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2024 (6) TMI 1289 - AT - Income TaxIssues Involved: 1. Disallowance of cost of improvement claimed by the assessee. 2. Denial of deduction under Section 54 of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Cost of Improvement: The Assessing Officer (AO) disallowed the cost of improvement amounting to Rs. 11,42,700/- out of the total claimed Rs. 30,42,700/-. The AO's rationale was that the assessee paid only Rs. 19 lakhs to M/s. Vision Buildcon, while Rs. 20 lakhs was paid by the purchaser, Shri Ramesh Kondhare. The AO deemed the payment of Rs. 30 lakhs made by the assessee and his wife to Shri Ramesh Kondhare on 26.08.2019 as an afterthought, considering it was made after the issuance of a show cause notice and not referenced in the sale deed. The CIT(A) / NFAC deleted this disallowance, noting that the assessee and his wife had indeed paid Rs. 15 lakhs each to Shri Ramesh Kondhare as reimbursement for the improvement cost. The CIT(A) / NFAC emphasized that the AO did not conduct any inquiry with Shri Ramesh Kondhare and failed to appreciate that the cost was borne by both the assessee and his wife. Furthermore, a similar disallowance in the assessee's wife's case was deleted by the CIT(A), NFAC, Delhi. The Tribunal upheld the CIT(A) / NFAC's decision, noting that the Revenue had accepted the cost of improvement in the wife's case and found no reason to dispute it in the assessee's case. 2. Denial of Deduction under Section 54: The AO disallowed the deduction under Section 54 amounting to Rs. 2,26,33,135/-, arguing that the construction of the new residential house was not completed within three years from the date of transfer of the original asset (i.e., before 26.07.2019). The AO relied on the fact that no completion certificate was issued by the PMC. The CIT(A) / NFAC allowed the deduction, noting that the assessee had sold an old property and applied the consideration towards acquiring a new residential house, satisfying all conditions stipulated under Section 54. The CIT(A) / NFAC highlighted that the property purchased was a residential house and not a plot, as evidenced by the purchase deed. The Tribunal concurred with the CIT(A) / NFAC, referencing the decision in the assessee's wife's case, where the Tribunal had upheld the CIT(A)'s allowance of the deduction under Section 54. The Tribunal also cited legal precedents, emphasizing that the purpose of Section 54 is to encourage investment in residential properties and should be interpreted liberally in favor of the taxpayer. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A) / NFAC's decisions to delete the disallowance of the cost of improvement and allow the deduction under Section 54. The Tribunal found no infirmity in the CIT(A) / NFAC's reasoning and noted that the Revenue had accepted similar claims in the co-owner's case, thereby reinforcing the CIT(A) / NFAC's decisions in the assessee's case.
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