Indexed improvement cost and section 54 relief: valuation evidence accepted, and completion certificate not required for exemption.

Indexed cost of improvement was allowable in computing long-term capital gains where the departmental valuation report quantified the improvement cost and no effective challenge was made to that valuation. The section 54 claim could not be rejected merely because a completion certificate from the local authority had not been obtained, since the provision requires purchase or construction of a residential house within the prescribed period and does not make such certificate a condition. The deduction issue was remitted to the Assessing Officer for verification of the actual expenditure on the new house, with relief allowed for statistical purposes.

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Issues: (i) Whether the assessee was entitled to claim the indexed cost of improvement while computing long-term capital gains. (ii) Whether deduction under section 54 of the Income-tax Act, 1961 was allowable in respect of the investment in a residential house.

Issue (i): Whether the assessee was entitled to claim the indexed cost of improvement while computing long-term capital gains.

Analysis: The sale consideration, the assessee's share in the transfer, and the indexed cost of acquisition were not in dispute. The controversy was confined to the cost of improvement. The departmental valuation report quantified the improvement cost and the assessee's share was worked out on that basis. In view of the valuation report and the absence of any further effective challenge, the claimed improvement cost was taken into account for computing capital gains.

Conclusion: The indexed cost of improvement was allowed, and the assessee succeeded on this issue.

Issue (ii): Whether deduction under section 54 of the Income-tax Act, 1961 was allowable in respect of the investment in a residential house.

Analysis: Section 54 requires purchase or construction of a residential house within the prescribed period, and it does not stipulate production of a completion certificate as a condition for the exemption. The assessee's claim was therefore not liable to be rejected merely on the ground that the construction was incomplete or that the local authority certificate had not been obtained. However, the record was insufficient to fully verify the amount actually spent towards purchase and construction of the new residential house, and the supporting details required examination.

Conclusion: The matter was restored to the Assessing Officer for verification, and the deduction claim under section 54 was allowed for statistical purposes.

Final Conclusion: The assessee obtained relief on the capital-gain computation and a verification-based remand on the section 54 claim, resulting in a partly favourable disposal.

Ratio Decidendi: A residential-house exemption under section 54 cannot be denied solely for want of a completion certificate where the statutory time-bound investment requirement is otherwise met, and valuation-based determination of improvement cost may be adopted for capital-gains computation.

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