In absence of supportings addition to existing house may not be treated as construction of new house

Brief of the Case:

In the instant case, as the municipal approvals, completion certificates and authentic plans were not available, the ITAT could not conclude whether assessee had constructed new independent house and there was no evidence that the old building was ever demolished. There was significant variation in the valuation report submitted by AO and plan submitted by the assessee. Therefore, only a site inspection could conclude whether a new house was constructed or just an extension was made to the old house. Hence, ITAT directed AO to give an opportunity to the assessee and examine whether the structure as claimed by assessee is old or new, so as to consider the eligibility of deduction u/s. 54.

Facts of the Case:

The assessee is an individual filing a belated return declaring Long term capital gain on sale of House property and claiming a deduction of Rs. 1,37,07,700/- u/s 54 of the Income Tax Act, 1961 The assessee had sold a house property in Bangalore and invested the capital gain in the existing house property located in Hyderabad by constructing two additional floors. The existing house property was a plot with an old residential strucure of ground floor acquired in the year 2005. The said construction of additional floors was completed till the date of transfer of house property in Bangalore. The Assessing Officer rejected the assessee’s claim of deduction on the basis that investment was made much prior to the sale of property and also investment in an existing house could not be considered as investment in a new asset. Also the AO brought to tax the cash deposits credited in assessee’s bank account which was treated as “unexplained” even though assessee explained that the source is “sale of property”.

Held by CIT (A):

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