2019 (3) TMI 802 - AT - Income Tax

Long term capital computation - Disallowance of deduction claimed on account of cost of improvement for computing long term capital gain - disallowance of deduction claimed on account of cost of improvement for computing long term capital gain - HELD THAT - sale deed dated 12th July 2004, mentions the existence of a house constructed over an area of 6,500 sq.ft. Therefore, assessee s claim that it has constructed a house over the plot of land cannot be discarded at the threshold. The assessee has to furnish credible evidence to demonstrate that after purchase of the plot the assessee has constructed the building and the actual amount of expenditure incurred by it towards construction of the building. Once the assessee brings all the evidences on record to justify its claim, the onus shifts to the Assessing Officer to consider allowability of assessee s claim qua the evidences furnished. It is relevant to observe, except furnishing the photograph of the building the assessee has not furnished any other evidence even at this stage also to support its claim that an amount of ₹ 40 lakh was spent towards cost of improvement/development. Therefore, assessee s claim cannot be allowed on mere face value. However, for enabling the assessee to justify its claim by furnishing credible supporting evidence, we are inclined to restore the issue to the file of the Assessing Officer for de novo adjudication after due opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Deduction claimed u/s 54 - disallowance of claim as flat was purchased in financial year 2003 04 relevant to assessment year 2004 05 and secondly, the investment made towards purchase of new flats was not out of assessee s own funds - CIT(A) hold that the investment in new flat has been made by the assessee within the period stipulated under section 54 - HELD THAT - The provision of section 54(1) allows deduction from taxation of capital gain in a case where the assessee has invested in purchase of new house before one year from the date of transfer of the original asset. Thus, at that stage, the capital gain has not accrued to the assessee. If the reasoning of the departmental authorities that the assessee has to invest the capital gain in purchase of new house to qualify for deduction is accepted, the provision becomes otiose. In view of the aforesaid, we hold that since the assessee has made investment in purchase of new house within the period prescribed under section 54(1) she is entitled to avail deduction under the said provision. There being no pre condition under section 54(1) of the Act providing for investment of the long term capital gain in purchase of new house for claiming deduction under section 54 of the Act, the departmental authorities cannot import such restriction/condition to the statutory provision. The decisions cited by the learned Authorised Representative clearly support this view. In fact, the Hon ble P&H High Court in CIT v/s Kapil Kumar 2015 (12) TMI 1075 - PUNJAB AND HARYANA HIGH COURT has clearly and categorically held that section 54 of the Act does not require that the sale proceeds from transfer of original capital asset must be used for meeting cost of new asset. As regards the contention of the DR that the assessee has purchased two flats, it needs to be observed, assessee s claim of deduction under section 54 has not been disallowed by the departmental authorities on the said reasoning. In any case of the matter, as per the provision of section 54 of the Act applicable to the impugned assessment year, the expression a residential house used in section 54(1) of the Act does not mean one residential house . Moreover, there is no allegation by the departmental authorities that the flats are not in the same building or are not inter connected - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of deduction claimed on account of cost of improvement for computing long term capital gain.
2. Disallowance of deduction claimed under section 54 of the Income Tax Act.

Issue 1: Disallowance of Deduction for Cost of Improvement:
The appeal was filed by the assessee challenging the disallowance of deduction claimed for the cost of improvement in computing long term capital gain. The Assessing Officer disallowed the claim of ?40 lakh towards cost of improvement as the assessee failed to provide sufficient evidence to justify the expenditure. The Commissioner (Appeals) upheld this disallowance, stating that only a photograph of the building was submitted as evidence. The Tribunal noted that while the sale deed indicated the existence of a building on the property, the burden of proof lay with the assessee to demonstrate the actual expenditure incurred for construction. As the assessee failed to provide substantial evidence beyond the photograph, the Tribunal decided to restore the issue to the Assessing Officer for fresh adjudication, allowing the ground for statistical purposes.

Issue 2: Disallowance of Deduction under Section 54:
The assessee claimed a deduction under section 54 of the Income Tax Act for investing in new flats after selling immovable property. The Assessing Officer disallowed the claim on grounds that the flats were purchased in a previous financial year and the investment was not made from the assessee's own funds. The Commissioner (Appeals) agreed with the assessee on the timing of the investment but upheld the disallowance due to lack of proof regarding the source of funds. The Tribunal analyzed the provisions of section 54 and found no requirement that the investment must be made from the capital gain proceeds. As the investment in new flats was made within the stipulated time frame, the Tribunal held that the assessee was entitled to the deduction. Additionally, the Tribunal dismissed the argument that the deduction was not allowable for purchasing two flats, as the provision did not specify a limitation to one residential house. Therefore, the appeal was partly allowed in favor of the assessee.

In conclusion, the Tribunal's judgment addressed the issues of disallowance of deduction for cost of improvement and disallowance of deduction under section 54 comprehensively. The decision emphasized the burden of proof on the assessee to substantiate claims and interpreted the provisions of the Income Tax Act to determine the eligibility for deductions.