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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
The assessee has filed this appeal challenging the order dated 24.6.2019 passed by learned CIT(A)-7, Mumbai and it relates to A.Y. 2012-13.
None appeared on behalf of the assessee even though adjournment was granted on an earlier occasion at the request of the assessee’s representative. Further I noticed that several notices have been sent to the assessee by registered post. Hence, I proceed to dispose of the appeal ex-parte, without presence of the assessee.
The only issue urged in this appeal relates to disallowance of Rs. 35 lakhs while computing deduction under section 54 of the I.T.Act.
Facts relating to the above said issue are stated in brief. During the year under consideration, the assessee along with another joint owner had sold an ancestral residential house for a consideration of Rs. 4.87 crores. The share of the assessee was 50% therein. The assessee had computed capital gain after
2 Vimlesh Purohit availing benefit of deduction under section 54 of the Act to the extent of Rs.1.82 crores. The break up detail of Rs. 1.82 crore is given below :
Agreement value of new flat Rs. 1,40,00,000/- Alteration by builders Rs. 35,00,000/- Stamp duty paid Rs. 7,47,210/- Total re-investment made Rs. 1,82,77,210/-
The Assessing Officer however restricted the deduction under section 54 to Rs. 1.40 crores, being agreement value of purchase of a new flat i.e. the Assessing Officer did not allow deduction of Rs. 35 lakhs paid to the builder for carrying out alteration work suggested by the assessee. The Learned CIT(A) also confirmed the disallowance of Rs. 35 lakhs.
“5.2.3 The provisions of section 54 of the Act only envisage the concept of 'cost of residential house so purchased and there is no scope of importing the 'cost of improvement into it as held by the Hon'ble ITAT in the case of Uday S.Kotak, supra. Now, the moot question which arises for consideration is whether the expenses spent by the assessee on furnishing of a new flat by him can be considered as 'cost of residential house so purchased'. The appellant in his aforesaid written submissions has not met the arguments /reasons given by the AO for denying deduction in respect of 'cost of improvement'. It is also clear from the written submissions and the paper book filed by the assessee that all the expenses have been incurred towards 'furnishing' of new flat to make it more comfortable and not to make it inhabitable. Sometimes, the seller/builder sells an dilapidated/incomplete house/flat to the purchaser and it is for the purchaser to do the civil and finishing work like flooring, electric work, bathroom plumbing, bath room civil work, painting etc as per the purchaser's choice and taste to make the house inhabitable. Such supplementary work done by the purchaser can alone be termed as expenses incurred to make the house habitable. As per the agreement for purchase of new flat by the assessee, no such work remained to be done by the purchaser.
5.2.4 The case laws relied upon by the appellant are distinguishable on facts from the assessee's case in as much as the payment made by the assessee of Rs.35,00,000/- has not been made to the builder but to another party for making the flat comfortable and not habitable and the flat purchased by the assesse from the builder for Rs.1.40 crores was complete and new flat.
3 Vimlesh Purohit
5.3.4 In view of the forgoing discussion and the binding precedents, I am of the view that what the appellant calls 'cost of alteration' is basically furnishing of a new flat to make it more comfortable which cannot be included in 'cost of residential house so purchased' and consequently, the appellant does not get the benefit of deduction u/s 54 of the Act in respect of expenses of Rs. 35,00,000/ Thus, I find that the AO was justified in disallowing the claim of the assessee towards the 'cost of alteration' of Rs. 35,00,000/- while calculating the Long Term Capital Gain.”
I heard Ld D.R and perused the record. The assessee has submitted before the Ld CIT(A) that the amount of Rs.35.00 lakhs have been spent on carrying out alternation and modifications during the course of construction of flat. I notice that the assessee has specifically stated that these expenses have been incurred in to order bring new flat to a habitable state, apparently to suit the requirements of the assessee. I notice that the Ld CIT(A) has taken the view that the cost of “purchase of new flat” would not include such kind of expenses. In fact, the purchase of under construction flat has been held to be a case of “construction of house” by Hon’ble Bombay High Court. It is a well known fact that the builder will build flat according to standard plan and if the buyer requires any modification, then he has to spent additional money for that. It is the submission of the assessee that she has spent Rs.35.00 lakhs on additions, modifications and alterations in order to make it habitable. In my view, the same shall form part of cost of new flat and would be eligible for deduction u/s 54 of the Act. I notice that the decision rendered in the case of Uday S Kotak (96 ITD 177), which has been relied upon by Ld CIT(A) deals with the question as to whether the payments made to tenants would form part of cost of purchase. Thus, I notice that the said decision deals with completely different aspects and the Ld CIT(A) could not have relied thereon. Accordingly, in the facts and circumstances of the case, I am of the view that the amount of Rs.35.00 lakhs spent by the assessee on additions, modifications and alternations in the flat would form part of cost of purchase of new flat and the same would be eligible for deduction u/s 54 of the Act. Accordingly, I set aside the order passed by Ld CIT(A) on this issue and direct
4 Vimlesh Purohit the AO to allow deduction u/s 54 of the Act on the amount of Rs.35.00 lakhs also.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 21.07.2022.