Case Law Details
Shivani Bhasin Sachdeva Vs Assessment Unit (ITAT Mumbai)
The Income Tax Appellate Tribunal (ITAT), Mumbai, has ruled in favor of the assessee, Shivani Bhasin Sachdeva, allowing expenses incurred on interior fit-outs before the formal possession of a property to be considered as “cost of improvement” for calculating capital gains upon its sale. This decision over-turns the orders of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], who had disallowed the assessee’s claim. The AO’s primary contention was that since the property was purchased in December 2017, expenses incurred based on an agreement dated May 2010, prior to ownership, could not be treated as improvement costs. The AO also noted that the payment for these improvements was based on an unregistered agreement, further questioning its validity. The CIT(A) up-held the AO’s view, leading to the assessee’s appeal before the ITAT.
The assessee’s counsel argued that the agreement with DLF Hotels and Apartment Pvt. Ltd. in May 2010 was for civil and electrical work as the flat was bought as an unfinished unit (“Khoka” flat). Payments were made according to this agreement, and the fit-out work was completed after receiving the occu-pancy certificate in March 2014, coinciding with the letter of possession. Subsequently, the flat was leased out in June 2014 and later sold in November 2020. The counsel emphasized that the AO’s as-sumption that improvement costs could not be incurred before ownership was factually incorrect in this scenario. The ITAT, after reviewing the agreement details, including clauses outlining the fit-out work’s scope (marble flooring, wooden flooring, walling, tiling, false ceiling, doors, wardrobes, kitchen, electri-cal works, etc.) and noting that the payments were undisputed, sided with the assessee.
The Tribunal highlighted that the fit-out works became an integral part of the apartment, and the pos-session letter dated March 2014 further validated the completion of these improvements before the eventual sale in 2020. The ITAT found no merit in the disallowance made by the AO and upheld by the CIT(A), stating that the demonstrative evidence clearly contradicted the AO’s view that improvement costs could not precede the formal purchase date of December 2017. Consequently, the ITAT set aside the CIT(A)’s findings and directed the AO to allow the cost of improvement as claimed by the assessee, thus allowing the pre-possession fit-out expenses to be included in the capital gains calculation. The as-sessee’s appeal was ultimately allowed by the Tribunal.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. This appeal by the assessee is preferred against the order dated 25/04/2024 by the Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter ‘the ld. CIT(A)’], pertaining to AY 2021-22.
2. The grievance of the assessee reads as under:-
“1. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in disallowing the expenses incurred for the interior fit-outs by the Appel-lant as cost of improvement in computing the capital gains on the sale of the property.
2.Without prejudice to the above, once the expenses incurred for interior fit-outs were not allowed as cost of improvement, the learned Assessing Officer ought to have allowed the same as cost of acquisition of the property while computing the capital gains of the proper-ty.”
3.Briefly stated the facts of the case are that the assessee filed her return of income on 30.12.2021 de-claring total income of Rs.2,16,40,200/-. During the year under consideration, the assessee derived in-come from salary, house property and capital The return was selected for scrutiny assessment and ac-cordingly statutory notices were issued and served upon the assessee.
4.On perusal of the submission of assessee filed during the course of assessment proceedings, the AO noticed that the assessee has sold the immovable property located at DLF City, Phase-V, Gurugram, Har-yana at Rs.15.21 crores against which the assessee claimed cost of acquisition at Rs.9,59,95,053/- and cost of improvement amounting to Rs.2,46,66,340/-. The assessee was asked to submit details of cost of improvement claimed in respect of property sold along with
5.The assessee filed a detailed reply from which the AO noticed that the assessee had purchased a flat on 27.12.2017 which was booked in October, 2009. The AO found that the assessee had entered into an agreement on 31.05.2010 with DLF Hotels and Apartment Pvt. Ltd. to do improvement. The AO was of the opinion that since the property was purchased on 12.2017 and without owning the property how the assessee claims to have made improvement in the said property which according to the AO is not possible. The AO further found that the payment of consideration for improvement of property is as per an unregistered agreement.
6. The AO was of the firm believe that the cost of improvement claimed by the assessee is much prior to the purchase of property and therefore, the cost of improvement claimed by the assessee is not ac-ceptable and made the addition accordingly.
7. The assessee carried the matter before the CIT(A) but without any success .
8. Before us, the counsel for the assessee vehemently stated that as per the agreement with DLF Hotels and Apartment Pvt. Ltd. dated 05.2010, the assessee had made payments for civil and electrical work as the flat was purchases as a “Khoka” flat. The learned counsel stated that after receiving the occupancy certificate civil and electrical work were completed on 29.03.2014 and letter of possession was given on 31.03.2014. Thereafter, the assessee leased out flat on 25.06.2014 and sold vide agreement for sale of flat dated 04.11.2020. The counsel further stated that the assumption by the AO that the assessee could not have spend cost of improvement before taking the ownership of the flat is against the facts of the case.
9. The learned Sr. DR strongly supported the findings of the AO and read the operative part.
10. We have given a thoughtful consideration to the orders of the authorities below. The entire quarrel revolves around the fact that the assessee has purchased the flat on 27.12.2017, therefore, the as-sessee could not have spent the cost of improvement paid to DLF Hotels and Apartments Ltd. as per agreement dated 31.05.2010. The impugned agreement dated 31.05.2010 between DLF Hotels and Apartments Pvt. Ltd. and the assessee, the most relevant clause reads as under:
“D. AND WHEREAS after examining, evaluating and discussing vari-ous lay out options suggested by the Project Management Company, the Apartment Allottee has ap-proached the Project Management Company for arranging Fit Out Work as per layout option annexed as Annexure-II to this Agreement (“Selected Layout Option”).
