Income Tax Appellate Tribunal (ITAT) Mumbai bench, ends in a tax litigation capital gain is allowed arising on the sale of residential flats NRI for the taxpayer to claim a significant portion of the cost of improvements, such as fixing tiles or painting walls, even though they were paid cash,

Tax experts point out that unaccounted money was not used for such payments and since the taxpayer was not in business, various restrictive provisions relating to cash payments did not apply in this case.

Tax laws provide that the sale consideration minus the cost of acquisition and the cost of improvements (both of which are adjusted by applying the cost inflation index) determines the capital gain. The higher the cost of these two components, the lower the taxable capital gain and consequently the lower the tax expense.

The cost of acquisition includes the purchase price of the flat, registration cost and broker fee. The cost of improvements includes capital expenditures that increase the value of the property.

‘Petitioner has to show only cash source’

NRIs, Komal Gurmukh Sangtani and her husband had filed an appeal with ITAT regarding their capital gains assessment. The financial year to which the dispute pertained was 2009-10.

Sangtani argued that the expenses incurred were to make the flat livable, which is very common and will be borne by every citizen of the country who is buying a property from a builder. It is also quite common to make such payments in cash, he added.

The bench observed that the taxpayer never carried on any business and thus was not liable to tax audit. Consequently, there was no bar on making certain expenses for the flat in cash, as long as the source of the cash payment was explained from his reported income.

The bench, however, made a distinction between expenditure, which could be treated as cost of improvement and which would be treated as a personal effect. On reviewing the list of expenses, the ITAT Bench observed: “We found that most of the items are wall-attached and become part and parcel of the flat which is the subject of sale by the taxpayer and his/her spouse.” Keep items like conditioner, LED

Furniture, among such others, are not eligible for deduction as “personal effect”. Out of the total claim of Rs. 14.5 lakh for the cost of improvement, ITAT allowed Rs 9.7 lakh.

Sangtani had also claimed an interest of Rs 5.5 lakh on the housing loan to be a part of the cost of acquisition. There is a possibility that the taxpayer has claimed this interest (as deduction) on account of income from house property and is trying to take another benefit by adding it to the cost of acquisition while computing capital gains, the ITAT said. saw. It sent this aspect back to the IT officer for re-verification.