ITAT Chennai allows appeal, directs AO to delete disallowed deduction, accept claimed cost of improvement.

The ITAT Chennai allowed the appeal filed by the assessee, directing the AO to delete the disallowed deduction u/s.54F of the Act and to accept the claimed cost of improvement.

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Issues:
1. Disallowance of deduction claimed u/s.54F of the Act
2. Restriction of cost of improvement

Analysis:

1. Disallowance of deduction claimed u/s.54F of the Act:
The assessee appealed against the CIT(A)'s order confirming additions made by the AO towards disallowance of exemption u/s.54F of the Act amounting to Rs. 30 lakhs. The assessee argued that the entire consideration of Rs. 58 lakhs for the property purchase was paid through cheque/demand draft, supported by documentary evidence. The department contended that since the registered sale deed showed a consideration of Rs. 28 lakhs, deductions cannot be allowed for the excess amount paid. The ITAT Chennai found that the assessee had indeed purchased the property for Rs. 58 lakhs, evidenced by the sale agreement and payment through bank transactions. The ITAT held that denying the deduction based on the registered sale deed amount was incorrect, as the genuine transaction was evident from the documents. Consequently, the ITAT directed the AO to delete the addition made towards disallowance u/s.54F of the Act.

2. Restriction of cost of improvement:
The second issue involved the restriction of cost of improvement to Rs. 3 lakhs instead of the claimed Rs. 3,50,000. The assessee explained that the cost of improvement was financed partly by a bank loan and partly from personal savings. The AO accepted the bank finance but disregarded the savings component, stating lack of explanation for the source of income. The ITAT Chennai noted that the AO did not provide valid reasons for rejecting the Rs. 50,000 sourced from the assessee's savings, especially when the genuineness of the expenditure was not in question. Considering the common practice of banks financing property projects, the ITAT held that the AO erred in not accepting the savings as a legitimate source. Consequently, the ITAT reversed the CIT(A)'s decision and directed the AO to allow the claimed cost of improvement of Rs. 3,50,000.

In conclusion, the ITAT Chennai allowed the appeal filed by the assessee, directing the AO to delete the disallowed deduction u/s.54F of the Act and to accept the claimed cost of improvement.

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