2020 (9) TMI 662 - AT - Income Tax

Capital gain computation - Incorrect computation of the indexation cost of acquisition of the property in question acquired by the assessee under a Gift from Grandmother - AO has also considered the JDA development expenses incurred by the Grandmother as well as the construction cost of the property - AO has taken the indexation only from the date of gift till the sale of the property as against from the date of acquisition of the property by the Grandmother of the assessee - HELD THAT - AO has applied provisions of section 49(1) which is applicable in this case as the mode of acquisition by the assessee is Gift and, therefore, the cost of acquisition of the property has to be considered as in the hands of previous owner. AO was right in considering the actual cost of acquisition in the hands of the previous owner, however, while calculating the indexed cost, the AO has applied the indexed cost from 2008-09 instead of 1988 when the property was acquired by the previous owner. CIT (A) has not looked into the issue that the indexation cost computed by the AO is not taken from the year of acquisition of the property by the previous owner but was taken from the year when the property was gifted by the Grandmother to the assessee. Accordingly, we find that the orders of the AO as well as LD. CIT (A) are suffering from gross error to the extent of calculating indexed cost of acquisition. We direct the AO to compute cost of acquisition by taking the year of acquisition as 1988 when the property was acquired by the previous owner and not the year of Gift. Accordingly, ground no. 1 of the assessee's appeal is allowed. Disallowance of expenditure - Commission paid to the Agent at the time of transfer of the property - assessee claimed that the same is an allowable deduction under section 48 of the IT Act being the expenditure incurred in connection with transfer of the property - HELD THAT - Property agent is not merely helping in registration of the property but he is also instrumental in finding out the buyer and seller as well as ensuring the clear title as well as the payment of the consideration.Once the transfer of the immovable property requires documentation, scrutiny of the documents and title, then the expenditure is bound to be incurred in respect of such work performed by the real estate Agents. Hence in the facts and circumstances of the case, we allow the expenditure @ 2% of the sale consideration which is a prevailing rate for such type of transactions while computing the Long Term Capital Gain. The AO is directed to allow 2% of the sale consideration as the expenditure on account of Commission paid to the real estate Agent. Ground no. 2 is partly allowed. Deduction u/s 54 - payment made by the assessee towards furniture and fixtures purchased by the assessee along with new house property - Assessee has filed an application for admission of additional evidence in support of this plea of allowing deduction under section 54 towards the payment made for furniture and fixtures - HELD THAT - The assessee has not claimed such a payment as part of the investment made in the new residential house for the purpose of deduction under section 54 of the IT Act. Even before the LD. CIT (A), the assessee has not raised such a ground and only two grounds which are raised before the Tribunal were raised before the LD. CIT (A). Therefore, such a plea which is completely new and requires investigation of new facts not brought before the AO or LD. CIT (A) cannot be accepted at this stage. The assessee has even not raised any additional ground before us. Therefore, in these facts and circumstances, the assessee cannot be permitted to set up a new case based on entirely new facts which were not brought before the authorities below. Hence, we do not accept this new plea raised by the assessee at this stage. The same is rejected.

Summary

Issues:
1. Incorrect computation of indexation cost of acquisition of property acquired through a gift.
2. Disallowance of expenditure claimed as commission paid to the agent.
3. Claim for deduction under section 54 for payment made towards furniture and fixtures.

Issue 1: Incorrect computation of indexation cost:
The appellant acquired a property through a registered gift deed and claimed indexation cost under section 49(1) of the Income-tax Act, 1961. However, the AO and LD. CIT (A) calculated the indexed cost from the year of gift instead of the year of acquisition by the previous owner. The Tribunal found this calculation erroneous and directed the AO to compute the cost of acquisition from the year of acquisition in 1988, not the year of the gift in 2008. Therefore, ground no. 1 of the appellant's appeal was allowed.

Issue 2: Disallowance of expenditure claimed as commission:
The appellant claimed an expenditure of ?5,00,000 as commission paid to the agent for the property transfer. The AO disallowed the claim due to lack of documentary evidence, except for an affidavit. The Tribunal considered the prevailing practice of using real estate agents for such transactions and allowed the expenditure at 2% of the sale consideration, as it is a reasonable claim and necessary for property transfer. Hence, ground no. 2 was partly allowed.

Issue 3: Claim for deduction under section 54:
The appellant sought a deduction under section 54 for payment made towards furniture and fixtures in addition to the new house property. However, this claim was not raised before the lower authorities, and the Tribunal rejected the new plea as it required investigation of new facts not presented earlier. The appellant was not permitted to introduce a new case at this stage, and the plea was rejected.

In conclusion, the Tribunal partly allowed the appeal of the appellant, correcting the computation of the indexation cost, partially allowing the claimed expenditure as commission, and rejecting the new plea for deduction under section 54 due to lack of prior presentation before the lower authorities.