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2022 (4) TMI 846 - AT - Income TaxLong term capital gains arising on sale of house property - restriction of property sale expenses - HELD THAT - It is a common practice to pay brokerage while purchase or selling the properties. Since the assessee is in USA, it is quite possible that he would have paid brokerage to the broker who introduced the buyer. Hence, the payment of brokerage by the assessee cannot be discounted altogether and in our view, in the facts of the present case, in the absence of concrete evidences, the genuineness of the payment may be determined on the basis of circumstantial evidences, which are acknowledgement given on the letter pad of the assessee and the bank entries. Since these are incomplete documents, it is not clear as to whether the entire amount represented only brokerage amount or not. Accordingly, in the absence of proper evidences, we are of the view that the entire claim of brokerage may not be allowed. Accordingly, we restrict the brokerage payment to the extent of 1% of the sale consideration may be allowed and direct the AO to allow brokerage expenses partly. Determination of fair market value as on 1.4.1981 - We notice that the assessee could not furnish any material to support the claim of FMV of ₹ 25,000/- per cent. Hence, the only other credible material available in this case is copy of certificate obtained in 1981 itself from Tahsildar of Thrissur taluk. We noticed that the Ld CIT(A) has computed the FMV land as on 1.4.1981 at ₹ 4,000/- per cent on the basis of this certificate. While making computation, we notice that the Ld CIT(A) has adopted the value of building at ₹ 2,00,000/- - we noticed earlier that the FMV of building was adopted at ₹ 1,00,000/- both by the assessee and AO. Accordingly, we are of the view that the FMV of building should have been taken at ₹ 1,00,000/- by Ld CIT(A) instead of ₹ 2,00,000/-. We noticed that the value of 62 cents and building was estimated by the Tahsildar at ₹ 4,52,000/-. By adopting the value of building at ₹ 1,00,000/-, the value of 62 cents of land would work out to ₹ 3,52,000/-, which results in FMV of land per cent at ₹ 5,677/-. Accordingly, we are of the view that the FMV of land as on 1.4.1981 may be adopted at ₹ 5,700/- per cent. Accordingly, we modify the order passed by Ld. CIT(A) and direct the A.O. to adopt fair market value of land at ₹ 5,700/- per cent. Rejection of claim of cost of improvement to ₹ 1 lakh as against the claim of ₹ 5 lakhs - CIT(A) has observed that the assessee has not been able to provide any banking transaction in support of purchase of air conditioners. Further, he has observed that the air conditioners are at best categorized as furnishing in order to improve the living condition inside the building and it do not enhance the value of building or longevity of the building per se. Accordingly, on cumulative reasons, he has rejected the claim of ₹ 4.00 lakhs. Before us, the Ld. A.R. could not counter the reasoning given by Ld. CIT(A) that the air conditioners, at best, can be categorized as furnishing for improving living conditions. We also agree with the said view expressed by Ld CIT(A). Accordingly, we are of the view that the tax authorities are justified in rejecting the claim of cost of improvement of ₹ 4 lakhs relating to purchase of air conditioners. Accordingly, we confirm the order passed by Ld. CIT(A) on this issue. Enhanced claim of deduction u/s 54 - In the instant case, we noticed that the assessee has made investment in acquiring new residential house property within the time given in sec.54 of the Act and also within the time limit prescribed u/s 139(4) for filing revised return of income. Accordingly, we direct the AO to allow the deduction u/s 54 to the extent of ₹ 1,48,26,257/-.
Issues Involved:
1. Restriction of property sale expenses. 2. Determination of fair market value as on 1.4.1981. 3. Rejection of claim of cost of improvement. 4. Rejection of enhanced claim of deduction under Section 54 of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Restriction of Property Sale Expenses: The assessee claimed expenses on the sale of house property amounting to ?5,20,400/-, including brokerage of ?4,92,400/- and advocate fee of ?30,000/-. The AO allowed only ?30,000/- for advocate fee, rejecting the brokerage claim due to lack of proof. The assessee provided an acknowledgment from the broker, Shri K.T. Verghese, but it was on the assessee’s letterhead, which the AO did not accept. The Ld. CIT(A) confirmed this decision. Upon review, the Tribunal noted that the assessee, an NRI residing in the USA, had consistently claimed to have paid brokerage. The only supporting evidence was a bank statement showing a payment of ?4,90,000/- to Shri K.T. Verghese. The Tribunal concluded that while the entire brokerage claim could not be substantiated, a partial allowance was justified. Therefore, the Tribunal directed the AO to allow brokerage expenses of ?2,45,000/-. 2. Determination of Fair Market Value as on 1.4.1981: The assessee estimated the fair market value (FMV) of the land at ?25,000/- per cent and the building at ?1,00,000/- as of 1.4.1981. The AO accepted the building's value but adopted ?1,000/- per cent for the land based on sub-registrar office data. The Ld. CIT(A) considered a certificate from the Tahsildar, Thrissur, estimating the property value at ?4,52,000/- for 62 cents and a building, and adjusted the land value to ?4,000/- per cent. The Tribunal reviewed this and corrected the building's value to ?1,00,000/-, resulting in an FMV of ?5,700/- per cent for the land as of 1.4.1981, directing the AO to adopt this revised value. 3. Rejection of Claim of Cost of Improvement: The assessee claimed ?5 lakhs for improvements, including ?1 lakh for civil work and ?4 lakhs for air conditioners. The AO allowed only ?1 lakh, rejecting the air conditioners' cost, which the Ld. CIT(A) upheld. The Tribunal agreed with the Ld. CIT(A) that air conditioners are categorized as furnishings improving living conditions, not enhancing the building's value or longevity. Thus, the Tribunal confirmed the rejection of the ?4 lakhs claim for air conditioners. 4. Rejection of Enhanced Claim of Deduction under Section 54: The assessee initially claimed a deduction of ?1,18,00,620/- under Section 54 but sought to increase it to ?1,48,26,257/- before the AO. The AO rejected this enhanced claim, citing the need for a revised return and non-deposit in the Capital Gains Account Scheme. The Ld. CIT(A) upheld this decision, referencing the Supreme Court's ruling in Goetze India Limited. However, the Tribunal noted that the Supreme Court's decision does not restrict the Tribunal's power to admit additional claims. The Tribunal referenced the Karnataka High Court's ruling in Fatima Bai Vs. ITO, which allows the deduction if the investment is made within the extended period under Section 139(4). The Tribunal found that the assessee invested in the new house within the stipulated time and directed the AO to allow the deduction of ?1,48,26,257/-. Conclusion: The Tribunal partly allowed the assessee's appeal, directing the AO to recompute the long-term capital gains as per the Tribunal's directions. The order was pronounced in the open court on 4th April 2022.
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