Monday, March 24, 2014

Cost of improvement is allowable even if it’s sourced through general loan and through housing loan

Merely because loan used by assessee in improvement of house was a general loan and not a housing loan, cost of improvement could not be disallowed.
a)  The assessee had borrowed loan from a bank for improving the house property. He had sold said property and while computing capital gains, he had claimed cost of improvement.
b)  The Assessing Officer had disallowed the claim of assessee merely because the loan was classified as a general loan and not as a housing loan. 
The Tribunal held as under:
1)  The assessee had claimed deduction of cost of improvement of property while computing capital gains during the assessment year 2006-07;
2)  The original construction of property was made in the year 1991-92, thus, there would have been some kind of improvement or maintenance after lapse of so many years. Therefore, the assessee’s claim could not be rejected in toto;
3)  The assessee would have spent considerable amount during the assessment year 2006-07 at least for maintenance of the building, if not on improvement of the original construction.

4)  Thus, cost of improvement could not be disallowed merely because it was sourced through general loan and not through housing loan. Therefore, rejecting the claim of the assessee in toto was not justified. - K.K. Venugopalv. Dy. CIT [2014] 42 389 (Cochin - Trib.)