2017 (6) TMI 1080 - AT - Income Tax

Computation of long-term capital gain on sale of flat - Whether transfer of the said flat was not complete? - assessee argued that the assessee sold a residential flat during the year under reference and earned profit, however, on account of default by purchases the sale remains incomplete - Held that - The assessee has not disputed the execution of transfer deed. Even before the High Court while filing a petition or in the Arbitration the assessee not sought relief for rescinding the contract of sale/ transfer deed. The only dispute before the High Court and in Arbitration is related with description of money. Further, no dispute that assessee sold his residential flat during the year under consideration. The High Court with the consent of the Counsel of parties referred the dispute and differences between the parties to Mr. Markand Gandhi Sole Arbitrator. We have further seen the arbitration petition wherein the assessee has claimed interest due to delay in payment of agreed amount and the refund of reimbursement of credit received by purchaser from the Housing Society only, where the flat is situated. All these facts were duly considered by learned Commissioner (Appeals) before passing the impugned order. Hence, we do not find any reason to interfere with the findings of learned Commissioner (Appeals). Disallowance of cost of improvement in respect of flat under reference while determining the long-term gain - Held that - Considering the remand report of assessing officer and the fact that the flat in question is very old and certainly some renovation must have been taken place in between the year 1985 when the property was acquired and in the year 2007 when the property was sold. Commissioner (Appeals) allowed only ₹ 1.00/- lakh out of the total claim of ₹ 5,76,000/-, on account of improvement. We have seen that the learned Commissioner (Appeals) granted partial relief after considering the facts with regard to cost of improvement and the cost of interiors. The estimation of ld Commissioner (Appeals) is at lower side. Considering the facts that property was acquired in the year 1985 and was transferred in the year 2007, we allowed ₹ 2,50,000/- as cost of improvement and interior. The AO is directed accordingly. Appeal of the assessee is partly allowed.

Summary

Issues involved:
1. Computation of long-term capital gain on sale of flat.
2. Disallowance of cost of improvement expenses.

Issue 1: Computation of long-term capital gain on sale of flat:
The appeal was against the Commissioner (Appeals) order for the assessment year 2008-09. The assessing officer noted the sale of a property by the assessee based on AIR information but no long-term capital gain was declared. The assessee claimed indexed cost of improvement for renovation expenses, which was not accepted by the assessing officer. The dispute centered around whether the sale of the flat was complete during the relevant year. The assessee argued that the sale was not complete due to a default by the purchaser and legal action was taken. However, the revenue contended that the sale was complete as the possession and full consideration were received. The High Court referred the dispute to arbitration. The ITAT upheld the Commissioner (Appeals) decision as the sale was considered complete during the relevant year, dismissing the appeal.

Issue 2: Disallowance of cost of improvement expenses:
The assessee claimed expenses for improvement made in the flat in 1986, but the assessing officer disallowed the entire claim. The Commissioner (Appeals) partially allowed the claim. The assessee provided evidence of payments made for improvement work, but the assessing officer rejected the claim. During remand proceedings, additional evidence was submitted, including balance sheets from earlier years showing the cost of the flat. The Commissioner (Appeals) considered the evidence and allowed a partial claim of &8377;1.00 lakh out of &8377;5.76 lakh. The ITAT further allowed &8377;2.50 lakh as the cost of improvement and directed the assessing officer accordingly, partially allowing the appeal on this ground.

In conclusion, the ITAT partially allowed the appeal of the assessee concerning the computation of long-term capital gain on the sale of the flat and the disallowance of cost of improvement expenses. The judgment was pronounced on 26th May 2017.