2023 (2) TMI 203 - AT - Income Tax

Capital gain computation - Allowability of expenditure in relation to the cost of the improvement of the land - AO had denied the expenditure on the ground that the assessee could not produce any concrete evidence in this regard - HELD THAT - The expenses are mainly the cost of the sand transported through Hywa and labour charges and dozer charges and roller charges. The assessee having produced the details of the expenditure, the same could not be blindly rejected without examining the said claim. It is noticed that the ld. AO has rejected the assessee s claim demanding more concrete evidence. What is the nature of the evidence that the AO desires is not coming out of the assessment order but in any case as it is noticed that the assessee has provided the details of the expenditure, we are of the view that the expenditure is allowable expenditure. Consequently, the AO is directed to allow the expenditure claimed onwards cost of improvement of the land sold by the assessee. Deduction u/s.54F in respect of the four-storied house building including basement purchased by the assessee - AO has denied the assessee the benefit of the deduction u/s.54F of the Act on the ground that the assessee has purchased a commercial property - HELD THAT - Clearly the property is being used for residential purpose and the remand report is providing the present scenario in respect of the property also shows that one floor is being used by the assessee as his residential house. This being so, we are of the view that the assessee is entitled to claim u/s 54F in respect of the portion being used by the assessee as his residential house i.e. the area in relation to the first floor of the said building with the portion of the land apportioned thereto. The total area of the building as per the sale deed is 6704 sq.ft. The area of the first floor is 1626 sq.ft., therefore, the assessee would be entitled the benefit of deduction u/s.54F of the Act in respect of (Rs.1,05,00,000 7,60,000 3,04,542) Rs.1,15,64,542/- / 6074 x 1626 Rs.30,95,809/-. This represents about 26.75% of the total investment. Consequently, the AO is directed to grant the assessee the benefit of deduction u/s.54F of the Act in respect of the first floor of the said commercial-cum-residential building purchased by the assessee during the assessment year 2015-2016. Applying the same criteria, the AO is directed to grant the assessee the benefit of deduction u/s.54F of the Act to the extent of 26.75% of the expenditure towards development of house property claimed u/s.54F of the Act for the assessment year 2015-2016 2016-2017. However, this expenditure has not been verified by the AO. For the purpose of verification of the nature of the expenditure for the assessment year 2015-2016 2016-2017, the issue is hereby restored to the file of AO.

Summary

Issues:
1. Allowability of expenditure claimed for improvement of land.
2. Eligibility for deduction u/s.54F for residential property purchase.

Issue 1: Allowability of expenditure claimed for improvement of land:
The assessee claimed expenditure for land improvement, including sand purchase and labor charges. The AO rejected the claim due to lack of concrete evidence. The assessee provided ledger extracts showing expenses incurred. The ITAT held that the expenditure should not be blindly rejected without examination. As the details were provided, the expenditure was allowed, directing the AO to permit the claimed amounts for the assessment years.

Issue 2: Eligibility for deduction u/s.54F for residential property purchase:
The assessee claimed deduction u/s.54F for a four-storied house, contending it was used for residence. The AO denied the deduction, stating it was a commercial property. The assessee also spent on property improvement in the subsequent year. The ITAT found discrepancies in the property's tax classification. A remand report confirmed part residential use by the assessee. The ITAT allowed deduction for the portion used as residence, calculating the eligible amount based on the area used. The AO was directed to grant the deduction for the residential portion. The issue of verifying the expenditure nature was remanded to the AO for both assessment years.

In conclusion, the ITAT partially allowed the appeals for the assessment years, directing the AO to verify the expenditure nature while granting the deductions accordingly.