Cash expenses for the improvement of the apartment Ok: Itat | Bombay News
Mumbai: The Income Tax Appeal Tribunal (STATUS)’s Mumbai bench, in a tax dispute over capital gains arising from the sale of residential apartments, cleared the INR taxpayer to claim a significant portion of improvement costs, such as tiling or painting walls, even if they were paid in cash.
Tax experts explain that the unrecorded money was not used for such payments and that since the taxpayer is not engaged in commercial activity, various restrictive provisions relating to cash payment did not apply in this case. .
Tax laws provide that the consideration for the sale less the cost of acquisition and the cost of improvement (both are adjusted by applying the cost inflation index) determines capital gains. The higher the cost of these two components, the lower the taxable capital gains and therefore the taxable result.
The acquisition cost includes the purchase price of the apartment, registration fees and brokerage fees. Improvement cost includes capital expenditures that increase the value of the property.
non-resident Indians, Komal Gurumukh Sangatani and her husband, had appealed to the ITAT. The fiscal year to which the dispute related was 2009-2010.
Sangtani pleaded that the expenses incurred were to make the apartment habitable, which is quite normal and would be incurred by any citizen of the country who buys a property from a builder. It is also quite common to make such payments in cash, she added.
The judiciary finds that the taxpayer has never exercised a commercial activity and is therefore not subject to tax audit. Therefore, there was no impediment to incur certain cash expenses for the apartment, as long as the source of the cash payment was explained from his reported income.
The court, however, distinguished between expenses that could be considered improvement costs and those that would be treated as personal effects. When reviewing the list of expenses, the ITAT bench observed: “We find that the majority of the items are embedded in the wall and become part of the apartment itself which is subject to the sale by the taxpayer and her husband.” The bench held items such as refrigerator, air conditioner, LED TVs, furniture, among others, as “personal effects” not eligible for the deduction. Out of a total claim of Rs. 14.5 lakh for the cost of the improvement, ITAT cleared Rs 9.7 lakh.
Sangtani had also claimed Rs 5.5 lakh interest on the home loan to form part of the acquisition cost. It is possible that the taxpayer has claimed this interest (as a deduction) as the main income from the real estate property and is trying to derive an additional benefit by adding it to the cost of acquisition, while calculating the capital gains, observed the ITA. He sent this aspect back to the IT officer for rechecking.