2018 (12) TMI 569 - AT - Income Tax

Computing income from long term capital gain - Disallowance of indexed cost of improvement - addition towards the land levelling cost claimed to have been incurred in the year 1984 for want of any supporting evidence - Held that - The assessee filed the receipt of the said expenditure before the ld. CIT(A) - the receipt filed by the assessee which is placed and found that the said receipt contains all the details of the tractor with registration number and owner of the tractor who has issued the receipt. The nature of work done alongwith the rate as well as the total amount raised against the said work. It is stated in the said receipt that the levelling of the land was got done for the purpose of irrigation from canal though subsequently the assessee also got the tube well bored in the land itself. Thus, having regard to the area of the land and the contents of the receipt we find that the claim of expenditure incurred in the year 1984 for land levelling has been established by the assessee by production of the said receipt. Accordingly, the claim of the assessee deserves to be allowed. - Decided in favour of assessee. Disallowance of claim U/s 54B - agriculture land purchased for ₹ 7 lakhs on 16.05.2012 in the name of the son is before the date of transfer of agriculture land sold by the assessee and that the expenditure of ₹ 10,11,000/- incurred on such land is not eligible for deduction - Held that - Having regard to the facts and circumstances of the case when the assessee himself has declared the transfer of the land in question vide agreement dated 11/6/2013 then the earlier agreement dated 29/12/2011 cannot be considered as a relevant document for the purpose of transfer of the land in question. There is no dispute that the land for ₹ 7.00 lacs was purchased by the assessee vide agreement dated 16/5/2012 which is prior to the sale declared by the assessee vide agreement dated 11/6/2013. Consequently, the said purchase prior to the sale of the existing land would not be allowable for deduction U/s 54B of the Act. Disallowance of expenditure claimed by the assessee on improvement of the said land which is purchased vide agreement dated 05/7/2013 - Held that - As far as the expenditure incurred by the assessee for improvement of the agricultural and making it fit for agricultural operations, the said expenditure can be allowed as cost of the land itself. However, the expenditure incurred for construction of two rooms cannot be regarded as an expenditure incurred for the purpose of agricultural land. Hence we allow the part claim of the assessee to the extent of the expenditure incurred on improvement of the agricultural land and erection of boundary wall. The Assessing Officer is directed to recompute the deduction U/s 54B of the Act by allowing the said part of cost of improvement on the agricultural land. Claim of deduction U/s 54B regarding the stamp duty expenditure was not taken as part of cost of purchase of land - Held that - We find that the stamp duty is part of cost of purchase of land and therefore while allowing the claim of deduction U/s 54B of the Act, the total cost of land including the stamp duty has to be taken into consideration. Accordingly, we direct the Assessing Officer to consider the stamp duty paid by the assessee as part of the cost of purchase of agricultural land while computing the deduction U/s 54B of the Act. Hence, this ground of assessee s appeal is partly allowed. Restricting the claim of deduction U/s 54F - CIT(A) has adopted the cost of new house estimated by the DVO and consequently restricted the deduction U/s 54F of the Act to ₹ 20,07,687/- as against the deduction claimed by the assessee of ₹ 27,39,676/- - Held that - So far as the purchase consideration of residential plot, the assessee has produced the evidence of ₹ 8.50 lacs as recorded in the purchase agreement dated 17/8/2013 and further an affidavit of the seller was filed by the assessee. Therefore, to the extent of the cost of plot of land in question is concerned when the assessee has produced the evidence of actual purchase consideration paid by the assessee then the question of estimation of the purchase consideration does not arise. Even otherwise when the land in question is within the village abadi land then the DLC rate adopted by the DVO is not proper. Hence, to the extent of the cost of purchase of land we allow the claim of assessee of ₹ 8.50 lacs being the actual purchase consideration paid by the assessee. As regards the cost of construction of the house, we find that the assessee has filed a valuation report of registered valuer estimating the cost of construction at ₹ 37,03,630/- whereas the DVO has estimated the cost of construction at ₹ 32,74,800/-. Since the claim of assessee as well as the department is based on the estimated cost of construction determined by the respective valuers, therefore, it is a pure subject matter of estimate not based on actual expenditure incurred - when two separate estimates are the basis of claim of both the parties then to bring the controversy to an end we find it proper to estimate the cost of construction of the house as average of both the estimates made by the registered valuer as well as by the DVO. AO is directed to take the cost of construction of house as average of both the valuations done by the registered valuer and by the DVO. Hence, this ground of appeal is partly allowed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of indexed cost of improvement in computing long-term capital gain.
3. Disallowance of claim under Section 54B of the Income Tax Act.
4. Restriction of claim under Section 54F of the Income Tax Act.

Detailed Analysis:

Condonation of Delay:
The appeal by the assessee was delayed by 91 days. The assessee explained the delay was due to involvement in a legal dispute over the title of the land, which required immediate attention and led to the delay in consulting his counsel for filing the appeal. The tribunal found the explanation reasonable and condoned the delay, allowing the appeal to proceed.

Indexed Cost of Improvement:
The assessee claimed an indexed cost of improvement of ?6,75,930, which included land levelling costs incurred in 1984-85. The Assessing Officer disallowed this due to lack of supporting evidence. However, the assessee later provided a receipt for the expenditure. The tribunal found the receipt credible and directed the Assessing Officer to allow the claim for the indexed cost of improvement.

Section 54B Claim:
The assessee claimed a deduction under Section 54B for the purchase of agricultural land and improvements made to it. The tribunal addressed three sub-issues:
1. Purchase of Land Before Sale: The assessee purchased agricultural land before selling the original land, which Section 54B does not allow. The tribunal upheld the disallowance since the purchase must occur after the sale.
2. Expenditure on Improvement: The tribunal allowed part of the expenditure for land levelling and boundary wall construction but disallowed costs related to constructing two rooms, as these were not for agricultural purposes.
3. Stamp Duty: The tribunal directed the inclusion of stamp duty paid as part of the cost of purchasing agricultural land for calculating the deduction under Section 54B.

Section 54F Claim:
The assessee claimed a deduction under Section 54F for constructing a new house. The dispute was over the cost of the new house. The tribunal accepted the actual purchase cost of the plot at ?8.50 lakhs, supported by evidence, over the DVO's estimation. For the construction cost, the tribunal averaged the estimates of the registered valuer and the DVO, directing the Assessing Officer to use this average for the deduction calculation.

Conclusion:
The tribunal partly allowed the appeal, providing relief on several counts while upholding some of the disallowances made by the lower authorities. The order was pronounced on 12/10/2018.