2013 (12) TMI 1584 - AT - Income Tax

Deduction under section 54F - Held that - In the present case, the assessee is said to have incurred expenditure in the form of modular kitchen, TV, show case, bath room fittings and POP work. In our opinion, if these expenditure have been incurred for the purpose of remodeling of flat in normal course after purchasing the readymade flat, it is allowable expenditure. However, if it is for beautifying the flat by removing the previous one, it cannot be considered for deduction under section 54F. We, therefore, remit the issue to the file of the Assessing Officer to examine this issue with reference to the agreement entered by the assessee with the builder/developer (construction agreement) thereafter decide whether the developer has provided these things or not and decide the issue in accordance with law. Accordingly, this issue is remitted to the file of the Assessing Officer for fresh consideration.

Summary

Issues Involved:
1. Whether the expenditure incurred by the assessee for converting a semi-finished property into a habitable one is eligible for deduction under section 54 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1:
The primary issue in this case revolves around the eligibility of the expenditure incurred by the assessee for converting a semi-finished property into a habitable one for deduction under section 54 of the Income Tax Act, 1961.

Facts of the Case:
The assessee filed the return of income for the assessment year 2007-08, admitting total income and long term capital gains. The Assessing Officer disallowed the expenditure incurred by the assessee while computing the long term capital gains, stating that interior, carpentry works, and furniture expenses do not fall under the cost of the house as contemplated under section 54F of the Act.

CIT(A) Decision:
The CIT(A) observed the specific expenditures claimed by the assessee for deduction under section 54 and concluded that these expenses were not necessary for making the house habitable. Therefore, the CIT(A) declined the deduction under section 54.

Tribunal's Decision:
The Tribunal considered the arguments presented by both parties. It noted that the expenditure was incurred after the purchase of the flat, which was bought in a semi-finished state. The Tribunal referred to previous judgments and held that the expenditure incurred for making the house habitual after purchasing a semi-finished flat could be considered for deduction under section 54. However, the Tribunal remitted the issue back to the Assessing Officer for further examination based on the construction agreement entered into by the assessee with the builder/developer.

Conclusion:
The Tribunal allowed the appeal of the assessee for statistical purposes and directed the Assessing Officer to re-examine the issue in light of the specific circumstances and agreements related to the property. The case highlights the importance of determining the nature of expenditures in relation to the eligibility for deductions under relevant tax provisions.