2019 (3) TMI 802 - AT - Income Tax

Tribunal Rulings on Deductions: Burden of Proof, Investment Timing, and Eligibility Criteria

Neelam Nananni Versus Income Tax Officer Ward–17 (3) (3), Mumbai

Neelam Nananni Versus Income Tax Officer Ward–17 (3) (3), Mumbai - TMI Issues:1. Disallowance of deduction claimed on account of cost of improvement for computing long term capital gain.2. Disallowance of deduction claimed under section 54 of the Income Tax Act.Issue 1: Disallowance of Deduction for Cost of Improvement:The appeal was filed by the assessee challenging the disallowance of deduction claimed for the cost of improvement in computing long term capital gain. The Assessing Officer disallowed the claim of Rs. 40 lakh towards cost of improvement as the assessee failed to provide sufficient evidence to justify the expenditure. The Commissioner (Appeals) upheld this disallowance, stating that only a photograph of the building was submitted as evidence. The Tribunal noted that while the sale deed indicated the existence of a building on the property, the burden of proof lay with the assessee to demonstrate the actual expenditure incurred for construction. As the assessee failed to provide substantial evidence beyond the photograph, the Tribunal decided to restore the issue to the Assessing Officer for fresh adjudication, allowing the ground for statistical purposes.Issue 2: Disallowance of Deduction under Section 54:The assessee claimed a deduction under section 54 of the Income Tax Act for investing in new flats after selling immovable property. The Assessing Officer disallowed the claim on grounds that the flats were purchased in a previous financial year and the investment was not made from the assessee's own funds. The Commissioner (Appeals) agreed with the assessee on the timing of the investment but upheld the disallowance due to lack of proof regarding the source of funds. The Tribunal analyzed the provisions of section 54 and found no requirement that the investment must be made from the capital gain proceeds. As the investment in new flats was made within the stipulated time frame, the Tribunal held that the assessee was entitled to the deduction. Additionally, the Tribunal dismissed the argument that the deduction was not allowable for purchasing two flats, as the provision did not specify a limitation to one residential house. Therefore, the appeal was partly allowed in favor of the assessee.In conclusion, the Tribunal's judgment addressed the issues of disallowance of deduction for cost of improvement and disallowance of deduction under section 54 comprehensively. The decision emphasized the burden of proof on the assessee to substantiate claims and interpreted the provisions of the Income Tax Act to determine the eligibility for deductions.