E. AND WHEREAS out of the options of colours, materials, etc. offered for the Selected Layout Option, the Apartment Allottee has chosen the specifications as recorded in Annexure-Ill to this Agreement (“Specifications”).
F. AND WHEREAS the Apartment Allottee has approached the Pro-ject Management Company vide his letter dated Ap 31,2010 for execution of the Fit Out Work in ac-cordance with the Selected Layout Option, theme, Specifications and the Scope of the work in terms of this Agreement (hereinafter referred to as the “Fit Out Work).
G. AND WHEREAS the Project Management Company has explained and the Apartment Allottee has understood and agreed that the Fit Out Work will be executed by Pro-ject Management. Company and/or one or more third party service providers (hereinafter referred to as the “Project Execution Company(s)”).”
11. The scope of work as per Annexure-1 read as under:
“The Scope of Work as part of the interior Fit-out works to include:
Marble flooring
Exquisite imported marble adorns the apartment floors starting from an inviting entrance foyer, flowing un-interrupted through living and dining spaces all the way to the panoramic decks. The color selection varies from warm tones in classic theme to cool shades of modern styling.
Wooden flooring
Bedroom floors are a unique blend of style and sustainability. Engi-neered wood floors combine warmth & beauty of natural timber finishes with durability and easy clean properties of lacquered and engineered wooden panels. You can choose from select shades to best complement your decor.
Walling and tiling
The walls are finished in smooth acrylic emulsion paint on plaster of paris punning, the feature wall in each room is distinct and accentuated by either a wall covering or a specialist textured finish. The color palette choice consists of soft shades creating a perfect backdrop to complement any individual furnishing or furniture selection.
False ceiling
An interplay of levels in the gypsum board false ceiling, while it in-telligently hides the building services, also provides ample space for generous ceiling heights. Ceiling is finished in plastic emulsion with concealed perimeter lighting in coffers and coves complemented by de-signer cornices as per theme.
Doors and frames
All door frames will have generous proportions and crafted from hardwood. The door shutters will be decorative panels with architraves and/or elegant wood vencers to complement the decor complete with quality architectural hardware. Fixed woodwork features like ar-chitrave, skirting, pelmet with tracks etc as per design.
Wardrobes and cabinets
Built-in modular designer wardrobe with ample storage options in combination of wood and mirror to complement wooden floors and under counter toilet cabinetry, complete with top quality, high performance hardware.
Toilet fittings and fixtures
World class toilet fixtures like vanity counter, elegant water closet, glass enclosed shower cubicles in all the toilets and jacuzzi bath tub in master toilet complemented by designer fittings including hot water geysers, water supply piping, drainage, insulation, etc.
Modular kitchen
The high end kitchen cabinetry incorporates warm timber finishes, premium granite worktop, fully equipped with built-in quality appliances complemented by anti-skid flooring and wall finishes in combination of glass and vitrified tiles.
Built-in kitchen appliances
An elegant blend of brushed stainless steel and premium designer finishes to match
cabinetry Hob and exhaust hood Sink with drain board
Built-in oven and microwave : Dish washer
Washing machine and dryer : Refrigerator
Other services
Air-conditioning (chilled water based system), including fan-coil units, ducting, piping distribution, grills and diffusers, thermostats etc.
Electrical works inclusive of conduit and wiring, switches and sock-ets, distribution boards, standard concealed down lighters etc. low voltage works like telephone wiring, data wiring, satellite TV cabling.
Internal gas piping with safety valve etc.
Civil works like water-proofing, filling sunken areas, sub-floor screeding under wooden floor etc.
Scope of design related works:
Space planning
Full interior design of all fixed Interior works
Design of internal heating, ventilation and air-conditioning, internal electrical and, low voltage works, internal plumbing works, design of internal fire safety issues Indicative furniture and fixtures layout
Design of kitchen layout
Scope of project management ser-vices:
Design management
Contract and procurement for scope of works
Site management
Supervision and quality assurance
Exclusions from the scope of works:
Loose furniture, artworks and accessories, artifacts’, curtains, throw rugs/carpets equipment other than the kitchen appliances as mentioned in the scope of work decorative light fixtures, chandeliers etc. Any other item not covered in scope of work.”
12. Pursuant to the aforementioned agreement, the assessee made payments which are not disputed by the AO.
13.After the completion of the fit-out work, which are now integral part of the apartment, letter of pos-session was received on 31.03.2014 which is placed at page 188 of the paper book.
14.Immediately after receiving the possession, the assessee leased out the flat as per lease agreement dated 06.2014 which is exhibited at pages 212 to 218 of the paper book.
15.These demonstrative evidences go on to demolish the view taken by the AO that the assessee could not have incurred cost of improvement before 27.12.2017.
16.Considering the facts of the case, in totality, we do not find any merit in the disallowance made by the AO and confirmed by the CIT(A). We accordingly set aside the findings of the CIT(A) and direct the AO to allow the cost of improvement as claimed by the assessee.
17.In the result, the appeal filed by the assessee is allowed .
Order pronounced in the open Court on 20th January, 2025.
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