Expenses incurred to make the newly purchased house habitable can be claimed as a deduction U/S 54: ITAT Mumbai

Renu Ratnakar Bhattacharya Vs Commissioner of Income Tax (Appeals) (ITAT Mumbai)  (ITA No. 2146/M/2022)

Facts:

1. The Assessee had sold an immovable property and had earned LTCG. The assesse inter-alia made investment in new house property for Rs. 2.83 crore which was claimed as deduction u/S. 54.

2. Further, the Assessee had incurred other expenses like brokerage, legal fees, construction and structural repairs, architect fees, etc. aggregating to Rs. 19.91 lakhs which was also claimed as deduction u/s. 54.

3. The AO allowed the claim u/s. 54 for the value of new property of Rs. 2.83 crore; however, disallowed the claim for other costs of Rs. 19.91 lakhs for the purpose of section 54.

4. The Assessee argued that the cost of improvement incurred in respect of the new house property with respect to structural repairs and in order to make the new house property habitable should also be included in the value of deduction claimed u/s. 54.

5. The revenue contended that for the purpose of claiming deduction u/s. 54 only the value for which new house property is acquired would be allowed and the subsequent cost of improvement incurred would not be allowed as deduction u/s. 54 against the LTCG earned.

ITAT Mumbai held as below:

1. Assessee had incurred various expenditure in relation to structural changes like plumbing, ceiling, flooring in kitchen, bathroom of the new house; which were in non- working condition, to make the house habitable.

2. The Assessee had produced necessary documentary evidences of such renovation/interior work.

3. When the identity and genuineness of the architect/interior designer was not in question; there was no reason to deny these deductions. It was also not the case of the Revenue that hiring services of architect/designer and making payment to them by the assessee was a sham transaction.

4. It was settled principle of law that when the tax payer is otherwise allowed to purchase or construct a residential house without any ceiling on the amount of investment, benefits u/s. 54 cannot be denied, if he has made some alterations, addition or modifications in the house purchased for taking benefit u/s. 54.