2021 (5) TMI 183 - AT - Income Tax

Capital Gains - cost of acquisition - Deduction u/s. 54F - assessee submitted that the assessee and his mother had purchased the house along with furnitures and fixtures and therefore, the entire expenditure incurred by the assessee was towards the composite purchase of the house and furniture and should be allowed in toto - HELD THAT - As the cost of acquisition is the price paid by the assessee for the purchase of the house and also the expenditure towards the repairs made by him to make the house habitable and no other expenditure is to be allowed u/s. 54 of the Act. As regards the details of the expenditure furnished of the assessee which are being sought as exempt by the assessee, find that except for the expenditure incurred by the assessee towards electrical, water leakage problem and plumbing work, no other expenditure is required to be incurred for making the house habitable. AO is directed to allow the same as cost of improvement and allow the same, if found to be in order. Assessee's appeal is partly allowed for statistical purposes.

Summary

Issues:
Assessee's appeal against CIT (A)'s order for A.Y 2016-17 - Disallowance of expenses related to house property purchase and furnishing under section 54F of the Income Tax Act.

Analysis:
The case involved an appeal by the assessee against the order of the CIT (A) for the assessment year 2016-17. The assessee had filed his return of income admitting a certain amount, and the case was selected for scrutiny. During the assessment proceedings, it was observed that the assessee, along with his mother, had sold a house property and claimed deductions under section 54F of the Income Tax Act for expenses related to the house purchased jointly with his mother. The Assessing Officer disallowed certain expenses related to furnishing and additional works in the house, holding them not to be for making the house habitable. The CIT (A) confirmed this disallowance, leading the assessee to appeal before the Tribunal.

The grounds of appeal raised by the assessee included contentions against the disallowance of expenses paid for acquiring movables in the house property, as well as expenses incurred for repair charges to make the house fit for occupation. The assessee argued that the entire expenditure should be allowed as it was towards the composite purchase of the house and furniture, and certain necessary expenses were incurred to make the house habitable.

In the Tribunal's analysis, it was noted that the cost of acquisition includes the price paid for the house and the repairs made to make it habitable. However, no other expenditure apart from repairs necessary for habitability should be allowed under section 54 of the Act. The Tribunal directed the Assessing Officer to allow the expenditure incurred towards electrical, water leakage problem, and plumbing work as cost of improvement if found to be in order.

Ultimately, the Tribunal partly allowed the assessee's appeal for statistical purposes, emphasizing that only specific repair-related expenses essential for making the house habitable should be considered for deduction under section 54 of the Income Tax Act. The judgment was pronounced in the Open Court on 28th April 2021.