Case Law Details
Sapna Hemanshu Shah Vs DCIT (ITAT Bangalore)
The case concerns an appeal filed by Smt. Sapna Hemanshu Shah before the Income Tax Appellate Tribunal (ITAT), Bangalore, against the order of the National Faceless Appeal Centre (NFAC), New Delhi, dated 26 October 2023, relating to the assessment year 2013–14. The dispute focused solely on the disallowance of exemption under Section 54 of the Income Tax Act, 1961, concerning expenditure incurred on the interior decoration of a newly acquired residential house property.
Background of the Case
The assessee filed her return of income on 22 July 2013, declaring total income of Rs. 5,49,610. The case was selected for scrutiny, and statutory notices were issued. During the assessment proceedings, it was noted that the assessee had sold her residential house through a sale deed dated 15 January 2013 for Rs. 1,56,50,000. After deducting the indexed cost of acquisition, she computed long-term capital gains (LTCG) of Rs. 1,25,06,186.
- To claim exemption under Section 54, the assessee stated that she had:
- Given an advance of Rs. 54,65,641 for the purchase of a new residential plot, and
- Deposited Rs. 70,40,545 in the capital gains account.
- Based on these figures, the assessee claimed nil taxable capital gains.
Assessment Proceedings
The Assessing Officer (AO) observed that, as per a nomination agreement, Mr. Hemansu M. Shah, the assessee’s husband, had negotiated the purchase of a property for Rs. 1.4 crore and had already paid Rs. 46 lakh as advance to the vendor. Later, he received this amount from the assessee, thereby transferring the right in the property to her.
Upon scrutiny, the AO found that while the advance of Rs. 46 lakh was supported by records, the additional claim of Rs. 8,65,641—said to be spent on interior decoration of the new house—was not substantiated by documentary evidence. The AO thus concluded that only Rs. 46 lakh qualified for exemption under Section 54, and the remaining Rs. 8,65,641 was disallowed as part of the capital gain computation.
The assessment was accordingly completed with this disallowance.
CIT(A) Proceedings
The assessee appealed before the Commissioner of Income Tax (Appeals) [CIT(A)], NFAC. After reviewing the agreement dated 25 March 2013, the CIT(A) held that the document appeared not genuine, and that the assessee had failed to furnish bills, vouchers, or other reliable evidence to substantiate the claim of interior expenditure. Further, no purchase deed or supporting documents were produced to establish the incurrence of the said expense.
Based on these findings, the CIT(A) dismissed the appeal, thereby upholding the AO’s disallowance of Rs. 8,65,641 under Section 54.
Arguments Before ITAT
Before the ITAT, the Authorised Representative (AR) of the assessee reiterated the submissions made before lower authorities. It was explained that on 25 March 2013, the assessee transferred Rs. 54,65,641 to her husband’s bank account, which included Rs. 8,65,641 intended for interior work to make the house habitable.
It was further argued that the expenditure was incurred by her husband through contractors, and therefore, the bills and vouchers remained with the contractors and were not in the assessee’s possession. The AR referred to the agreement (pages 65–72 of the paper book), which explicitly mentioned that interior works were to be carried out. Since the payments were undisputed, the assessee argued that the expenditure should qualify for exemption under Section 54 as part of the cost of the new residential house.
The assessee also cited several judicial precedents in support of her claim, including:
- Rajat B. Mehta (ITA No. 19/Ahd/2016)
- Meher R. Surti v. ITO [2013] 40 com 138 (Mum – Trib.)
- Rahana Siraj v. CIT [2015] 58 taxmann.com 333 (Karnataka)
The Departmental Representative (DR), however, maintained that the agreement for interior work was not genuine and that the assessee had failed to furnish any credible evidence of the claimed expenditure. It was therefore submitted that the findings of the lower authorities should be upheld.
Tribunal’s Observations and Decision
After considering both sides’ submissions, the Tribunal noted that the dispute pertained solely to the interior decoration expenses of Rs. 8,65,641, and the issue was the absence of sufficient documentary proof.
Upon examining the bank statement at page 57 of the paper book, the Tribunal found that the assessee had indeed made a payment of Rs. 54,65,641 on 25 March 2013 by cheque, out of which Rs. 46 lakh was for the advance on the property and Rs. 8.65 lakh was related to interior decoration. The agreement (pages 65–72) also recorded that the vendor’s permission was obtained for the second party to carry out interior work in the property, and such work was brought to the notice of the first party.
The Tribunal noted that the payment was not disputed by either the AO or the CIT(A) and that the amount had been paid to the assessee’s husband, with whom she resided. Citing the precedents relied upon by the assessee, the ITAT held that the interior decoration expenditure was eligible for exemption under Section 54, as it formed part of the cost of making the new property habitable.
Accordingly, the Tribunal allowed the claim for Rs. 8,65,641 towards interior decoration and granted the exemption under Section 54.
