The Income Tax Appellate Tribunal (ITAT) recently held that capital gain exemption cannot be denied on alterations to houses as there is no ceiling on the amount of investment.
Assessee Renu Ratnakar Bhattacharya filed the income tax return of Rupees 18 lakh. During the year under assessment the assessee sold immovable property at AVPD scheme for 15 cores and assessed to get a share from that. The assessee claimed deduction in respect of investment made under section 54EC, by purchasing a bond and also made an investment in new house property and offered the balance capital gain of Rupees 16, 85,295/-When the Assessing Officer (AO) proceeding the assessment he allowed the investment in new house property but disallowed the cost of brokerage, legal fees and cost of improvement against the order assesse filed an appeal before the ITAT.
Meena Mehta, Counsel for the assessee contended that CIT (A) erred in upholding the disallowance from the cost of acquisition of new house under section 54 for the amount of Rs. 16, 34,243/-being Cost of Improvement for construction and structural repairs in order to make the new house property habitable, be added to the cost of purchase of New House Property and be allowed as Deduction under section. 54 of Income Tax Act 1961.
Moreover assessee counsel submitted that assessee had undergone the necessary renovations/interiors by hiring professional architect/interior designer to whom payment had been made by way of demand draft and also brought on record his bank statement reflecting the payment made to the vendor.
Krishna Kumar, counsel for the revenue upheld the order of the Assessing officer.
After considering the contention of both sides the single bench of Tribunal of shri. Kuldip Singh (Judicial Member) allowed the Appeal filed by assessee and held that “ it is settled principle of law that when the taxpayer is otherwise allowed to purchase or construct a residential house without any ceiling on the amount of investment, the taxpayer cannot be denied benefits under section 54 of the Income Tax Act 1961.,if he has made some alterations, addition or modifications in the house purchased for taking benefit under section 54 of the Income Tax Act 1961..”
Section 54 of the Income Tax Act 1961 says that an individual or HUF selling a residential house can claim exemption under the head of capital gain if they construct or purchase another residential property.
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