No tax paid on Rs 9 crore flat sale; bought new home

Why did she win the case?

● The assessee Sandu, received by gift, sometime after April 1, 2001, a flat. This had been acquired by the donor member before 1.4.2001. The first question then was whether she was entitled to step up the figure of “cost” from the actual cost to the value as on April 1, 2001, and then whether she was entitled to get indexation for it. To these questions, the answer was a clear yes that even though she had received the flat by way of gift/inheritance after 1st April, 2001, she was eligible to step up the cost.

● Another issue was that she had purchased another residence, by taking a bank loan. The Assessing Officer had disbelieved this, and said that she did not have a proper source of funds. The Tribunal held that the Officer was not justified in disregarding the documents which she had produced showing that she had taken a loan.

● The next important, issue was relating to the re-investment facility under Section 54. This Section states that if the capital gain on the sale of a residential house flat is reinvested into another residential house within one year before or two years after the transfer of the original house, and if certain other conditions are complied with, then the assessee would get a deduction of the amount so reinvested.

● The question then was about the dates. On December 4, 2015, she agreed to purchase a new house. On July 28, 2016 she received Rs 2.47 crore against the sale of her existing house. On December 1, 2016 she entered into an agreement to sell her existing house. On March 2, 2017 she received possession of the house which she was purchasing. On March 30, 2017 she registered the Sale Deed of the existing house.

When Smt Sandu from Chembur sold her apartment at Radha Mandir, a gift from her mother, she used this money and took a home loan, to jointly purchase another apartment with her husband. However, this whole arrangement sparked a dispute between her and the Income Tax Department because she claimed a Section 54 long term capital gains tax exemption from the sale of the Radha Mandir apartment, which meant she paid no tax.The tax dispute arose because she had received Rs 2.47 crore on July 28, 2016, from the buyer of the Radha Mandir apartment, but she signed the sale agreement for that apartment on December 1, 2016. This agreement was registered on March 30, 2017. But the new apartment was purchased one year before the sale of the Radha Mandir apartment.For those who might not know, Section 54 capital gains tax exemption can be claimed for sale of residential property if the new property is bought either one year before or two years after the sale. So the issue wasn’t about this rule. The real dispute was over the registration of the sale agreement which took place on March 30, 2017, even though she had already received Rs 2.47 crore on July 28, 2016.Due to this tax dispute, she and the Income Tax Department ended up at ITAT Mumbai. On November 26, 2025 she won the case there with Mr Viraj Mehta representing her.Anil Harish, Partner, D.M. Harish & Co explained to ET Wealth Online: Interesting issues arose in this matter. In order to consider these, the dates and facts are very important.She argued that the purchase was within the time range permitted by Section 54 in that she had agreed to purchase on December 4, 2015 and had agreed to sell on December 1, 2016, i.e. within one year.The assessing officer disagreed and said that she had registered her sale on March 30, 2017. Therefore, the department’s contention was that the purchase was more than 12 months before the registration of the sale, and that she was not eligible for the re-investment facility.She also referred to several decisions of the courts, in particular of the Supreme Court in the case of Sanjeev Lal versus CIT (2014) 365 ITR 389 (SC).Her contention was that first of all, she received Rs 2.47 crore on July 28, 2016, and thus was committed to sell. Then on December 1, 2016, she entered into an agreement to sell. At this point of time, certain rights were created in favour of the purchaser and the assessee extinguished some of her own rights.Section 2 (47) of the Income Tax Act, 1961 states that a transfer takes place either on the execution of the sale deed or upon possession being handed over or on extinguishment of rights. In this case, even though all the rights had not been extinguished on December 1, 2016, some of her rights were extinguished, and some rights created in favour of the purchaser.On this basis, the Tribunal came to the conclusion that the purchase on 4.12.2015 was within 12 months of 1.12.2016 and therefore she was entitled to the deduction under section 54.Another contention was that even if two views are possible, one in favour of the assessee and one against, the decision of the the Supreme Court in the case of CIT v. Vegetable Products Limited (1973) 88 ITR 192, must be followed. In that case, it was held that the view which is beneficial to the assessee has to be taken.