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, allowance of brokerage expenses, and indexed cost of construction and improvement. The evidence presented by the assessee, including utility bills and valuation reports, supported the residential nature of the property, reasonableness of brokerage expenses, and the cost of construction and improvement. The ITAT dismissed the revenue's appeal, emphasizing the genuineness of the declarations made to income tax authorities and legal precedents cited.

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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.

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