2021 (9) TMI 538 - AT - Income Tax

Exemption u/s 54F - purchase of new residential house - excess consideration paid over and above consideration shown in registered sale deed - HELD THAT - Entire consideration has been paid by cheque / demand draft. It is also an admitted fact that the AO has collected information from the seller u/s.133(6) of the Act, for which the seller Shri G. Murugesan has responded and confirmed that the property has been sold for a consideration of ₹ 58 lakhs. The assessee has also placed bank statements of the seller which clearly indicate payment of consideration by cheque. Further, both agreement to sale and registered sale deeds are entered into on 06.02.2012. Under these facts and circumstances, denying the benefit of deduction u/s.54F for excess consideration paid over and above consideration shown in registered sale deed is not correct because, merely for the property was registered for a lesser consideration, the genuine transaction between the parties cannot be doubted when it comes to allowing benefit under exemption / deduction provisions. AO as well as the ld.CIT(A) has erred in sustaining addition towards disallowance of exemption claimed u/s.54F towards consideration paid for purchase of property. Restriction of cost of improvement - HELD THAT - AO has not given any valid reasons for rejecting cost of improvement to the extent of ₹ 50,000/- incurred by the assessee, when he has not doubted genuineness of expenditure incurred for improvement of the property. Further, it is a known fact how banks would finance purchase / construction of property. The assessee being an employee of Canara Bank had availed loan from the bank to the tune of ₹ 3 lakhs and balance ₹ 50,000/- was sourced out of her salary savings - when the assessee has explained source for cost of improvement, out of her savings and bank finance then the AO is erred in not accepting the source out of past savings, when he has accepted the genuineness of expenditure incurred for cost of improvement. CIT(A) without appreciating the facts simply confirmed addition made by the AO.

Summary

Issues:
1. Disallowance of deduction claimed u/s.54F of the Act
2. Restriction of cost of improvement

Analysis:

1. Disallowance of deduction claimed u/s.54F of the Act:
The assessee appealed against the CIT(A)'s order confirming additions made by the AO towards disallowance of exemption u/s.54F of the Act amounting to ?30 lakhs. The assessee argued that the entire consideration of ?58 lakhs for the property purchase was paid through cheque/demand draft, supported by documentary evidence. The department contended that since the registered sale deed showed a consideration of ?28 lakhs, deductions cannot be allowed for the excess amount paid. The ITAT Chennai found that the assessee had indeed purchased the property for ?58 lakhs, evidenced by the sale agreement and payment through bank transactions. The ITAT held that denying the deduction based on the registered sale deed amount was incorrect, as the genuine transaction was evident from the documents. Consequently, the ITAT directed the AO to delete the addition made towards disallowance u/s.54F of the Act.

2. Restriction of cost of improvement:
The second issue involved the restriction of cost of improvement to ?3 lakhs instead of the claimed ?3,50,000. The assessee explained that the cost of improvement was financed partly by a bank loan and partly from personal savings. The AO accepted the bank finance but disregarded the savings component, stating lack of explanation for the source of income. The ITAT Chennai noted that the AO did not provide valid reasons for rejecting the ?50,000 sourced from the assessee's savings, especially when the genuineness of the expenditure was not in question. Considering the common practice of banks financing property projects, the ITAT held that the AO erred in not accepting the savings as a legitimate source. Consequently, the ITAT reversed the CIT(A)'s decision and directed the AO to allow the claimed cost of improvement of ?3,50,000.

In conclusion, the ITAT Chennai allowed the appeal filed by the assessee, directing the AO to delete the disallowed deduction u/s.54F of the Act and to accept the claimed cost of improvement.