2017 (11) TMI 379 - AT - Income Tax

Addition of long term capital gain - assessee declared long term capital gain as nil - cost of construction computation - Held that - The assessee has referred to details of various loans from the bank at different time however, some of the loans are in the joint name of the assessee and his family members showing the transactions are of withdrawal and deposit in cash. Therefore the bank statement itself cannot give a definite idea of purpose and used of the funds withdrawn in small amount of cash by the assessee and his family members. As regards the payments made to the two parties namely Bansal Trader and Agarwal Traders in the absence of further details and explanations whether these two parties are dealing with the construction activity or supply of construction material cannot be said that the payments were made for the purpose of construction of the house. Hence, I find that this issue requires a proper verification and examination by considering the valuation report of the DVO as well as the valuation report, if any, to be filed by the assessee from the registered valuer. Hence, this issue is set aside to the record of the Assessing Officer for adjudication of the same in light of the above observations. Denying the claim deduction u/s 54 - investment made by the assessee in the new residential houses in the name of his wife and claim of exemption under section 54 against the acquisition of these two houses - Claim of deduction u/s 54 available to more than one houses - Held that - Mere fact of the assessee purchased of new house in the name of his wife would not disentitle the assessee for claiming the benefit u/s 54 when the other conditions as provided u/s 54 are satisfied. Following the decision of Hon ble Punjab and Haryana High Court in case of Pawan Arya Vs. CIT (2010 (12) TMI 44 - PUNJAB AND HARYANA HIGH COURT) hold that the assessee is entitled for the claim of section 54 of the Act only in respect of one house at the choice of the assessee. Disallowances claim of interest u/s 48 of the Act as well as under 24(b) - Held that - This issue is directly connected with the claim of the assessee regarding the loan availed by the assessee and his family members are used for the purpose of construction of the house. As have already set aside the issue of cost of construction of the house as well as use of the barrowed fund for the purpose of construction of the house to the record of AO. Therefore, this ground of the assessee s appeal is consequential to outcome of the issue already set aside to the record of the assessing officer. Accordingly, in the facts and circumstances of the case I set aside this issue to the record of the Assessing Officer for consideration, exemption and adjudication along with the other issue remitted to the record of the Assessing Officer. Appeal of the assessee is partly allowed.

Issues Involved:
1. Computation of Long Term Capital Gain.
2. Denial of Exemption under Section 54.
3. Admission of Additional Ground during Appellate Proceedings.
4. Consideration of Interest Paid on Loan Facility as Part of Cost of Construction under Section 48 and Section 24(b) of the IT Act, 1961.

Detailed Analysis:

1. Computation of Long Term Capital Gain:
The primary issue was the computation of Long Term Capital Gain (LTCG) at ?44,94,343/- against the declared LTCG as nil by the assessee. The assessee sold a property for ?60,00,000/- and claimed exemption under Section 54 for the purchase of two houses. The AO found discrepancies in the cost of construction claimed by the assessee and relied on a valuation report from ICICI Bank, which contradicted the assessee's claim. The AO recomputed the cost of construction using PWD rates, reducing it significantly from ?26,80,000/- to ?7,84,870/-. The Tribunal noted that the valuation report was for loan purposes and not conclusive for income tax purposes. It directed the AO to refer the case to the Departmental Valuation Officer (DVO) for proper verification and examination.

2. Denial of Exemption under Section 54:
The assessee claimed exemption under Section 54 for two houses purchased in the name of his wife. The AO denied the claim, and the CIT(A) upheld this decision. The Tribunal referred to various High Court rulings, including CIT vs. V. Natarajan and CIT vs. Kamal Wahal, which allowed exemptions even if the new house was purchased in the name of the spouse. The Tribunal held that the assessee was entitled to the exemption for one house, as the purchase consideration flowed entirely from the assessee. However, it denied the exemption for the second house, following the decision in Pawan Arya vs. CIT, which does not permit exemption for multiple residential units situated in different locations.

3. Admission of Additional Ground during Appellate Proceedings:
The assessee raised an additional ground during the appellate proceedings, which was not admitted by the CIT(A). The Tribunal found that the additional ground related to the deduction of interest paid on the loan facility, which was directly connected to the primary issue of cost of construction. It set aside this issue to the AO for consideration and adjudication along with other remitted issues.

4. Consideration of Interest Paid on Loan Facility as Part of Cost of Construction under Section 48 and Section 24(b) of the IT Act, 1961:
The assessee claimed that the interest paid on the loan facility should be considered part of the cost of construction under Section 48 and Section 24(b) of the IT Act, 1961. The CIT(A) did not admit this claim. The Tribunal noted that this issue was directly connected with the claim regarding the use of borrowed funds for construction. It set aside this issue to the AO for examination and adjudication in conjunction with the other remitted issues.

Conclusion:
The Tribunal partially allowed the appeal, directing the AO to re-examine the cost of construction with the help of the DVO and to reconsider the additional grounds and claims related to the interest paid on the loan facility. The exemption under Section 54 was allowed for one house, provided it was purchased in the name of the wife with the entire consideration flowing from the assessee.

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