Loading judgment…
No AI summary yet for this case.
Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 16, Chennai, dated 31.01.2019 relevant to the assessment year 2015-16.
Brief facts of the case are that the assessee is non-resident and filed his return of income for the assessment year 2015-16 admitting total income of ₹.51,93,980/-. The case was selected for limited scrutiny under CASS and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] dated 20.09.2016 was issued and duly served. Notice under section 142(1) of the Act dated 30.05.2017 was also issued calling for details. In the assessment order, the Assessing Officer has noted that the assessee had sold two immovable properties, one at value of ₹.23,00,000/- and another at ₹.1,91,52,500/-, vide two different sale deeds dated 10.04.2014. Subsequently, the assessee has purchased property at Vepery High Road, Chennai for a total consideration of ₹.2,40,00,000/- vide purchase deed dated 07.04.2016 and also paid stamp paper and registration charges at ₹.19,20,000/-. Thus, the total amount towards the purchase of property comes to ₹.2,59,20,000/-. The property consists of ground floor, first floor, second floor, third floor, fourth floor and a portion of fifth floor consisting of 6770 sq. feet of built up area for a land area of 1455 sq. ft. The ground floor and first floor let out for tenancy and the balance other floors used for his residential purpose. The assessee claimed 50% of ₹.2,59,20,000/- comes to ₹.1,29,60,000/- for availing exemption under section 54 of the Act. The assessee worked out the proportionate capital gain exemption at ₹.78,19,945/- and claimed as exemption and furnished computation sheet of capital gain. On verification of the purchase deed dated 07.04.2016, the Assessing Officer has observed that the property consist of ground floor 1323 sq. ft., first floor 1323 sq. ft., second floor 1323 sq. ft., third floor 1323 sq. ft. and fourth floor 849 + 80 sq. ft. As there was difference in the statement of the sale deed and the letter dated 13.06.2017 filed by the assessee, the Assessing Officer deputed the Inspector for inspection of property and the findings of the Inspector are as under: i. The ground floor and first floor both let-out to M/s. Lether Plus (ground floor for show room and first floor for godown). ii. Second floor is also a commercial space a big hall with small partition for office, which was occupied by another leather shop earlier and vacant at present. iii. Third floor is a residential house used by assessee and a caretaker Shri Mohamed Sadique is presently stay here. iv. On fourth floor half of the area is open space and half build-up area and let-out to Shri Sufian since April, 2017.
2.1 After recording the statement from the caretaker of the property, the Assessing Officer has observed that 3rd and 4th floors are two separate residential units, where, 3rd floor was kept for assessee’s use and 4th floor was let out. Accordingly, the Assessing Officer has worked out the amount eligible for claiming deduction under section 54 of the Act at ₹.49,45,835/-. However, since the assessee has not satisfied the condition laid down in section 54(2) of the Act, the Assessing Officer has held that the assessee is eligible for deduction under section 54 of the Act at ₹.33,72,669/- as against deduction claimed of ₹.78,19,945/- and the excess amount of deduction claimed of ₹.44,47,276/- was disallowed and brought to tax.
2.2 So far as claim of cost of improvement and indexation, the assessee has not furnished any supporting documents in response to notice under section 142(1) of the Act dated 30.05.2017. The assessee was show-caused as to why the cost of improvement should not be disallowed. In response to the notice, the assessee has submitted bills by stating that the improvement was made in the financial year 2007-2009. After verifying the bills, the Assessing Officer has restricted the indexed cost of improvement to ₹.2,46,888/-. Accordingly, by allowing indexed cost of acquisition at ₹.69,68,739/-, indexed cost of improvement at ₹.4,34,387/- and exemption under section 54 of the Act at ₹.33,72,669/-, the Assessing Officer has worked out the taxable long term capital gains at ₹.1,06,76,705/-. On appeal, the ld. CIT(A) confirmed the assessment order.
On being aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessee has voluntarily bifurcated the single building into commercial (1st & 2nd floor) and residential portion (3rd & 4th), based on the usage pattern by the previous owner and hence was not justified in further restricting the claim of the assessee under section 54 of the Act. It was further submission that the assessee has claimed exemption under section 54 of the Act only for the residential portion of the property to the extent of ₹.78,19,945/- out of a total reinvestment of ₹.2.40 crores and hence further restricting exemption only for the 3rd floor at ₹.33,72,669 is arbitrary and unreasonable. It was further submitted that the ld. CIT(A) was not justified in rejecting he assessee’s computation of capital gains and his reworking of LTCG was not correct and prayed for deleting the addition.
On the other hand, the ld. DR strongly supported the orders of authorities below.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, the assessee sold two immovable properties, one for ₹.23,00,000/- and another for ₹.1,91,52,500/- through two different sale deeds dated 10.04.2014. Subsequently, the assessee has purchased property at Vepery High Road, Chennai for a total consideration of ₹.2,40,00,000/- vide purchase deed dated 07.04.2016 and also paid stamp paper and registration charges at ₹.19,20,000/-. Thus, the total amount towards the purchase of property comes to ₹.2,59,20,000/-. In the new property purchased consist of 5 floors; 5th floor is open terrace, 1st & 2nd floor are for commercial use, 3rd & 4th floors are two separate residential units, 4th floor was let out and 3rd floor was kept for personal use. The case of the assessee is that 3rd & 4th floor were used for own residential purpose and after two years, he gave it on rent. It was further submission that the electricity meter is common for both the flats and therefore, it was claimed that the assessee is eligible for claiming deduction in respect of 3rd & 4th floor. However, the Assessing Officer restricted the deduction under section 54 of the Act to the investment in 3rd floor keeping in view of the amendment to section 54 of the Act eligible for one residential house. Admittedly, the assessee has not been able to establish that 3rd & 4th floor are not independent and thus, we find that the Assessing Officer has correctly allowed the claim of deduction under section 54 of the Act for 3rd floor.
While restricting the cost of improvement, the Assessing Officer has disallowed the payments for painting of ₹.19,221/-, grills and Gates at ₹.21,785/- [wrongly mentioned the amount at ₹.19,221/-] and labour masonry & tiles of ₹.4,79,000/- for want of supporting document/or bills without date & signature. It is common for painting the building after purchase and providing grills & gates and doing masonry & tiles work. Accordingly, we direct the Assessing Officer to include the payments [₹.19,221/- + ₹.21,785/- + ₹.4,79,000/-] along with cost of improvement restricted by the Assessing Officer at ₹.2,46,888/- and rework out the indexed cost of improvement [₹.19,221/- + ₹.21,785/- + ₹.4,79,000/- + 2,46,888/-] and allow the same.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced on 15th February, 2023 at Chennai.