2017 (10) TMI 1084 - AT - Income Tax

ITAT affirms deductions under Section 54, brokerage expenses, and indexed costs in recent decision.

The ITAT upheld the CIT(A)'s decisions on all issues, affirming the assessee's entitlement to a deduction under Section 54 of the Income Tax Act, ... Claim of deduction u/s 54 - AO disallowed the claim on the basis of report of the Tehsildar and Inspector obtained by the Assessing Officer during the assessment proceedings stating that it was an agricultural land and at the time of inspection, it was an open land - AO observed that the electricity connection and LPG connection cannot be taken as a conclusive evidence and he also observed that no evidence with regard to construction or improvement was furnished - Held that:- The electric connection and the LPG connection in assessee’s name and her sons name respectively also establish that there was a construction on this land and which was being utilized as residence. The ration cards were also on this address. The Aaadhar card of the assessee as well as her husband was also of this address. PAN was also allotted on this address. Even the income tax notices issued by the Assessing Officer were served on this address. The property was on rent for ₹ 35,000/- per month for certain period for which necessary evidence is placed, which is a rent agreement. A certificate from the Chairman of the Municipal Committee, Parshad of the Municipal Committee and neighbours of the assessee were also filed. The ld. CIT(A) has granted relief to the assessee after considering all these evidences and he has also observed that even if the property sold is taken as an agricultural land then also the assessee is entitled for benefit U/s 54F of the Act. In the light of these findings and observations of the ld. CIT(A), we hold that the ld. CIT(A) has rightly deleted the addition. - Decided against revenue Claim of expenses incurred on sale of property - Held that:- We hold that the assessee has paid brokerage expenses of ₹ 8.00 lacs, which approximately 2% of the sale consideration, which appears to be reasonable. This brokerage was paid to three persons and the payments were made by cheques which are verifiable from the bank statement of the assessee. Considering all these facts, we find no fault in the order of the ld. CIT(A) and we sustain the same on this ground. Accordingly, this ground of revenue’s appeal stands dismissed. Deduction of construction and improvement of property - Held that:- The assessee has submitted a valuation report. The ld. CIT(A) has granted relief to the assessee after considering all the relevant facts and circumstances of the case, therefore, we find no fault in the order of the ld. CIT(A) and we sustain the same. - Decided against revenue Issues Involved:1. Deduction under Section 54 of the Income Tax Act, 1961.2. Allowance of expenses incurred on the sale of property.3. Allowance of indexed cost of construction and improvement of property.1. Deduction under Section 54 of the Income Tax Act, 1961:The primary issue was whether the assessee was entitled to a deduction of Rs. 87,75,000 under Section 54 of the Income Tax Act, 1961, which was initially disallowed by the Assessing Officer (AO). The AO argued that the property sold was agricultural land without any residential structure, as indicated by the sale deed and inspector’s report. However, the assessee provided multiple documents, including electricity and LPG bills, valuation reports, and various identification documents, to demonstrate that the property was used as a residential house. The CIT(A) reviewed these evidences and concluded that the property indeed had a residential structure, thus qualifying for the deduction under Section 54. The CIT(A) also referenced the Supreme Court decision in CIT v/s M/s Veerdip Rollers Pvt. Ltd., which emphasized the genuineness of declarations made to income tax authorities over those made to other authorities like the Stamp Duty Authorities. The ITAT upheld the CIT(A)’s decision, acknowledging the substantial evidence provided by the assessee and confirming the eligibility for the deduction under Section 54.2. Allowance of Expenses Incurred on Sale of Property:The second issue concerned the allowance of Rs. 8,00,000 claimed as brokerage expenses incurred on the sale of the property. The AO disallowed this expense due to inadequate verification. However, the CIT(A) noted that the brokerage was paid through cheques and was within the standard rate of 2% of the sale consideration as per the Confederation of Real Estate Brokers of India (CREBI). The CIT(A) considered the payment reasonable and allowed the brokerage expense in the computation of taxable income under the head capital gain. The ITAT upheld this decision, finding no fault in the CIT(A)’s reasoning and confirming the allowance of the brokerage expenses.3. Allowance of Indexed Cost of Construction and Improvement of Property:The third issue involved the allowance of Rs. 39,43,196 as the indexed cost of construction and improvement of the property. The AO disallowed this claim, asserting that no house property was constructed on the land as per the sale deed. The assessee submitted a valuation report from an authorized valuer, indicating the cost of construction and improvement. The CIT(A) accepted this evidence and directed the AO to allow the indexed cost of construction and improvement while calculating the taxable capital gain. The ITAT upheld the CIT(A)’s decision, agreeing that the assessee provided sufficient evidence to support the claim for the indexed cost of construction and improvement.Conclusion:The ITAT dismissed the revenue’s appeal, affirming the CIT(A)’s decisions on all issues. The relief granted to the assessee regarding the deduction under Section 54, the allowance of brokerage expenses, and the indexed cost of construction and improvement was upheld based on the substantial evidence provided and the legal precedents cited.