2023 (12) TMI 1230 - AT - Income Tax

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 ... LTCG - Deduction towards the ‘Cost of Improvement’ in the Lucknow House u/s 54 - AO observed that the photographs produced by the assessee were vague and insufficient to prove the year of incurrence of expenditure as claimed - HELD THAT:- We find that the AO has categorically accepted that Air conditioning, modular kitchen and kitchen chimney, tube-well and submersible pump are not a part of the building. AO also accepts the fact that the building was valued as per the CPWD guidelines. Having said so, the AO holds that the expenses relatable to Air conditioning, modular kitchen and kitchen chimney, tube-well and submersible pump are not allowable as cost of improvement. The AO again agrees that the valuation report cannot be completely disregarded and parts of it are based on evidence and is in line with existing CPWD guidelines but has an objection that the photographs produced by the assessee are vague and insufficient to prove the incurrence of expenditure. AO also held that the photographs do not portray the exact specification of the improvement made. It cannot be said that the house operated, made to live without a modular kitchen. The availability of submersible pump is a finding of fact and not mentioning it in the agreement doesn’t entitle the deduction. All the improvements made necessarily lead to the improvement in the value of the sale. The authorities have blown hot & cold in disallowing the expenditure. The selective reading of the sale agreement and lack of mentioning of pump and modular kitchen cannot necessarily lead to disallowance. AO could not bring anything on record that the statement given by the valuer is wrong on facts or had inconsistencies. Hence, we allow the appeal of the assessee on this ground. Cost of improvement - Bangalore property - We find that the revenue has not disputed the import of Pneumatic Vacuum Elevator (PVE) however held that it is not essential for the improvement of the house to make it habitable. Whether to have a lift in the house or not is certainly not the purview of the Assessing Officer. Notwithstanding that, we find that the father of the assessee, Brig. V. K. Ghai is 90 years old staying with the assessee which is also a fact on record before the AO. Hence, we hold that the sum of Rs. 12,00,000/- incurred for installation of lift is an allowable item of cost of improvement. The amount of Rs. 1,80,000/- was made with regard to installation of the lift and the other sundry expenses to make the house habitable and hence the amounts are also to be allowed. Hence, we allow the appeal of the assessee on this ground. Eligibility for deduction u/s 54 though the assessee did not purchase new house property himself rather got it as gift from parents - As find that the ld. CIT(A) had diligently, meticulously & conscientiously, after considering the Hon’ble jurisdictional High Court judgments in the case of ACIT Vs. Suresh Verma [2012 (3) TMI 256 - ITAT DELHI] & CIT Vs. Kamal Wahal [2013 (1) TMI 401 - DELHI HIGH COURT] came to a valid conclusion that the investments have been made by the assessee from his bank account of Rs. 17,65,000/- on 14.08.2014 and Rs. 3,31,82,000/- dated 21.08.2014 for payment to Sh. V. Ravindran, seller of the property and the parents have gone to registration owing to the absence of the assessee in India. It is also a fact that such registered property has also been gifted to the assessee by the parents on 10.06.2015. Hence, we decline to interfere with the order of the ld. CIT(A) invoking rule of purposive construction and object of Section 54F and allowing the deduction u/s 54F on the house registered in the name of the parents of the assessee. 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.