the flat habitable as also the payments towards cost of the flat is eligible for benefit u/s 54 of the Act. We, therefore, direct the Assessing Officer to deleted the impugned addition. We, therefore, allow ground no. 2 and its sub-grounds of appeal. ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] 17. Ground no 3 regarding interest u/s 234D is consequential in nature. 18. In the result, appeal of assessee in ITA No. 306/DEL/2025 is partly allowed. The order is pronounced in the open court on 30.04.2025. Sd/- Sd/- [SUDHIR KUMAR] [NAVEEN CHANDRA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th APRIL, 2025. VL/ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) Asst. Registrar, 5. DR ITAT, New Delhi ITA NO. 306/DEL/2025 Reema Chawla Vs. ACIT [A.Y 2022-23] Sl No. PARTICULARS DATES 1. Date of dictation of Tribunal Order 2. Date on which the typed draft Tribunal Order is placed before the Dictation Member 3. Date on which the typed draft Tribunal Order is placed before the other Member 4. Date on which the approved draft Tribunal Order comes to the Sr. P.S./P.S. 5. Date on which the fair Tribunal Order is placed before the Dictating Member for pronouncement 6. Date on which the signed order comes back to the Sr. P.S./P.S 7. Date on which the final Tribunal Order is uploaded by the Sr. P.S./P.S. on official website 8. Date on which the file goes to the Bench Clerk alongwith Tribunal Order 9. Date of killing off the disposed of files on the judiSIS portal of ITAT by the Bench Clerks 10. Date on which the file goes to the Supervisor (Judicial) 11. The date on which the file goes for xerox 12. The date on which the file goes for endorsement 13. The date on which the file goes to the Superintendent for checking 14. The date on which the file goes to the Assistant Registrar for signature on the Tribunal order 15. Date on which the file goes to the dispatch section 16. Date of Dispatch of the Order "