Cost of amenities paid under unregistered agreement forms part of cost of acquisition of flat

CA Saurabh Chokhra

The ITAT Mumbai in the above cited case held that the cost of acquisition of flat shall include the cost of amenities even when the agreement requiring the flat purchaser to pay such cost is not registered and no stamp duty paid on amenities cost .

Facts of the case:

• The assessee sold a flat owned by her being flat no.304/B, Eternia Hiranandani Garden, Powai, for Rs. 46.60 lacs. In the return of income filed by her , she disclosed claimed long term capital loss.

She claimed the cost of acquisitions as Rs . 18,39,397/- (before indexation) . The detailed breakup of the same as under:

• ­AO on verification of the deed for purchase of property noticed that assessee along with her husband had purchased the property at Rs. 7,29,750 and paid stamp duty of  26,300/-, totaling to Rs. 7,56,050/-
• The Assessing Officer, however, did not accept the cost of amenities as claimed to be paid to builder under a separate agreement which was not registered and no stamp duty paid on the same.
• Assessing Officer observed, the purchase deed is a duly executed legal document, wherein it is stated that the assessee along with her husband has purchased a completely constructed flat admeasuring 695 sq. for Rs. 7,29,750/- with all amenities which in other words indicates that a completely constructed flat was purchased by the assessee, hence, any further claim towards amenities is not acceptable.
• Accordingly, AO recomputed the capital gains and determined a long term capital gain of Rs. 25,88,902/-.CIT(A) also upheld the AO’s order.
• Aggrieved assessee is in appeal before ITAT.
  

Contention of the Assessee:

• The learned counsel for the assessee submitted that the assessee on 29th March 1994, had entered two separate agreements, one with Hiranandani Lake Garden for purchase of flat and another with Lake View Developers for amenities. The assessee has not only disclosed the purchase cost but also the amenity cost in the balance sheet as on 31st March 1996 and up to 31st March 2009.
• It was submitted that merely because the amenities agreement was not in a stamp paper or unregistered will not make the agreement invalid or void.
• Further, when two parties have entered into contract on certain terms and conditions, the Revenue cannot substitute the terms of the contracts.
• It was therefore, submitted that the indexed cost of acquisition shown by the assessee including cost of amenities to be accepted.
  

Held by ITAT Mumbai:

• ITAT observed that the assessee claimed before AO and CIT(A) that the flat purchased was not complete in all respect and certain work was required to be done by another builder for which not only the assessee but all other flat owners of the said building entered into a separate agreement for amenities.
• On perusal of amenities agreement , ITAT observed that the work to be done as per that agreement includes painting, interiors, ceramic tiles, sanitary ware, concealed copper wiring, electric fittings, phase box with circuit break, glass hardware, special water proofing in toilets / kitchen, special wood for doors / windows, facilities for escalators.
• In the conceived view of this tribunal, if actually had been undertaken by the builder as per amenities agreement, would certainly need to be included in the cost of acquisition. Only because the agreement is in a plain paper or not registered would not deprive the assessee from getting the benefit of amount paid towards amenities in case the assessee has actually its price. In order to convert its flat from semi-finished to finished.
• Moreover, if all other flat owners have entered into similar agreement for amenities and have made payment for such amenities, it will definitely prove that there was an arrangement between the builders to split the work into two different agreement for which the purchasers of flat cannot be held responsible.
• Therefore, AO is required to make enquiries to ascertain whether other flat owners have entered into similar amenities agreement and if find so , then would allow the cost of amenities to be included in cost of acquisition with indexation.
• Appeal of assessee was partly allowed.