Expenditure incurred on making the house habitable would qualify for deduction u/s 54F

In this case, the assessee filed appeal before the Income Tax Appellate Tribunal (ITAT) against the order passed by CIT (A) in confirming the disallowance of Rs.14,00,000 u/s 54F of the Income Tax Act (The Act) made by the Assessing Officer.

ITAT noted that the assessee had sold the immovable property being 9/A, Uplav Co-operative Housing Society Ltd., Vasna, Ahmedabad for a consideration of Rs.1,10,00,000/- by and under a registered sale deed dated on 04.12.2014. The assessee has claimed exemption under Section 54 of the Act to the tune of Rs.62,50,000/- on account of investment in residential property at 704, Prabhuvan Flats, Nr. Sneh Orthopedic Hospital, Paldi, Ahmedabad by and under the allotment deed registered dated 26.04.2016. The assessee had claimed to have invested Rs.62,50,000/-. Since the purchase deed shows the amount of consideration of the new property at Rs.48,50,000/- only, a show-cause was issued to the assessee as to why the excess claim of exemption under Section 54 of the Act to the tune of Rs.14,00,000/- should not be disallowed and added to the total income of the assessee.

In reply to the said show-cause the assessee submitted that though as per the allotment deed the consideration of the flat is Rs.48,50,000/- the assessee has claimed to have incurred expenses of Rs.12,00,000/- for extra work and Rs.2,50,000/- for AEC, Auda charges and legal fees. The case of the assessee is this that in order to make the house inhabitable the assessee had incurred Rs.12,00,000/-. It was further submitted by the assessee that the extra work was undertaken by Prabhuvan Buildcon, the developer of Prabhuvan Flats. The payment of the said expenses has been made through banking channel by cheque No. 2500000 dated 24.12.2014. The documents relevant thereto were duly submitted before the AO by the assessee. In that view of the matter the assessee is entitled to get the relief under Section 54 of the Act.

Whereas the case of the Revenue is this that since before taking possession of the flat the assessee has claimed to have incurred expenses to the tune of Rs.14,00,000/- the same is not allowable under Section 54 of the Act.

ITAT was of the view that when the assessee had incurred expenditure for making the new property habitable within stipulated time framed u/ s 54F of the Act, then the is found to be entitled to the exemption of Rs.14,00,000/- as the expenditure incurred. Hence, the appeal filed by the assessee is allowed. It relied on judgment given passed by the ITAT, Hyderabad Benches, in the matter of Sri Vidyasagar Dontineni vs. DCIT, Circle 3(1) in ITA No. 632 and 1238/Hyd/2013 wherein it has been held by the Tribunal that the date of commencement of construction is not relevant for the purpose of deduction under Section 54 and what is relevant is the date of completion of construction as well as a period of investment made by the assessee in such construction. Since the construction of the house was completed within the specified period under Section 54 of the Act the assessee was found to be eligible for deduction under Section 54 as observed by the Hon’ble Bench. ITAT also considered the judgement passed by the Coordinate Bench in the matter of Shriniwas R. Desai vs. ACIT (OSD) in ITA No. 1245 and 2432/Ahd/2010 wherein it was held that there is no restriction on the buyer from incurring any construction expenditure on improvisation or supplementary work of ready-made unit. The additional expenses so incurred would be eligible for qualifying investment under Section 54 of the Act.

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