ITAT allows deduction for two flats under section 54

The ITAT allowed the assessee's appeal, reversing the CIT(A)'s decision on both issues. The deduction claimed under section 54 of the Income Tax Act, 1961 for A.Y. 2008-09 was permitted for two flats in the same building. Additionally, the disallowance of the indexed cost of improvement was overturned as the burden to verify expenses was shifted to the revenue, and the investment exceeded the capital gain.

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Issues:
1. Disallowance of deduction claimed under section 54 of the Income Tax Act, 1961.
2. Disallowance of indexed cost of improvement incurred by the assessee during the financial year 2004-05.

Issue 1: Disallowance of deduction claimed under section 54:
The appeal was against the CIT(A)'s order sustaining the addition of Rs. 19,33,831 made on account of disallowance of the deduction claimed under section 54 of the Income Tax Act, 1961 for A.Y. 2008-09. The CIT(A) observed that the investment in another property was not declared by the assessee, and the binding decision of the Hon’ble Karnataka High Court was ignored. The Assessing Officer allowed deduction under section 54 only for one residential house, considering the rental income from another property owned by the assessee. The ITAT reversed the CIT(A)'s order, allowing the deduction claimed by the assessee on two flats in the same building, relying on various legal precedents and the decision of the Hon’ble Delhi High Court.

Issue 2: Disallowance of indexed cost of improvement:
The second ground of appeal related to the disallowance of the indexed cost of improvement amounting to Rs. 1,07,907. The assessee had claimed expenses against the property sold by indexing, but the evidence provided was considered unreliable by the Assessing Officer and the CIT(A). The ITAT noted that the lower authorities did not verify the evidence provided by the assessee, shifting the burden to the revenue to confirm the genuineness of the expenses. As the assessee had invested more than the capital gain calculated, the addition of indexed cost of improvement was deemed unnecessary, and the assessee's appeal was allowed on this ground as well.

In conclusion, the ITAT allowed the assessee's appeal, reversing the CIT(A)'s decision on both issues and granting the deductions claimed under section 54 and the indexed cost of improvement.

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