2016 (4) TMI 1098 - AT - Income Tax

Disallowance of the deduction claimed u/s 54 - two flats situated on different storey - Held that - There is nothing in these sections, which require the residential house to be constructed in a particular manner. The only requirement is that it should be for the residential use and not for commercial use.We do not think that the fact that the residential house consists of several independent units can be permitted to act as an impediment to the allowance of the deduction under section 54/54F. It is neither expressly nor by necessary implication prohibited. Thus we reverse the order of the ld CIT(A) and allow deduction claimed U/s 54 of the Act by the assessee on two flats even on different storey. See Commissioner of Income Tax Versus Gita Duggal 2013 (3) TMI 101 - DELHI HIGH COURT . - Decided in favour of assessee Disallowance of indexed cost of improvement - Held that - CIT(A) not allowed the expenses claimed against the cost of acquisition from the total sale consideration on the ground that the evidence filed by the assessee are not reliable but neither the Assessing Officer nor the ld CIT(A) has verified the evidence, when the burden has been shifted by the assessee on the revenue on the basis of exemption claimed by the assessee where the particulars of civil engineer as well as name and address of the labourer have been given. The Assessing Officer has not issued any query letter to confirm the expenses as genuine. He simply discarded the evidence filed by the assessee, which is not permitted under the law. Even this indexed cost on boundary wall is not allowed by the lower authorities then the investment in two flats is about ₹ 42,92,921/-. The assessee invested much more than the capital gain calculated by the Assessing Officer, therefore, this addition is not called for. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of deduction claimed under section 54 of the Income Tax Act, 1961.
2. Disallowance of indexed cost of improvement incurred by the assessee during the financial year 2004-05.

Issue 1: Disallowance of deduction claimed under section 54:
The appeal was against the CIT(A)'s order sustaining the addition of ?19,33,831 made on account of disallowance of the deduction claimed under section 54 of the Income Tax Act, 1961 for A.Y. 2008-09. The CIT(A) observed that the investment in another property was not declared by the assessee, and the binding decision of the Hon’ble Karnataka High Court was ignored. The Assessing Officer allowed deduction under section 54 only for one residential house, considering the rental income from another property owned by the assessee. The ITAT reversed the CIT(A)'s order, allowing the deduction claimed by the assessee on two flats in the same building, relying on various legal precedents and the decision of the Hon’ble Delhi High Court.

Issue 2: Disallowance of indexed cost of improvement:
The second ground of appeal related to the disallowance of the indexed cost of improvement amounting to ?1,07,907. The assessee had claimed expenses against the property sold by indexing, but the evidence provided was considered unreliable by the Assessing Officer and the CIT(A). The ITAT noted that the lower authorities did not verify the evidence provided by the assessee, shifting the burden to the revenue to confirm the genuineness of the expenses. As the assessee had invested more than the capital gain calculated, the addition of indexed cost of improvement was deemed unnecessary, and the assessee's appeal was allowed on this ground as well.

In conclusion, the ITAT allowed the assessee's appeal, reversing the CIT(A)'s decision on both issues and granting the deductions claimed under section 54 and the indexed cost of improvement.