2020 (9) TMI 229 - AT - Income Tax

Long term capital gain on sale of plot of land - Disallowance cost of improvement being the cost of construction of boundary wall - HELD THAT - We note that at the time of purchase the description of the property clearly stated that there was no construction of any kind on the plot bearing no. 86/149 Pratap Nagar, Scheme of Rajasthan Housing Board, Sanaganer, Jaipur whereas at the time of sale deed dated 05.11.2008 the description of the property includes plot of land in question and the boundary wall around the said plot with length of 57 meters. Thus, the length of the boundary wall is correctly mentioned based on the dimension of the plot as 18 10.50 meters. Once the boundary wall was in existence at the time of sale though the correct description of the boundary wall is not available being the height of the boundary wall and thickness of the boundary wall, then, the claim made by the assessee is without any supporting evidence as well as necessary particulars. Having regard to the facts and circumstances of the case when the assessee has not produced even the particulars of the boundary wall being height and thickness of the wall we estimate cost of construction of the boundary wall - AO is directed to allow the cost of improvement while computing the capital gain. Disallowance of deduction u/s 54 - new property purchase by the assessee in the name of wife AND not in assesse own name - HELD THAT - Since the assessee has sold only plot of land and not a residential house, therefore, the deduction U/s 54 of the Act is not admissible but the deduction U/s 54F is allowable. Hence, in the facts and circumstances of the case when the assessee purchased the said new residential house property in the name of wife but the investment was made by the assessee from his bank account as it is evident from the bank account statement then the claim of deduction U/s 54F of the Act cannot be denied on the ground of investment made in the name of wife. We direct the AO to compute allowable deduction U/s 54F after considering the sale proceeds and the total amount of investment for purchase of new house property. As regards the claim of expenditure incurred by the assessee on the renovation of the new asset purchased by the assessee we note that neither the AO nor the ld. CIT(A) has considered this issue despite the fact that the assessee has produced documentary evidence in support of the claim - Set aside this issue of claim of expenditure claimed on the renovation of the house property for the purpose of deduction U/s 54F to the record of the AO to decide the same after considering the evidence filed by the assessee and after giving appropriate opportunity of hearing to the assessee. Disallowance of the expenses incurred by the assessee being stamp duty and transfer charges - HELD THAT - The assessee has claimed the stamp duty and registry expenses of ₹ 51,900/- as cost of new asset purchased by the assessee. This issue was not considered by the AO as the deduction U/s 54 of the act was disallowed at threshold on the ground that the assessee has purchased new asset in the name of the wife. CIT(A) though confirmed the disallowance but on the ground that the new house purchased by the assessee is not fit of habitation and also rejected this claim of transfer expenses in the absence of supporting evidence. It is pertinent to note that this expenditure is evident from sale deed itself whereby the assessee has purchased a new property in the name of wife. The stamp duty is part and parcel of the sale deed/purchase document and therefore, the total expenditure as evident from the registered documents itself. Hence, in the facts and circumstances of the case we allow this claim being part of cost of new property. Appeal of the assessee is partly allowed.

Issues Involved:
1. Disallowance of cost of improvement for boundary wall construction.
2. Disallowance of deduction under Section 54 for property purchased in the wife's name.
3. Disallowance of registry expenses for the new property.
4. Disallowance of cost of improvement/renovation of the new property.

Issue-wise Detailed Analysis:

1. Disallowance of Cost of Improvement for Boundary Wall Construction:
The first issue concerns the disallowance of ?1,15,000 claimed by the assessee as the cost of constructing a boundary wall while computing long-term capital gains on the sale of a plot of land. The assessee sold the plot on 05.11.2008 for ?18,50,000 but did not file a return of income under Section 139. Consequently, the AO issued a notice under Section 148, and the assessee claimed the cost of improvement for the boundary wall. The AO disallowed this claim due to a lack of supporting evidence, and the CIT(A) upheld this decision. The Tribunal noted that while the sale deed mentioned a boundary wall of 57 meters, the assessee did not provide evidence of the expenditure or details of the wall's height and thickness. The Tribunal estimated the cost of construction at ?75,000 and directed the AO to allow this amount as the cost of improvement.

2. Disallowance of Deduction under Section 54 for Property Purchased in the Wife's Name:
The second issue involves the disallowance of deduction under Section 54 because the new property was purchased in the name of the assessee's wife. The AO disallowed the claim on this ground, and the CIT(A) further disallowed it, stating that the property was not a habitable residential house. The Tribunal found that the property, originally allotted by the Rajasthan Housing Board, was a residential house that required renovation to be habitable. The Tribunal ruled that the deduction under Section 54 was not applicable since the assessee sold only a plot of land, but allowed the deduction under Section 54F, as the investment was made from the assessee's bank account. The Tribunal cited a decision by the Rajasthan High Court, which allowed deductions even if the investment was made in the name of the wife, provided the funds were from the assessee.

3. Disallowance of Registry Expenses for the New Property:
The third issue concerns the disallowance of ?51,900 claimed by the assessee as registry expenses for the new property. The AO did not consider this claim as the deduction under Section 54 was disallowed at the threshold. The CIT(A) also rejected this claim due to a lack of supporting evidence. The Tribunal noted that the stamp duty and registry expenses were evident from the sale deed itself and allowed the claim of ?51,900 as part of the cost of the new property.

4. Disallowance of Cost of Improvement/Renovation of the New Property:
The fourth issue is related to the disallowance of ?3,34,800 claimed by the assessee for the cost of improvement/renovation of the new property. The Tribunal noted that neither the AO nor the CIT(A) considered the documentary evidence provided by the assessee. The Tribunal set aside this issue and directed the AO to reconsider the claim after reviewing the evidence and providing an appropriate hearing to the assessee.

Conclusion:
In conclusion, the Tribunal partly allowed the appeal, directing the AO to allow ?75,000 for the boundary wall construction, permit the deduction under Section 54F for the new property purchased in the wife's name, allow ?51,900 for registry expenses, and reconsider the claim for renovation expenses after reviewing the evidence. The order was pronounced on 03/09/2020.

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