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2013 (7) TMI 724 - AT - Income TaxDeduction of cost of improvement of land from the Capital Gains - The assessee purchased land at VGP Golden Beach South Part VIII, a Tambaram, Dist., Kancheepuram, Tamilnadu admeasuring about 80400 sq.ft. purchased as per purchase deed dated 23.4.1981 showing aggregating amount of Rs.6,86,550/-. The assessee stated that there was an expenditure incurred towards cost of improvement of said land in Financial Year ending 31.3.1989 of Rs.8,54,325/- and in the year ending on 31.3.1990 of Rs.14,86,751/- . Thus, the assessee claimed aggregating amount of Rs.23,41,076/- towards cost of improvement of the said land - The assessee sold 66000 sq.ft. area of the said land for a total consideration of Rs.1,38,75,000/- during the Financial Year relevant to the assessment year under consideration - the assessee claimed cost of improvement of land and after taking into account the indexation cost of the said improved land considered it at Rs.69,33,151/- - Held that - Appellant ought to be given atleast partial benefit if not fully. It is seen that the appellant has been borrowing funds from other sister concerns whether it be for the purchase of the land or for making improvements in land - It is a general practice that the vacant plot of land is fenced and boundary wall constructed for the safety of the property as also to separate the property from others. Considering the fact that at the time of purchase of the land, no such cost was incurred as could be seen from the debit note raised by VGP Housing P. Ltd., it would be fair and reasonable to allow the appellant some benefit of cost of improvement in absence of the direct evidences to this effect Decided against the Revenue. Considering the total area of land of 80,400 sq. ft., I hold that it would meet the end of justice if the appellant is allowed total expenditure of Rs.20 lacs towards the fencing, main gate, etc., which amount is directed to be bifurcated by considering Rs.7 lacs in year ending on 31/3/1989 & Rs.13 lacs in the year ending on 31/3/1990 for the purposes of indexation benefit - Proportionate theory is to be applied, the total cost of improvement for the area of land sold of 66,000 sq. ft. would amount to Rs.16,41,791/- and thus, the expenses on improvement would be taken at Rs.5,74,627/- for the year 31.3.1989 and Rs.10,67,164/- for the year ending on 31/3/1990. Thus, the indexed cost of improvement would work out - For 31/3/1989 - 574627 x 497/161 17,73,849; For 31/3/1990 - 1067164 x 497/172 30,83,607/- - the aggregate figure of indexed cost of improvement of Rs.48,57,456/-, which would be reduced from the sale consideration to arrive at the long term capital gains.
Issues Involved:
1. Whether the CIT(A) erred in restricting the disallowance of expenditure on improvement of land to Rs. 3,40,751/- against Rs. 23,40,751/- disallowed by the AO. Detailed Analysis: Issue 1: Restriction of Disallowance of Expenditure on Improvement of Land The department appealed against the CIT(A)'s decision to restrict the disallowance of expenditure on land improvement to Rs. 3,40,751/- from Rs. 23,40,751/- as disallowed by the AO. Facts: - The assessee declared a total income of Rs. 5,83,363/- for the assessment year 2006-07, showing income from interest, dividends, and long-term capital gains. - The assessee purchased land in 1981 and claimed improvement costs of Rs. 8,54,325/- in FY 1988-89 and Rs. 14,86,751/- in FY 1989-90, totaling Rs. 23,41,076/-. - The land was sold for Rs. 1,38,75,000/- in the relevant financial year, and the assessee calculated taxable gains as "Nil" after considering the indexed cost. AO's Findings: - The AO disallowed the entire improvement cost claim due to lack of evidence. - The assessee argued that documents were destroyed by a director's estranged wife, but the AO found this unconvincing. CIT(A)'s Decision: - CIT(A) accepted the assessee's explanation regarding the destruction of documents and considered circumstantial evidence. - CIT(A) found the balance sheets of the sister concern, M/s. Crystal Shipping, which provided unsecured loans for the improvements, credible. - CIT(A) allowed a partial benefit, setting the total improvement cost at Rs. 20,00,000/- and proportionately allocating Rs. 16,41,791/- to the 66,000 sq. ft. of land sold. - The indexed cost of improvement was calculated at Rs. 48,57,456/-, to be deducted from the sale consideration. Tribunal's Analysis: - The Tribunal noted that the department's appeal did not factually align with the CIT(A)'s findings. - The department failed to substantiate claims of additional evidence being admitted by CIT(A) in violation of Rule 46A. - The Tribunal examined the balance sheets from 1989 to 2006, which reflected the claimed improvement costs. - The balance sheets were signed by directors and auditors, supporting the assessee's claim. - The Tribunal upheld CIT(A)'s decision, finding no infirmity in the order and rejecting the department's appeal. Conclusion: The Tribunal dismissed the department's appeal, affirming CIT(A)'s decision to restrict the disallowance of improvement expenditure to Rs. 3,40,751/- based on the evidence presented and the indexed cost calculations. Order Pronounced: The order was pronounced in the open court on 16th July 2013, dismissing the department's appeal.
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