By Jagdish D. Shah, Jagdish T. Punjabi
Chartered Accountants
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Section 54F — Amounts paid for completion of flat purchased in semi-finished condition, pursuant to a tripartite agreement entered into by the assessee with the contractors and the builder form part of cost of new house even though such agreement was entered prior to agreement for purchase of house.
Facts:
The assessee who was 50% co-owner of a flat at Walkeshwar sold the same for a sum of Rs.2.30 crores as per transfer deed dated 15-1-2006. The assessee invested sale proceeds in purchase of a house property vide agreement dated 26-5-2006 for Rs.45.60 lacs. The assessee had before completion of the building incurred expenditure of Rs.43 lakhs as per three supplementary agreements dated 22-4-2006. The assessee, therefore, treated the cost of the new house at Rs.88.60 lakhs for the purpose of claiming deduction u/s.54F.
The assessee explained to the AO that the flat purchased was in a semi-finished condition without flooring, plumbing, wiring, etc. Therefore, for providing internal basic amenities as mentioned in the main agreement, the assessee entered into a supplementary agreements which were also signed by the builder. The AO observed that the supplementary agreements were entered prior to the main agreement. The main agreement did not have reference of the supplementary agreements. The main agreement clearly provided that the builder was providing the flat with all basic amenities required for making the premises habitable. He did not allow the exemption with reference to this sum of Rs.43 lakhs and held the expenditure of Rs.43 lakhs incurred by the assessee to be cost of improvement of the flat, which could not be considered for deduction u/s.54F.
Aggrieved the assessee preferred an appeal to the CIT(A) where he submitted that since the assessee was in urgent need of the flat and the flat being purchased was in skeletal condition, the seller suggested that the assessee engage other contractors for finishing the work. It was because of this reason that the supplementary agreement was entered into before the main agreement. The assessee substantiated his contentions by referring to letter dated 29-3-2006 written by the builder. The CIT(A) confirmed the order passed by the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
The Tribunal noted that the assessee took possession of the flat on 15-5-2006 and thereafter the registered deed was executed on 26-5-2006. The Tribunal held that the claim of the assessee cannot be rejected only on the ground that the agreement had been entered into prior to taking over possession of the flat. The claim of the assessee to engage other contractors to expedite work as suggested by the builder cannot be held unjustified on the facts of the case. It held that all expenditure incurred for acquisition of the new flat prior to taking over possession has to be considered as part of the cost. However, in order to verify that the assessee has not claimed any bogus expenditure to inflate the cost so as to claim higher deduction or show double expenditure in respect of the same type of work, the Tribunal set aside the order passed by the CIT(A) and restored the matter to the file of the AO for passing a fresh order after necessary examination.
The Tribunal allowed the appeal filed by the assessee.
Note: It appears that the reference to section 54F should be a reference to section 54, since the assessee had sold a residential house.
