2018 (4) TMI 569 - AT - Income Tax

Disallowance the cost of improvement of the land while computing the capital gain on sale of the said land - Held that - AO estimated the cost of work at ₹ 25,000/- Though the assessee has not produced the complete supporting evidence in support of the claim however, the Assessing Officer has not denied the work done by the assessee on the ground therefore, the issue is only a proper and reasonable estimation of the cost of the work done by the assessee. Since, the land was already under gone for plotting and construction of road and the work was carried out more than 4 years prior to the date of inspection therefore, cost of work done cannot be properly ascertained without making a proper enquiry from the persons concern. We find it just and proper to estimate this expenditure incurred by the assessee on the improvement of land at ₹ 6 lacs. Hence, the order of the authorities below qua this issue is modified and the claim of the assessee is allowed to the extent of ₹ 6 lacs as against ₹ 3 lacs allowed by the ld. CIT(A). Deduction u/s 54F for investment in the new asset in the name of the wife - claim denied merely on the ground that the said house was constructed in the plot of land purchased in the name of his wife - Held that - We have carefully gone through the relevant record including transfer documents by which the assessee purchase this land in the name of wife but no description of constructed area has been given in the said document though the map site plan attached to the sale document show some construction on the plot of land. There is no scheduled of property in the sale document, therefore, it is not possible to ascertain that the plot of land in question was purchased in the name of wife along with the constructed area or it was plain plot of land. Hence, in these facts and circumstances of the case when the construction of the house is disputed by the AO then, the claim of the assessee to the extent of the purchase consideration of ₹ 20 lacs is allowable. As regards the cost of construction since it is not ascertainable from record available before us therefore, in the absence of any supporting documents to show the construction of the house carried out by the assessee we restrict the claim of the assessee u/s 54F to ₹ 20 lacs. We may clarify that since, the AO has already accepted the purchase of land with house for consideration of ₹ 20 lacs therefore, as per the accepted position the said investment will be considered for purchase of new house for the purpose of Section 54F of the Act.

Summary

Issues:
1. Disallowance of cost of improvement of land for computing capital gain.
2. Denial of deduction u/s 54F for investment in new asset in the name of the wife.

Issue 1: Disallowance of Cost of Improvement of Land:
The appellant, an individual engaged in retail trade, sold agricultural land for ?1,15,58,000 and claimed exemption u/s 54F of the Act in the return of income. The Assessing Officer (AO) disallowed the claim due to lack of documentary evidence. The AO estimated the cost of improvement of the land at ?3 lacs based on an inspector's report. The ld. CIT(A) upheld this decision, reducing the claim from ?22.10 lacs to ?3 lacs. The appellant argued that they provided cash books, bills, and vouchers for the expenditure incurred on the land, including levelling and filling of pits. The appellant contended that the disallowance was unjustified as they had produced relevant details. The tribunal found that while the appellant's claim lacked complete supporting evidence, the work done on the land was acknowledged. Considering the circumstances, the tribunal estimated the expenditure at ?6 lacs, modifying the lower authorities' order.

Issue 2: Denial of Deduction u/s 54F for Investment in New Asset:
The appellant claimed deduction u/s 54F for investing in a plot in the wife's name and utilizing capital gains for house construction. The AO, in a remand report, denied new house construction and objected to the deduction as the property was in the wife's name. The ld. CIT(A) agreed with the AO, disallowing the deduction. The appellant argued that the purchase of a new house in the spouse's name is eligible for deduction u/s 54F, citing relevant court decisions. The tribunal noted discrepancies in the construction of the house, with only a mumty on the third floor attributed to the appellant. Lack of clarity in the purchase documents led to uncertainty regarding the property's state at the time of purchase. Consequently, the tribunal allowed the deduction up to the purchase consideration of ?20 lacs, as the construction expenditure was not verifiable. The tribunal restricted the claim to ?20 lacs based on accepted land purchase value, allowing the appeal partially.

In conclusion, the tribunal modified the lower authorities' decisions on both issues, estimating the cost of land improvement and allowing a deduction for the investment in a new asset up to ?20 lacs.