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Mukesh Harilal Mehta, a taxpayer, found himself entangled in a peculiar situation concerning his Income-tax (IT) return for the fiscal year 2014-15. Mehta had sought a deduction under Section 54 of the Income Tax Act, a provision that allows exemptions on long-term capital gains reinvested in residential properties. However, his claim faced initial denial during assessment by the assessing officer.
The heart of the matter revolved around an error committed by the builder regarding the allocation of a flat purchased by Mehta. Despite this error, the tribunal emphasized that Mehta had indeed fulfilled the conditions outlined under Section 54. Section 54 says that individuals can claim exemptions if the capital gains from the sale of a residential property are reinvested in another residential property within specified time frames.
The assessing officer, in denying Mehta's claim, pointed to the absence of a registered sale deed for the new flat and discrepancies in the details provided in the possession letter. However, the ITAT deemed the denial of exemption unjustified, asserting that Mehta should not be penalized for the builder's mistake during the allocation process.
Section 54 of the Income Tax Act aims to encourage investment in residential properties by offering tax exemptions on capital gains. Mehta's case highlights the complexities that can arise in tax matters, particularly when dealing with real estate transactions.
In a significant decision made by the Income-tax Appellate Tribunal (ITAT) Mumbai bench, it has said that tax benefit claims are unaffected by builder's flat allotment error.
The ITAT's decision to uphold Mehta's claim serves as a reminder of the importance of considering the circumstances surrounding a taxpayer's claim, especially when external factors beyond their control, such as builder errors, are at play. This ruling not only sets a precedent for similar cases but also provides clarity on the interpretation of Section 54 deductions in instances of builder errors, thus ensuring fair treatment for taxpayers facing such circumstances.
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