ITAT rules against Capital Gain Exemption

ITAT rules against Capital Gain Exemption

The assessee had wrongly claimed about buying a residential property in 2004

The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has held that in case the sale consideration is used to purchase office premises, the capital gain exemption under the Income Tax Act, 1961 is not available.

While computing the capital gain under the IT Act, the assessee had claimed an exemption amounting to Rs.16,03,920 towards the indexed cost of improvement and the amount spent on the construction of the compound wall at the time of the sale.

But the assessing officer (AO) rejected the claim objecting that the sale was not used for purchasing a new residential property.

The ITAT Vice President RS Syal observed that the assessee had claimed that he purchased a residential house in April 2004 for a sum of Rs.16,03,920 and thus claimed an exemption in the computation of income filed by him in response to the notice.

The tribunal said, "This claim was jettisoned by the AO on the ground that the assessee did not purchase a new residential flat but only an office premises and hence, section 54F could not apply. It is apparent from the bare reading of the section that the exemption becomes available towards capital gain arising from the transfer of any long-term capital asset on purchasing or constructing one residential house in India."

"In order to qualify for the exemption, it is necessary that the new asset must be a residential house. But it is seen that the new asset purchased by the assessee is an office premise. Thus, the inescapable conclusion is that the authorities were justified in repelling the assessees' contention on the issue," the tribunal added.