Assessee wins cost improvement deductions for AC, kitchen, elevator under Section 54 and 54F despite registration issues

The ITAT Delhi allowed the assessee's appeal regarding cost of improvement deductions under Section 54. For the Lucknow property, the tribunal held that expenses for air conditioning, modular kitchen, tube-well and submersible pump were allowable as cost improvements despite AO's objections about vague photographs, noting these items necessarily improved the property's value. For the Bangalore property, installation costs of Rs. 12,00,000 for a pneumatic vacuum elevator and Rs. 1,80,000 for related expenses were allowed, considering the 90-year-old father's residence needs. The tribunal also upheld CIT(A)'s decision allowing Section 54F deduction despite the new property being registered in parents' names, as the assessee had made the actual payments and received the property as gift.

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Issues involved:
The issues involved in the judgment include the disallowance of deduction for the 'Cost of Improvement' in Lucknow House under section 54 of the Income-tax Act, 1961, disregarding the valuer's certificate, disallowance of deduction for the 'Cost of Improvement' in Bangalore House under section 54, and initiation of interest proceedings under sections 234A/234B/234C/234D of the ITA.

Lucknow House - Cost of Improvement:
The Assessing Officer disallowed the deduction of Rs. 12,53,213 towards the 'Cost of Improvement' in the Lucknow House, stating that the items included were based solely on the client's version without sufficient evidence. The AO found the photographs submitted by the assessee vague and insufficient to prove the incurrence of expenditure, leading to the disallowance of the indexed cost of improvement. However, the AO's acceptance that certain improvements were not part of the building, based on CPWD guidelines, was countered by the tribunal, emphasizing that all improvements made necessarily enhanced the property's value. The tribunal found the AO's objections regarding the photographs and selective reading of the agreement insufficient to justify disallowance, ultimately allowing the appeal on this ground.

Bangalore House - Cost of Improvement:
In the case of the Bangalore property, the assessee claimed Rs. 13,80,146 as the cost of improvement, including Rs. 12,00,000 for installing a lift. The revenue disputed the necessity of the lift for habitability, but the tribunal held that the lift installation was essential, especially considering the presence of the assessee's elderly father. The tribunal allowed the appeal, stating that the lift installation cost and other sundry expenses to make the house habitable were to be considered as allowable items of the cost of improvement.

Revenue Appeal - Eligibility for Deduction under Section 54:
The Revenue appealed against the CIT(A)'s decision to allow the assessee a deduction under section 54 despite not purchasing the new house property but receiving it as a gift from parents. The tribunal upheld the CIT(A)'s decision, citing the investments made by the assessee from his bank account for the property's payment and the subsequent gifting of the property by the parents. The tribunal declined to interfere with the CIT(A)'s order, emphasizing the valid conclusion reached after considering relevant High Court judgments and the purpose of Section 54F, ultimately allowing the deduction on the property registered in the parents' name.

The tribunal pronounced the order on 26/12/2023, allowing the appeal of the assessee and dismissing that of the Revenue.

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