In a ruling that will impact thousands of homebuyers, the Income Tax Appellate Tribunal (ITAT) Mumbai has held that the date of allotment letter — and not the date of formal registration — should be considered as the date of acquisition for calculating capital gains tax on residential flats, especially in cooperative housing societies.
The order, pronounced on 23 April 2026 by ITAT Mumbai Bench “E”, strengthens the long-standing demand of taxpayers that the holding period for capital gains purposes begins when substantive rights in the property are acquired, rather than on the date of legal registration.
The Core Dispute
The central question before the Tribunal was: Should the date of allotment or the date of registration of the agreement be considered for determining whether the capital gain is long-term or short-term?
In the case of Kuntal Rasiklal Narechania vs. Income Tax Officer (ITA No. 6306/MUM/2025), the assessee had received an allotment letter for a flat in Kandivali Ashish Co-operative Housing Society on 30/31 January 2008. He and his wife made payments in instalments from 2007-08 onwards. The formal purchase agreement was registered only on 8 July 2016, and the flat was sold shortly thereafter on 9 August 2016.
The taxpayer computed his gain as Long Term Capital Gain (LTCG), claiming the holding period began in 2008. The Income Tax Department, however, took the registration date of 2016 as the date of acquisition, treated the gain as Short Term Capital Gain (STCG), and made an addition of over ₹82 lakh based on stamp duty valuation.
ITAT’s Ruling
The Tribunal, comprising Accountant Member Shri Om Prakash Kant and Judicial Member Shri Sandeep Singh Karhail, set aside the orders of the Assessing Officer and CIT(Appeals) and restored the matter for fresh adjudication.
In a detailed order, the Bench observed that the allotment letter issued in 2008 conferred enforceable rights in the property. It noted that payments were made jointly by the assessee and his wife over several years, and the allotment letter itself formed part of the later registered agreement.
Relying on the Bombay High Court judgment in PCIT vs. Vembu Vaidyanathan, the ITAT held that the allottee gets title to the property on the issue of the allotment letter, and subsequent payments and registration are only follow-up actions.
The Tribunal further noted that both husband and wife were named in the 2008 allotment letter, and the wife had also declared 50% of the capital gain in her return, claiming Section 54 exemption.
Key Observations of the Tribunal
“The material placed before us, including the allotment letter, payment receipts, and bank statements, prima facie indicate that rights in the property had accrued in favour of the assessee much prior to the execution of the registered agreement.”
The ITAT directed the Assessing Officer to re-examine the case, keeping in mind that the date on which substantive rights were transferred should be treated as the date of acquisition for capital gains computation. If the holding period qualifies as long-term, the assessee’s claim for deduction under Section 54 must also be considered.
Significance of the Order
This ruling assumes great importance because many buyers in cooperative societies and under-construction projects receive allotment letters years before the builder or society executes the formal registered agreement. Treating the registration date as the acquisition date often converts long-term gains into short-term gains, resulting in substantially higher tax liability.
The decision aligns with CBDT Circular No. 471 dated 15.10.1986 and multiple earlier ITAT rulings. It is expected to provide relief to taxpayers facing similar disputes across the country.
The matter has now been sent back to the Assessing Officer for fresh examination with directions to afford the assessee adequate opportunity of being heard.
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