Renovation is part of cost of acquisition for grant of benefit of deduction u/s 54F

Renovation is part of cost of acquisition for grant of benefit of deduction u/s 54F. Term residential house include all amenities to make it habitable-ITAT

ABCAUS Case Law Citation:
ABCAUS 2489 (2018) 08 ITAT

Important Case Laws Cited/relied upon by the parties:
Mrs. Rahana Siraj Vs. CIT (2015) 58 taxmann.com 333 (Karnataka)
Siva Rama Krishna Vs. DCIT in ITA No. 755/Hyd/2013
Tejraj Ranka Vs. ACIT in ITA No. 82/Bang/2014

The instant appeal was filed by assessee against the order of the CIT(A) in confirming the action of the Assessing Officer (AO) in not allowing the claim of deduction under section 54F of the Income Tax Act, 1961 (the Act).

The assessee had admitted long term capital gain on sale of land and claimed deduction under section 54F of the Act for reinvestment in a flat.

However, the AO restricted the deduction without considering the renovation agreement entered upon with the builder. While doing so, the AO did not consider the interior work undertaken.

The assessee preferred an appeal before the CIT(A). The CIT(A) re-examined the claim of the assessee but was not convinced with the contentions of the assessee and he accordingly confirmed the order of the AO.

Accordingly, the assessee was in appeal before the Tribunal with the submission that he had filed all the relevant evidences before the AO with regard to cost of acquisition and investment made therein to make the flat inhabitable. But the AO had not considered the renovation/upgradation and disallowed it. It was further contended that the lower authorities had not properly considered the upgradation agreement and the investments made by the assessee in the flat to make it inhabitable. It was further contended that he has filed all the related evidences in support of his contentions but the Revenue had not properly examined the same.

The Tribunal found that the AO had not taken into account the expenditure incurred by the assessee in the renovation of the flat whereas legal position in this regard is very clear that the expenditure incurred in renovation of the flat should be considered as part of cost of acquisition and benefit of deduction under section 54F is to be allowed.

It was observed that the jurisdictional High Court had held that where assets acquired by the assessee is habitable but requires addition, alteration, modifications and improvements, money spent on those aspects would be eligible for deduction under section 54F of the Act.

Further, the Coordinate Bench of the Tribunal had held that the investment in residential house would not only include the cost of purchase of the house but also include the cost incurred in making the house habitable. An inhabitable premises cannot be equated with the residential house.

Again the same bench of the Tribunal had held that term residential house should be understood as a house habitable with all amenities in place. Therefore, the entire amount including the amount paid to the builder for amenities like car parking etc., qualifies for deduction.

It was observed that in the instant case, the AO has not considered certain investments which were made to make the flat inhabitable though the assessee had filed the evidence of incurring such expenditure. Therefore the issue needed to be re-examined by the AO in the light of the judgments and to allow the other expenditures incurred to make the flat inhabitable.

Accordingly, the Tribunal set aside the order of the CIT(A) and restored the matter to the AO with a direction to readjudicate the issue afresh in terms indicated.

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