a) The assessee had shown long-term capital gains from sale of a residential house. She claimed deduction under section 54 on the ground that a part of said gain had been invested in a flat.
b) The AO noted that as per the purchase agreement flat would be delivered to the assessee within a period of 36 months with a grace period of six months from the date of actual start of construction.
c) The AO concluded that the said flat could not be handed over to the assessee by the builder within a period of 3 years from the date of transfer of the original asset and, therefore, denied the exemption claimed under section 54.
d) The assessee submitted that since full/substantial consideration had been paid by her, she was entitled to benefit of deduction on account of the investment in the flat under section 54. The Commissioner (Appeals) upheld the order of AO. The aggrieved assessee filed the instant appeal.
The ITAT held as under:
1) If substantial amount of capital gain has been invested by the assessee for the purpose of purchasing a new house, deduction under section 54 cannot be denied for the reason that construction was not completed within three years or house was not purchased within two years. In the present case the assessee had invested substantial amount for purchasing the new asset and thus she was entitled to claim deduction under section 54.
2) Even otherwise section 54 gives a window period of three years from the date of transfer of original asset, for the construction of a new house and two years for purchasing a new house. Further as per the section the amount utilized for the said purpose along with the amount deposited in a specified bank account for the purpose, before the date of filing of return of income, is treated as cost of construction of the new asset and exemption granted thereof.
3) Thus, clearly, as per section 54(2), exemption to the extent of amount utilized for construction is to be granted in the year of transfer of asset and the condition of completion of construction is to be looked into only after the window period provided by the Act of three years expires.
4) Therefore, impugned order rejecting assessee's claim for deduction in year of filing return itself, was to be set aside. -  82 taxmann.com 306 (Chandigarh - Trib.)