Case Law Details
Renu Ratnakar Bhattacharya Vs CIT (Appeals) (ITAT Mumbai)
It is the case of the assessee that at the time of purchase of house property the assessee paid brokerage to the tune of Rs.2,50,000/- at the rate of 1% of the agreement cost of the new property to one Mr. Rajesh Mahendru. The assessee brought on record PAN of Mr. Rajesh Mahendru, bank statement of capital account, scheme showing the RTGS payment made to Mr. Rajesh Mahendru. Apparently, there is no dispute as to the identity and genuineness of the transaction as to making payment of brokerage by the assessee to Mr. Rajesh Mahendru which has been made through banking channel. Keeping these facts in mind the Ld. CIT(A) allowed an amount of Rs.1,25,000/- and confirmed the balance.
To my mind brokerage at the rate of less than 1% paid by the assessee to Mr. Rajesh Mahendru is strictly as per market practice. The Ld. CIT(A), though admitted that the assessee has paid Rs.2,50,000/- as brokerage to Mr. Rajesh Mahendru but on the basis of surmises, has allowed only 50% which is not sustainable in the eyes of law. So in these circumstances I am of the considered view that the assessee is entitled for deduction of expenses paid towards brokerage under section 54 of the Act to the tune of Rs.2,50,000/-. The AO is directed to allow the same.
The assessee claimed to have made payment of Rs.1,50,000/-to its architects in the form of receipt and the detail of the blueprint is available from page 6 to 9 of the paper book.
I am of the considered view that when the assessee has purchased a house and architect is required to make the house habitable to whom the payment was made through banking channel and the Revenue Authorities have not disputed the identity and genuineness of the transactions, the same cannot be disallowed on the basis of conjuncture and surmises. So I am of the considered view that amount of Rs.1,50,000/- paid by the assessee to the architect is an allowable deduction and as such the disallowance made by the AO and confirmed by the Ld. CIT(A) is ordered to be deleted.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The appellant, Ms. Renu Ratnakar Bhattacharya (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 15.07.2022 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2016-17 on the grounds inter-alia that :-
“1. Ground 1- 1. The Appellant prays that the entire expenses incurred towards Brokerage amounting to Rs.2,50,000/ be added to the cost of purchase of New House Property instead of only Rs. 1,25,000 currently allowed by the CIT(A) and be allowed as Deduction u/s 54. The purchase cost of the property is Rs.2,70,00,000/- and 1% Brokerage is the market norm. Therefore the Appellant prays that the entire brokerage paid be allowed.
2. Ground 2- 2. The Appellant prays that the learned CIT(A) erred in upholding the disallowance from the cost of acquisition of new house under section 54 for the amount of Rs. 16,34,243/-being Cost of Improvement for construction and structural repairs in order to make the new house property habitable, be added to the cost of purchase of New House Property and be allowed as Deduction u/s 54
3. Ground 3- 3. The Appellant relies on the Judgements of the Hon’ble Mumbai Tribunal in the case of Rustom Homi Vakil, vs ACIT (ITA No.4450/Mum/2014) and of the Hon’ble Ahmedabad Tribunal in the cases of Srinivas R Desai Vs ACIT [(2013) 155 TTJ 743 & Rajat B Mehta vs ITO (ITA No.19/Ahd/16)
4. Ground 4- 4. The Appellant reserves the right to add, amend, alter, include, modify and/or withdraw any of the Grounds of Appeal before final conclusion of the Appeal petition and the detailed Statement of Facts shall be presented before Your Honour at the time of hearing.”
2. Briefly stated facts necessary for consideration and adjudication of the issues at hand are : assessee’s return of income for the year under consideration declaring income of Rs.18,31,920/-was put to scrutiny. During the year under assessment the assessee sold immovable property, a vacant plot, measuring 514.2 sqr. meters at AVPD scheme for Rs.15,24,00,000/- out of which assessee’s share comes to Rs.4,26,00,000/-. The assessee claimed deduction in respect of investment made under section 54EC, by purchasing bond of Rs.50,00,000/- and also made investment in new house property at Rs.3,03,41,877/- and offered the balance capital gain of Rs.16,85,295/- in A.Y. 2018-19. The Assessing Officer (AO) by framing assessment under section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) allowed the investment in new house property to the tune of Rs.2,83,50,134/- however, disallowed the cost of brokerage, legal fees and cost of improvement total amounting to Rs.19,91,743/-.
3. Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
4. I have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
5. Undisputedly, during the year under consideration the assessee has sold a plot of land measuring 514.2 sq. mtrs. at JVPD scheme for Rs.15,24,00,000/- out of which assessee’s share comes to Rs.4,26,00,000/-. It is also not in dispute that the assessee claimed deduction in respect of investment made under section 54EC bonds to the tune of Rs.50,00,000/- and has also made investment under section 54 of the Act by purchasing house property to the tune of Rs.3,03,41,877/- within two years. It is also not in dispute that the AO allowed the investment made by the assessee in new house property to the tune of Rs.2,83,50,134/- out of total investment claimed by the assessee to the tune of Rs.3,03,41,877/- by disallowing the amount of Rs.19,91,743/-claimed by the assessee on account of brokerage, legal fees and cost of improvement. It is also not in dispute that the Ld. CIT(A) has given partial relief of Rs.2,32,500/- and confirmed the balance amount of Rs.17,59,243/-.
