2017 (4) TMI 119 - AT - Income Tax

Disallowance of exemption u/s 54F - Held that - It is a fact that assessee is holding two properties on the date of purchasing the new property. The second property at Ooty consist of land and outhouse. Whether the outhouse can be treated as residential property or not, is the issue before us. The assessee claims that this house cannot be fit for residential use and she never stayed in that house. At the same time, AO in his remand report opines that this outhouse is big enough having 1600 sft. Area and the photo submitted by the assessee shows that it is habitable. In our considered view, assessee s house can be regarded as residential only when it is livable. Mere fact that there exists super structure, it cannot be considered as residential. We are also not in a position to adjudicate or give findings by merely looking at the photo submitted by the assessee. In our view, assessee should submit few more photos of the house from interior portion to substantiate that it cannot be used for residential purpose. Hence, we remit this case back to the AO to verify the claim of the assessee in the light of the additional evidence and complete the assessment. This ground is treated as allowed for statistical purposes. Disallowance of the expenditure on cost of improvement of the property sold - Held that - The cost of improvement was allowed in the case of assessee s husband and denied in the case of assessee. The property sold was joint property. We are inclined to remit this case back to the AO to verify the assessee s claim and if it is proper, it should be allowed to the assessee also. Needless to say that assessee may be given proper opportunity of being heard. This ground is also allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of exemption under Section 54F of the Income Tax Act.
2. Treatment of property at Ooty as a residential house for the purpose of capital gains.
3. Disallowance of expenditure claimed towards the cost of improvement of the property sold.

Detailed Analysis:

1. Disallowance of Exemption under Section 54F of the Income Tax Act:
The assessee sold a plot of land and claimed a deduction under Section 54F for the capital gains. The Assessing Officer (AO) rejected the claim on the grounds that the assessee owned more than one residential house on the date of the transfer of the original asset. Specifically, the AO noted that the assessee owned a house at Jubilee Hills, Hyderabad, and jointly owned another property at Ooty with her husband. The AO also observed that the new residential house was purchased jointly with another individual, which made the assessee ineligible for the deduction under Section 54F.

2. Treatment of Property at Ooty as a Residential House:
The assessee contended that the Ooty property was merely land with an old structure used as an outhouse and not a residential house. The AO, however, based on the sale deed and other documents, concluded that the property at Ooty included a residential house. The AO's conclusion was supported by the description of the property in the sale deed, which mentioned a building with a door number, electricity connection, and water supply for domestic purposes. The CIT(A) upheld the AO's decision, stating that the evidence indicated the existence of a residential house at the Ooty property.

During the appellate proceedings, the assessee provided additional evidence, including photographs, to support the claim that the structure was an outhouse and not fit for residential use. The AO, in his remand report, maintained that the structure appeared to be livable and was not merely an outhouse. The Tribunal, after considering the rival submissions, remitted the case back to the AO to verify the claim with additional evidence, including more photographs of the interior of the house, to determine if the structure could be considered a residential house.

3. Disallowance of Expenditure Claimed Towards Cost of Improvement of the Property Sold:
The assessee claimed an expenditure of ?4 lakhs for the construction of a boundary wall and gate on the sold property. The AO disallowed the claim due to a lack of evidence, as the details were purportedly with the deceased auditor. During the appellate proceedings, the assessee submitted a confirmation letter from the buyer of the property, confirming the existence of the boundary wall and gate at the time of purchase. The AO, in his remand report, acknowledged the existence of the wall and gate but noted that the letter did not establish the actual incurrence or reasonability of the expenditure.

The CIT(A) upheld the AO's decision, stating that the assessee failed to provide evidence of the actual expenditure incurred. The Tribunal, noting that the cost of improvement was allowed in the case of the assessee's husband (who jointly owned the property), remitted the case back to the AO to verify the claim and, if proper, allow the expenditure to the assessee as well.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, with both issues remitted back to the AO for further verification and assessment based on additional evidence. The Tribunal emphasized the need for the assessee to be given a proper opportunity of being heard in the reassessment proceedings.