No Old Bills? Still Eligible for Indexed Cost and Full Section 54 Exemption, Rules Chandigarh ITAT
Joint Ownership Does Not Mean Half Deduction When Entire Investment Is Made by One Person
Taxpayers claiming capital gains exemptions often face two recurring challenges. First, proving the cost of construction or improvement carried out many years ago. Second, defending Section 54 exemption when the new property is purchased jointly with a spouse or family member.
In a significant taxpayer-friendly ruling, the Chandigarh Bench of the Income Tax Appellate Tribunal (ITAT) has addressed both issues and granted substantial relief. The Tribunal held that indexed cost of improvement cannot be denied merely because old bills and vouchers are unavailable, and Section 54 deduction cannot be restricted merely because the new property is jointly owned, if the entire investment has been made by the assessee.
The decision in Jugesh Saluja v. Dy. CIT is likely to be of considerable importance to taxpayers involved in long-term property transactions.
The Dispute
The assessee sold a residential house and computed long-term capital gains after claiming:
• Indexed cost of acquisition and improvement of approximately ₹1.03 croretowards construction and renovation carried out over different years; and
• Deduction under Section 54 of approximately ₹2.12 croreon investment in a new residential property jointly purchased with her husband.
The Assessing Officer was not convinced.
The AO disallowed the entire indexed cost of improvement because the assessee could not produce old construction bills and vouchers.
Further, the deduction under Section 54 was restricted to 50% on the ground that the new property was jointly owned with the spouse.
Several other expenses such as GST, infrastructure charges, utility charges and allied payments were also excluded from the eligible cost of the new property.
The CIT(A) upheld the disallowances.
The matter then reached the ITAT.
Can Cost of Improvement Be Denied Simply Because Old Bills Are Missing?
This was one of the most important questions before the Tribunal.
The Revenue argued that in the absence of supporting bills and vouchers, the claim of construction and improvement could not be accepted.
The Tribunal disagreed.
It observed that the existence of a residential building was never in dispute.
The registered sale deed and stamp valuation records clearly established the existence of the residential structure.
The Tribunal recognized a practical reality often overlooked in assessments:
A taxpayer cannot always be expected to preserve construction bills and renovation vouchers for decades.
Many improvements are carried out years or even decades before the property is sold.
Insisting upon production of every historical bill would lead to unreasonable and impractical results.
ITAT Adopts a Practical Approach
Instead of rejecting the claim outright, the Tribunal directed that the cost of construction and improvement should be recomputed on a reasonable basis.
The Assessing Officer was directed to determine the cost using:
• Covered area of the property,
• Applicable PWD rates,
• Other relevant construction parameters.
The assessee was also directed to receive the consequential benefit of indexation.
The ruling therefore recognizes that absence of documents is not necessarily equivalent to absence of expenditure.
Full Section 54 Deduction Allowed Despite Joint Ownership
The second issue involved the new residential property purchased jointly with the assessee’s husband.
The Department sought to restrict the exemption to 50% by treating the property as jointly owned.
The Tribunal rejected this approach.
The Bench found that the entire investment had been made from the assessee’s own funds.
The Revenue could not establish any financial contribution by the spouse.
Accordingly, the Tribunal held that ownership structure alone cannot determine the quantum of exemption.
What matters is who actually made the investment.
If the entire investment originates from the assessee, the entire deduction cannot be denied merely because another person’s name appears in the title documents.
Reliance on Established Judicial Precedents
The Tribunal relied upon important precedents including:
• CIT v. Ravinder Kumar Arora
• DIT v. Mrs. Jennifer Bhide
These judgments have consistently held that beneficial provisions such as Section 54 and Section 54F should not be denied merely because the property is purchased jointly, provided the investment is substantially made by the taxpayer claiming the exemption.
Which Expenses Qualify for Section 54?
The Tribunal also examined whether various ancillary charges form part of the cost of the new residential property.
The ITAT held that the following expenses are eligible for Section 54 purposes:
• GST,
• Stamp duty,
• Registration charges,
• Infrastructure charges,
• Utility charges,
• One-time premium,
• Cluster fund contributions,
• Environment fund charges.
These expenditures are intrinsically connected with acquisition of the residential property and therefore form part of the eligible investment.
However, the Tribunal drew a distinction in respect of:
• Club membership charges, and
• Taxes relating to such membership.
These were held to be optional in nature and therefore not eligible for Section 54 deduction.
Why This Decision Matters
The ruling addresses two common problems faced by taxpayers.
First: Old Property Improvement Claims
Many taxpayers selling inherited or long-held properties struggle to produce historical construction bills.
The judgment confirms that genuine claims cannot be rejected solely because decades-old records are unavailable.
Second: Joint Ownership Issues
It is common for residential properties to be purchased jointly with spouses for family, financing, or succession reasons.
The Tribunal has reiterated that exemption depends upon the source of investment and not merely on the names appearing in the ownership documents.
Practical Takeaway
Taxpayers claiming capital gains exemptions should preserve records wherever possible.
However, where old records are unavailable, alternative evidence such as:
• Sale deeds,
• Valuation reports,
• Municipal records,
• Property descriptions,
• Construction details,
may still support the claim.
Similarly, taxpayers purchasing properties jointly should maintain evidence demonstrating the actual source of investment.
Conclusion
The Chandigarh ITAT has delivered a pragmatic and taxpayer-friendly ruling by recognizing both commercial reality and legal substance. The Tribunal held that indexed cost of improvement cannot be denied merely because old bills are unavailable when the existence of construction is otherwise established.
Equally important, it reaffirmed that Section 54 exemption cannot be curtailed simply because the new property is jointly held with a spouse, where the entire investment has been made by the assessee.
The decision reinforces a long-standing judicial principle that beneficial provisions of the Income Tax Act should be interpreted in a practical manner and not defeated by technicalities or unrealistic evidentiary expectations.
The copy of the order is as under:
