2018 (12) TMI 567 - AT - Income Tax

Capital gain computation - Disallowing the claim of indexed cost of construction/improvement - non furnish of documentary evidence to prove the quantum of expenditure on improvement - Held that - Assessee did not file any documentary evidence and consequently the addition made by the AO was upheld by the ld. CIT (A). Even before us, the assessee has neither produced any supporting evidence nor claimed that the assessee is having any supporting evidence. Accordingly when the assessee has not produced any documentary evidence in support of the claim, we do not find any error or illegality in the orders of the authorities below, qua this issue.- Decided against assessee. Disallowance of deduction u/s 54 - mandation of deposit of the amount in the Capital Gain Account Scheme - Held that - Once the assessee satisfies the condition of depositing the amount in the Capital Gain Account Scheme, only then the proviso to section 54(2) can be pressed into service. In case the assessee has not deposited the amount in the Capital Gain Account Scheme, then the investment is required to be made prior to the due date of filing of return u/s 139. Hence when the new residential house was neither acquired or constructed within the time period prescribed under section 54(1) of the Act, then the assessee is not eligible for deduction under section 54 and shifting of the assessment year for making the addition on this account would not achieve any purpose rather it will defeat the purpose of provisions of section 54 - AO was justified in not allowing deduction u/s 54, hence, the action of the AO is hereby upheld - decided against assessee.

Summary

Issues Involved:
1. Disallowance of the indexed cost of construction/improvement.
2. Disallowance of deduction under section 54 of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance of the Indexed Cost of Construction/Improvement:
The assessee filed his return of income declaring a total income of ?2,02,300/-, which included income from Long Term Capital Gain and a deduction claim under section 54 of ?10,00,000/-. The AO noted that the assessee deducted an indexed cost of improvement of ?1,07,505/- while computing the Long Term Capital Gain. The AO requested documentary evidence to support the cost of improvement/construction, but the assessee failed to provide any. Consequently, the AO disallowed the claim. The assessee challenged this before the CIT (A), but in the absence of any documentary evidence, the CIT (A) upheld the AO's decision.

Before the Tribunal, the assessee's representative conceded that no documentary evidence was available to support the claim. The Tribunal considered the rival submissions and the relevant material. The AO had issued a show cause notice asking for evidence, which the assessee did not provide. As a result, the AO re-worked the Long Term Capital Gain without considering the indexed cost of construction. The Tribunal found no error in the authorities' decisions, as the assessee failed to produce supporting evidence.

2. Disallowance of Deduction Under Section 54 of the IT Act:
The assessee claimed to have booked a flat in Mumbai with M/s. Ornate Spaces Pvt. Ltd. and made a payment of ?10,00,000/- before selling the existing property on 29.09.2010. The AO found that the builder submitted the development plans in October 2013, expecting approval in May 2014. The AO denied the deduction under section 54, stating the assessee failed to acquire the flat within the prescribed period of 2 years from the transfer of the original asset. The CIT (A) upheld this decision, noting the payment was made before the sale and the necessary approvals were not received until much later.

The assessee argued that the investment for a new residential house should qualify for the deduction, even if there was a delay by the builder. The representative cited several judicial decisions supporting the claim that the deduction should be granted if the investment was made, regardless of delays in possession. However, the Tribunal noted that the investment was made before the sale and the project was not even approved at the time. The Tribunal emphasized that the primary condition of acquiring the residential house within the prescribed period was not met. The Tribunal also clarified that the proviso to section 54(2) applies only if the amount is deposited in the Capital Gain Account Scheme, which was not the case here. Therefore, the Tribunal upheld the authorities' decisions, denying the deduction under section 54.

Conclusion:
The Tribunal dismissed the appeal, finding no reason to interfere with the authorities' decisions on both issues. The assessee's failure to provide documentary evidence for the indexed cost of construction and the non-compliance with the conditions under section 54 led to the disallowance of the claims.