6. In the backdrop of the aforesaid facts and circumstances of the case now the sole question arises for determination in this case is:
“as to whether the assessee is entitled for deduction of the balance amount of Rs.1759243/- claimed under section 54 of the Act disallowed by the AO as well as the Ld. CIT(A) claimed on account of brokerage, legal fees and cost of improvement?”
7. It is the case of the assessee that at the time of purchase of house property the assessee paid brokerage to the tune of Rs.2,50,000/- at the rate of 1% of the agreement cost of the new property to one Mr. Rajesh Mahendru. The assessee brought on record PAN of Mr. Rajesh Mahendru, bank statement of capital account, scheme showing the RTGS payment made to Mr. Rajesh Mahendru. Apparently, there is no dispute as to the identity and genuineness of the transaction as to making payment of brokerage by the assessee to Mr. Rajesh Mahendru which has been made through banking channel. Keeping these facts in mind the Ld. CIT(A) allowed an amount of Rs.1,25,000/- and confirmed the balance.
8. To my mind brokerage at the rate of less than 1% paid by the assessee to Mr. Rajesh Mahendru is strictly as per market practice. The Ld. CIT(A), though admitted that the assessee has paid Rs.2,50,000/- as brokerage to Mr. Rajesh Mahendru but on the basis of surmises, has allowed only 50% which is not sustainable in the eyes of law. So in these circumstances I am of the considered view that the assessee is entitled for deduction of expenses paid towards brokerage under section 54 of the Act to the tune of Rs.2,50,000/-. The AO is directed to allow the same.
9. The assessee has claimed deduction under section 54 of the Act for the amount of Rs.16,34,243/- being the cost of improvement for construction and structural repairs in order to make the new house property habitable, the detail of which is given in its written submissions as under:
10. The assessee claimed to have made payment of Rs.1,50,000/-to its architects in the form of receipt and the detail of the blueprint is available from page 6 to 9 of the paper book.
11. I am of the considered view that when the assessee has purchased a house and architect is required to make the house habitable to whom the payment was made through banking channel and the Revenue Authorities have not disputed the identity and genuineness of the transactions, the same cannot be disallowed on the basis of conjuncture and surmises. So I am of the considered view that amount of Rs.1,50,000/- paid by the assessee to the architect is an allowable deduction and as such the disallowance made by the AO and confirmed by the Ld. CIT(A) is ordered to be deleted.
12. Furthermore, the assessee claimed to have made the payment of Rs.12,00,000/- to SRVS interior India Pvt. Ltd. and brought on record receipt for making payment of Rs.12,00,000/-, bank certificate for preparing demand draft and bank statement reflecting the payments made to these vendors. It is the case of the assessee that to make the house habitable he has made improvements by constructing basic amenities like plumbing, flooring, bathroom and some structural changes in the house for which he has brought on record architect report available in the paper book annexed with the written submissions from page 27 to 42 wherein, by way of photocopies repair/renovation required is visibly depicted by showing requirement of POP punning and water proofing work to be carried out in the external balcony, plumbing work required in the existing bath rooms, cracks in the ceiling and water proofing work is required, kitchen is being shown in non working condition, requiring change of tiles, sink etc. WC is also shown not in working condition. Similar is the position of electrical works. There are cracks in the outer part of the building which is connected with the water supply and electricity supply.
13. The assessee has brought on record entire evidence to prove the fact that he has undergone the necessary renovations/interiors by hiring professional architect/interior designer to whom payment has been made by way of demand draft and also brought on record his bank statement reflecting the payment made to the vendor.
14. I am of the considered view that when identity and genuineness of the architect/interior designer is not in question and further detail if any was not called for by the AO as well as the Ld. CIT(A) there is no reason with the Revenue Authorities to deny these deductions. It is also nowhere case of the Revenue that hiring services of architect/designer and making payment to them by the assessee is a sham transaction but disallowed the same on the basis of conjuncture and surmises. So I am of the considered view that the assessee is entitled for deduction of Rs.12,00,000/- on account of renovation/interiors in order to make the house habitable under section 54 of the Act.
15. So far as amount of Rs.2,84,243/- claimed by the assessee stated to have been incurred for purchasing materials and labour cost by way of cash is concerned absolutely there is no detail as to what material was purchased and as to what services were rendered by the labourer whom the payment of Rs.2,84,243/- was made in cash. More particularly when the assessee has hired an architect/interior designer whom the payment of Rs.12,00,000/- has been made which includes payment for technical know-how as well as material used but there is not even a whisper in the evidence brought on record by the assessee if the assessee has spent any other amount on purchasing material or hiring labour. So I am of the considered view that the AO/ Ld. CIT(A) has rightly disallowed the amount of Rs.2,84,243/- claimed by the assessee being the alleged payment made for purchasing materials and making payment to the labourer in cash.
16. Moreover, it is settled principle of law that when the tax payer is otherwise allowed to purchase or construct a residential house without any ceiling on the amount of investment, the tax payer cannot be denied benefits under section 54 of the Act, if he has made some alterations, addition or modifications in the house purchased for taking benefit under section 54 of the Act.
17. In view of what has been discussed above, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 15.12.2022.
