2016 (9) TMI 805 - AT - Income Tax

Entitlement for deduction of the amounts paid by assessee to their brothers for getting the premises vacated while computing the capital gains on sale of house-property - Held that - Keeping in mind social circumstances and the relationship of the brothers. What was their settlement while residing together? What was feeling of elder brother towards their younger brother, when they displaced them from a property where they were residing for last more than 24 years ? Had the controversy been appreciated in a mechanical manner, and if both the brothers, who were residing in the house refused to vacate the house, then, what would be the situation before these assessees. They have to file a suit for possession that might be decided against, and young brother ejected from the premises, but that would consume time in our judicial process of at least more than ten to fifteen years. The prospective buyers may not be available in such circumstances. Shri Laxmanbhai K. Chokshi as well as Shri Jagdishbhai K. Chokshi were candid in their statement that they were residing in these houses along with their brothers. Shri Laxmanbhai K. Chokshi, though had not been paying any rent, but he was paying electricity bills. I am of the view that the payments were made for improvement of title of the property and they are entitled to claim deduction of cost of payment. Therefore, allow solitary ground of appeal raised in the case of Shri Lallubhai Keshavlal Chokshi, HUF and direct the AO to grant him deduction of ₹ 31 lakhs for computing the long term capital gain. Similarly, allow ground nos.1 and 2 in the case of Shri Nanubhai Keshavlal Chokshi, HUF and direct the AO to allow deduction of ₹ 21 lakhs while computing the long term capital gain. Additional expenditure for improvement of property - Held that - The assessee has purchased property at 11, Shaligram Bungalow-1, Thaltej, Ahmedabad for a sum of ₹ 46,25,000/-. He further incurred an expenditure of ₹ 6.75 lakhs, and accordingly claimed deduction under section 54 of the Income Tax Act. The ld.AO has disallowed the claim of the assessee with regard to the expenditure of ₹ 6.75 lakhs. A perusal of the paragraph 3.00 and 3.2 of the CIT(A) s order, it would reveal that the ld.CIT(A) has allowed the claim but wrongly mentioned the amount of ₹ 2,88,370/-. To our mind, it is an apparent error committed at the end of the ld.CIT(A). Otherwise, in the assessment order as well as in all other details, the expenditure incurred by the assessee at ₹ 6.75 lakhs has been mentioned. Accordingly, allow this ground of appeal, and direct the AO to grant deduction of ₹ 6.75 lakhs from the sale proceedings while computing long term capital gain as cost of improvement. Indexed cost of acquisition - Action of the ld.AO for taking at ₹ 18,21,000/- as against the value of ₹ 19,79,160/- adopted by the assessee as on 1.4.1981 - Held that - the assessee has an area of 910.50 sq.meters. The ld. Registered valuer has estimated the total value at ₹ 36.42 lakhs. It represents to the area of 1821.00 sq.meters. Similarly, there was a built-up area of 316.32 sq.meters. He applied the rate of 1000/- and valued at ₹ 3,16,320/-. The total value has been shown at ₹ 39,58,320/-. The assessee has half share and the value has been shown at ₹ 19,79,160/- . Against this valuation report, all other correspondences, i.e. confirmation etc. from valuer is totally irrelevant at the end of the AO, because the valuer was never cross-examined as to how he can change his report unilaterally. The ld.Revenue authority has made reference to all irrelevant details for scaling down the valuation of the property as on 1.4.1981. I direct the AO to take value of the property at ₹ 19,79,160/-, and thereafter, compute the long term capital gain in the hands of the assessee.

Summary

Issues:
- Deduction of amounts paid to brothers for vacating premises while computing capital gains
- Disallowance of expenditure claimed for property improvement
- Indexed cost of acquisition discrepancy

Issue 1: Deduction of amounts paid to brothers for vacating premises while computing capital gains

The appeal concerned whether the assessee was entitled to deductions for amounts paid to brothers to vacate premises while calculating capital gains from the sale of a house-property. The AO and CIT(A) had declined the deductions citing various reasons, including occupancy details and property distribution. However, the ITAT examined the evidence, emphasizing the social circumstances and brotherly relationship. It noted the payments were made for improving the property's title and granted the deductions. The ITAT allowed the appeals, directing the AO to permit the deductions for both assessees.

Issue 2: Disallowance of expenditure claimed for property improvement

In one appeal, the assessee contested the disallowance of claimed expenditure for property improvement. The CIT(A) had allowed a lower amount than claimed, which the ITAT deemed an apparent error. The ITAT rectified this, directing the AO to grant the full deduction of the actual expenditure incurred by the assessee for property improvement.

Issue 3: Indexed cost of acquisition discrepancy

Another ground of appeal involved the indexed cost of acquisition discrepancy. The assessee disputed the AO's valuation of the property as on 1.4.1981, arguing for a higher value based on a valuer's report. The AO and CIT(A) had not fully considered the valuation aspects presented. The ITAT carefully analyzed the valuation report, highlighting the property details and the valuation methodology. It directed the AO to adopt the higher valuation figure provided by the assessee, instructing the computation of long term capital gains accordingly.

In conclusion, the ITAT allowed all appeals in favor of the assessee, granting deductions for amounts paid to brothers, rectifying the claimed expenditure for property improvement, and adjusting the indexed cost of acquisition based on the correct property valuation. The judgments were pronounced on 1st August 2016 at Ahmedabad.