NAYANA KIRIT PARIKH,MUMBAI vs. ACIT 18(2), MUMBAI

The present appeal has been preferred by the assessee against the order dated 24.01.2013 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2009-10.

The only issue raised in the various grounds of appeal is against the order of Ld. CIT(A) confirming disallowance of Rs.34,50,000/- as made by the AO under section 54F of the Act.

The facts in brief are that during the course of assessment proceedings, the AO observed that assessee has shown long term capital gain of Rs.1,25,10,645/- after claiming deduction under section 54F to the tune of Rs.1,54,50,250/-. Accordingly, AO asked the assessee to file the necessary details of the said claim made by the assessee. The assessee has acquired new residential property for Rs.2,25,00,000/- vide agreement dated 18.03.2009 jointly with her husband and incurred incidental expenditure of Rs.15,00,500/- thereon. Thus aggregate cost comes to Rs.2,40,00,500/- of which assessee’s share was one half. The assessee also incurred expenditure on construction/improvement of Rs.34,50,000/- on the same flat to make it habitable as per their standard of living of the assessee and claimed the deduction thereof under section 54F of the Act. According to the assessee the said expenses of Rs.34,50,000/- was incurred on electrification of the house, civil work, design planning, plumbing, flooring etc. and therefore formed part of the cost of the flat. However, according to the AO the said expenditure was not incurred on construction/improvement of the flat but on furniture fabrication and painting etc. According to the AO all these expenses fall under the category of expenditure by way of renovation to make the flat more comfortable and therefore not liable to be allowable as part of cost of flat and finally added the same to the income of the assessee.

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee after taking into account the contentions of the assessee. The Ld. CIT(A) held that under section 54F only amount relating to agreement value, stamp duty, registration charges and professional charges related to the purchase of new flat could be claimed by the assessee. The Ld. CIT(A) held that the cost of improvement or cost of renovation are subsequent to the purchase and therefore can not be allowed as deduction under section 54F of the Act. The Ld. CIT(A) also observed that the assessee has incurred the said expenses of Rs.34,50,000/- on the reconstruction of the house and to make it more lavish and therefore justified the order of AO in denying the expenditure incurred by the assessee of Rs.34,50,000/- under section 54F of the Act.

After hearing both the parties and perusing the material on record, we observe that the assessee has claimed deduction of Rs.34,50,000/- as part of the cost of the flat which was denied by the AO on the ground that said expenses were not incurred on the purchase of flats and therefore did not form the part of the cost of purchase of the flat. The order of AO was upheld by the Ld. CIT(A) by holding that the expenditure incurred by the assessee was in the nature of making the residential property more lavish while the builder has provided the flat complete in all respects. After examining the facts on record, we observe that in this case the assessee has incurred Rs.34,50,000/- for remodeling of the flat, painting of the flat so that the same could be made habitable according to the standard of living of the assessee. In our opinion, the said cost forms the part of the cost of purchase and is admissible expenditure under section 54F of the Act. The case of the assessee is supported by several judicial rulings as discussed hereinafter. In the case of G. Siva Rama Krishna, Hyderabad vs. Assessee (ITA No.755/Hyd/2013) A.Y. 2007-08 in which the co-ordinate bench of the Tribunal has held that expenditure incurred for the purpose of remodeling of the flat in normal course after purchasing the readymade flat, the said expenditure is allowable under section 54F of the Act. In the case of Rustom Home Vakil vs. Assessee (ITA No.4450/M/2014) the co-ordinate bench of the Tribunal has held that expenditure incurred towards external extensive civil, electrical and painting works including new flooring, tiles, fittings in the new residential house property purchased by the assessee in Pune were considered to be allowable expenditure under section 54F of the Act. In the case of Mrs. Gulshanbanoo R. Mukhi vs. Jt. CIT (2002) 83 ITR 649 Mum, the co-ordinate bench of the Tribunal has held that amount of purchase includes other necessary expenditure in this behalf to make their residential house habitable and will form the part of the cost of the new assets. We, therefore, respectfully following the same ratio laid down in the various decisions as discussed hereinabove , set aside order of Ld. CIT(A) and direct the AO to allow the deduction of expenditure incurred by the assessee of Rs.34,5000/- under section 54F of the Act.

In the result, the appeal of the assessee is allowed.