Exp. Incurred to Make New House Habitable Is Eligible for Sec. 54 Exemption | ITAT

Case Details: Om Prakash Thakur vs. ITO - [2024] 164 taxmann.com 704

Judiciary and Counsel Details

• Shamim Yahya, Accountant Member
• Tajender Khanna, CA for the Appellant.
• Om Prakash, Sr. DR for the Respondent.

Facts of the Case

The assessee was an individual who earned income from business, capital gains, and other sources. The assessee filed the return of income by claiming a deduction under section 54 for the house property purchased. The assessee had purchased the house property in an unfinished condition. In order to make the house habitable, the assessee incurred an amount of capital expenditure. While furnishing the return of income, the assessee claimed the deduction for such capital expenditure from the computation of capital gains.

During the assessment proceedings, the Assessing Officer (AO) denied the claim of such expenses under section 54, contending that the capital expenditure incurred to make the house habitable cannot be considered as the cost of acquisition of the house.

Aggrieved by the order, the assessee preferred an appeal to the CIT(A). The CIT(A) upheld the order of AO, and the matter reached before the Delhi Tribunal.

ITAT Held

The Tribunal held that the assessee had purchased the house property in an uninhabitable condition. The capital expenditure was incurred to make the house habitable. It included the electrification of the house and water facilities, wooden works, glass works, works to carry out cooking activities, bathroom fittings and fixings and painting of wall, doors and windows.

The necessary evidence was also provided to the AO. The expenditure incurred by the assessee was necessary to make the house habitable. Therefore, it was not a case of renovation of the house.

Accordingly, the capital expenditure incurred by the assessee to make the house habitable was considered the cost of acquisition of the house property for the purpose of section 54.

List of Cases Reviewed

• Rajat B Mehta v. ITO [IT Appeal No. 19 (Ahd.) of 2011-12, dated 30-3-2012] (para 6) followed.