2023 (2) TMI 703 - AT - Income Tax

Deduction u/s 54 - Deduction eligible for one residential house - case of the assessee is that 3rd 4th floor were used for own residential purpose and after two years, he gave it on rent - AO restricted the deduction under section 54 of the Act to the investment in 3rd floor keeping in view of the amendment to section 54 of the Act eligible for one residential house - HELD THAT - Admittedly, the assessee has not been able to establish that 3rd 4th floor are not independent and thus, we find that the Assessing Officer has correctly allowed the claim of deduction under section 54 of the Act for 3rd floor. Restricting the cost of improvement - AO disallowed the payments for painting, grills and Gates and labour masonry tiles for want of supporting document/or bills without date signature - It is common for painting the building after purchase and providing grills gates and doing masonry tiles work. Accordingly, we direct the Assessing Officer to include the payments along with cost of improvement restricted by the Assessing Officer at ₹.2,46,888/- and rework out the indexed cost of improvement ₹.19,221/- ₹.21,785/- ₹.4,79,000/- 2,46,888/- and allow the same. Appeal filed by the assessee is partly allowed

Issues:
1. Assessment of capital gains and eligibility for deduction under section 54 of the Income Tax Act, 1961.
2. Restriction of exemption claimed by the assessee.
3. Disallowance of cost of improvement and indexation.
4. Appeal against the assessment order.

Analysis:

1. Assessment of Capital Gains and Eligibility for Deduction under Section 54:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2015-16. The non-resident assessee had sold two immovable properties and purchased a new property in Chennai. The Assessing Officer noted discrepancies between the sale deeds and the property inspection report. The Assessing Officer allowed deduction under section 54 of the Act for the 3rd floor of the new property, considering it as a residential unit. The Tribunal upheld this decision, stating that the assessee failed to establish the independence of the 3rd and 4th floors, as required by the Act for claiming deductions.

2. Restriction of Exemption Claimed by the Assessee:
The assessee voluntarily divided the new property into commercial and residential portions based on previous usage patterns. The assessee claimed exemption under section 54 only for the residential portion. However, the Assessing Officer restricted the exemption to the 3rd floor, citing legislative amendments allowing deductions for one residential house. The Tribunal agreed with the Assessing Officer's decision, emphasizing the lack of proof regarding the independence of the 3rd and 4th floors.

3. Disallowance of Cost of Improvement and Indexation:
The Assessing Officer disallowed certain expenses related to improvement, such as painting, grills, gates, and labor work, due to insufficient supporting documents. The Tribunal directed the Assessing Officer to include these expenses in the cost of improvement calculation and rework the indexed cost accordingly. This decision was based on the common nature of these expenses in property maintenance and improvement.

4. Appeal Against the Assessment Order:
The assessee appealed against the assessment order, arguing that the restriction on the claimed deductions and the computation of capital gains were unjustified. The Tribunal considered both sides' arguments, reviewed the evidence, and concluded that the Assessing Officer's decisions were appropriate regarding the eligibility for deductions and the cost of improvement. The appeal was partly allowed, providing relief to the assessee on the issue of cost of improvement disallowance.

This comprehensive analysis of the judgment highlights the key issues addressed by the Tribunal regarding the assessment of capital gains, deduction eligibility, cost of improvement disallowance, and the final decision on the appeal.

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