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2023 (5) TMI 217 - AT - Income TaxCapital gain computation - Deduction u/s 54 - Disallowing the cost of improvement made to the building in 1992 - CIT(A) confirming the action of AO in not allowing the benefit of cost of improvement as claimed by assessee - HELD THAT - It can be appreciated from the order of ld. AO that he has specifically mentioned that with respect to cost of improvement of the property, the assessee has provided the valuation report and based upon the same value of land at Rs. 17,40,000/- and value of building at Rs. 1,10,000/-, total Rs. 18,50,000/- is accepted and based upon the half share of assessee, the same was taken at Rs. 9,25,000/-. There appears to be no justification in accepting the cost of improvement provided by the valuer for improvements done during 1982 whereby 685 sq. ft. was added on the 2nd floor. It is quite unreasonable to expect production of bills and invoices as assessee along with brother has inherited the property, in 2009 on the death of their father. Thus, this ground no. 1 and 2 are allowed with direction to the Ld. AO to take into consideration the cost of improvements mentioned in the valuation report. Deduction u/s 54 - AO committed basic error in combining the share of both brothers and proportionately calculating the share of the assessee in context to the share left with the assessee in furtherance of Joint Development Agreement with builder. AO while giving the benefit of Section 54 considered the fact that as per the sale deed 67.5% ownership rights have been transferred to the builder for Rs. 5,50,00,000/- and what remained with the assessee is 33.5% and accordingly proportionate value of 32.5% being the cost of new property u/s 54 was arrived at 2,64,81,481/- What Ld. AO missed was the fact that the assessee on the basis of agreement with the builder had got entire basement, entire ground floor, 1/4th portion of entire stilt area including space for parking, space for one utility with common WC also in the new construction. The 32.5% undivided, indivisible and impartibly ownership rights in the said plot of measuring 300 square yards was the share in the land alone. Which was not transferred and was retained in favor of the assessee while the two brothers jointly sold 67.5% of the land. Cost of new property however is not the cost of share in the plot alone but all the other constructed and covered area received by the assessee. Thus, for the purpose of Section 54 of the Act, mere value of 32.5% ownership rights on the proportionate basis of share consideration of Rs. 5,50,00,000/- is not correct and the cost of new property has to be assumed to be Rs. Rs. 3,57,50,000/- being the value of interests and share of the assessee in the new construction, as per the collaboration agreement and the sale deed terms. Thus, the bench is inclined to sustain the ground no. 3. Appeal of assessee allowed.
Issues Involved:
1. Cost of improvement made to the building. 2. Computation of capital gain and deduction under Section 54 of the Income Tax Act. 3. Exemption under Section 54EC of the Income Tax Act. 4. Charging of interest under Sections 234B and 234C of the Income Tax Act. Summary: Issue 1 & 2: Cost of Improvement The assessee argued that the valuation report for the fair market value of the construction was accepted by the AO, but the cost of improvements was not considered due to lack of supporting bills and vouchers. The Tribunal found it unreasonable to expect production of such old bills as the property was inherited in 2009. Therefore, the Tribunal directed the AO to consider the cost of improvements mentioned in the valuation report. Issue 3: Computation of Capital Gain and Deduction under Section 54The assessee contended that the AO erred in combining the shares of both brothers and proportionately calculating the share of the assessee. The Tribunal noted that the assessee received Rs. 96,25,000 in cash and the rest as investment in the constructed house, totaling Rs. 3,57,50,000. The AO's calculation of investment in the new property at Rs. 2,64,81,481 was incorrect. The Tribunal concluded that the cost of the new property should be Rs. 3,57,50,000, considering the entire basement, ground floor, and other areas received by the assessee. Thus, the Tribunal sustained the ground in favor of the assessee. Issue 4: Exemption under Section 54ECNo specific arguments were presented for this ground. Hence, no separate ruling was provided. Issue 5: Charging of Interest under Sections 234B and 234CNo specific arguments were presented for this ground. Hence, no separate ruling was provided. Conclusion:The appeal of the assessee was allowed with directions to the AO to consider the cost of improvements and correctly compute the cost of the new property for the purpose of Section 54. Order pronounced in the open court on 3rd May, 2023.
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