Other grounds raised by the assessee were dismissed as not pressed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the order passed by the NFAC, New Delhi on 26/10/2023 in DIN No. ITBA/NFAC/S/250/2023-24/1057418121(1)for the assessment year 2013-14.
2. At the outset of hearing, the ld.AR pressed only ground No.3 and accordingly, we are adjudicating ground No.3, which is as under:-
“3. Ground relating to exemption under section 54 disallowed in respect of expenditure incurred on interiors of new residential house property.
3.1 The learned AO and the CIT(A), NFAC have erred in disallowing exemption under section 54 in respect of expenditure on interiors of new residential house property amounting to Rs.8,65,641/-.”
2. The brief facts of the case are that the assessee filed return of income on 22/07/2013 declaring income of Rs.5,49,610/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee submitted reply and it was observed that the assessee sold the residential house vide sale deed dated 15/01/2013 for consideration of Rs.1,56,50,000/-. The assessee has arrived capital gain of Rs.1,25,06,186/- after reducing index cost of acquisition. Thereafter, the assessee has claimed exemption on account of advance given for purchase of plots of Rs.54,65,641/- and amounts deposited in capital gain account of Rs.70,40,545/-. Accordingly, the capital gain tax was computed Nil. As per nomination agreement, Mr. Hemansu M shah, the husband of assessee had negotiated to purchase the property for total sale consideration of Rs.1,40,00,000/- against which he had paid Rs.46,00,000/- as advance to the vendor. Accordingly, Mr. Hemansu M. Shah received Rs.46,00,000/-form Mrs. Sapna Shah and transfer the right in favour of the assessee. The assessee also submitted capital gain statement and the advance to the vendor was of Rs.46,00,000/-. Accordingly, the AO noticed that the claim of exemption on account of advance given for purchase of flats of Rs.54,65,641/- is not correct and only advance given of Rs.46,00,000/- were allowed and the excess claim of Rs.8,65,641/- by the assessee towards interior decoration were disallowed under the capital gain head and other disallowance was also made and completed the assessment.
3. Aggrieved from the above order, the assessee filed appeal before the CIT(A). The CIT(A) after examining the agreement dated 25/03/2013 observed that the agreement is not genuine and assessee failed to produce the bills, vouchers with regard to interiors, copy of purchase deed or any other reliable documents for substantiating her claim of expenditure of Rs.8,65,641/- incurred on interiors. Accordingly, he dismissed the appeal of the assessee.
4. Aggrieved from the above order, the assessee fled appeal before the ITAT.
5. The ld.AR reiterated the submissions made before the lower authorities and submitted that the assessee transferred the amount into her husband’s bank account of Rs.54,65,641/-on 25/03/2013 out of which Rs.8,65,641/- was towards expenditure for interiors and assessee’s husband has incurred it for making the house habitable. The money was not directly incurred by the assessee but her husband has incurred, so it was given on contract basis, therefore, bills and vouchers were kept by the contractors, which has not been handed over to the assessee and he also submitted as per the agreement placed at paper book page No.65-72 dated 25/03/2013. It is clear that the expenditure was to be incurred for interior decoration and there is no dispute on the payments made. Accordingly, he submitted that the assessee is eligible to get the cost of acquisition as a deduction on interiors expenditure of Rs.8,65,641/- . He referred to the argument. The ld.AR of the assessee relied on the followings judgments:-
1) Rajat B Mehta in ITA No.19/Ahd/2016
2) Meher R Surti Vs. ITO [2013] 40 com138 (Mum – Trib]
3) Rahana Siraj Vs. CIT [2015] 58 taxmann.com333 [Kar]
4) [2022[ 140 com441 [Bang. Trib]
6. On the other hand, the ld.DR relied on the orders of the lower authorities and strongly submitted the agreement made by the assessee for expenditure towards interiors of Rs.8,65,641/- is not genuine as observed by the ld.CIT(A). The assessee is also unable to produce any credible evidence towards expenditure incurred, therefore, the lower authorities are justified.
7. Considering the rival submissions, we note that the dispute is only towards interior decoration expenses as incurred by the assessee of Rs.8,65,641/- for want of credible evidences. We note from the bank statement submitted by the assessee at paper book page No.57 that the assessee has paid amount on 25/03/2013 of Rs.54,65,641/- vide cheque No.363832, out of which, Rs.46,00,000/- was given as advance for purchase of the property and as per the paper book page No.65 to 72, the second party with the permission of the vendor, Shri Sanjay Udani has carried out lot of interior decorations in the schedule B property spending substantial amount of Rs.8,65,641/- and it has been brought into the notice of the first party who was convinced about the interior decoration. The payment made by the assessee has not been disputed by any of the lower authorities and payment was made to her husband and both are residing together. The case law relied by the ld.AR of the assessee supports the case of the assessee. Accordingly, the expenditure incurred by the assessee for interior decoration is eligible to get the benefit of deduction u/s 54 of the Act.
8. The other grounds raised by the assessee is dismissed as not pressed.
9. In the result, appeal of the assessee is partly allowed.
Order pronounced in court on 30th day of January, 2024
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