2014 (7) TMI 839 - AT - Income Tax

Indexed cost of improvement computation of long term capital gain on development right - Held that - The assessee has discharged the onus by providing the details of expenditure and payments made during the assessment proceedings - the assessee cannot be compelled to produce original bills/vouchers/books of accounts of M/s. Ramesh Builders to examine the claim and the personal presence of the developer there was no justification on the part of the authorities to deny/disallow the expenditure claimed by the assessee. - Decided in favor of assessee. As regard the additional indexed cost of improvement claimed by the assessee, it is relevant to point out that the assessee, during the course of the assessment proceedings, has revised the claim of deduction claimed in the return of income - , according to the Ld.CIT(A), there was no binding obligation on the assessee to sign an agreement with the builder for his efforts to release the property from the State Government acquisition. Thus, the Ld.CIT(A) was of the view that the claim of development charges by the assessee was after thought and the said expenditure was not spent by the assessee and thereby confirmed the disallowance made by the AO. - Held that - CIT(A) are justified for denying the additional claim, there was no reason to interfere with the decision of the CIT(A) Decided against Assessee. Income from house property Held that - CIT(A) determined the value per month which he considered to be a reasonable value - Neither the AO nor the CIT(A) has estimated the value of property on any reasonable basis - estimation by both the authorities is based on assumptions and presumptions which is not legally tenable - the AO is directed to accept the value shown by the assessee in respect of the property Decided in favour of Assessee. Expenses of rental & electricity, repairs & maintenances and office expenses Held that - The authorities were of the view that the assessee was running the business of bill discounting from the assessee s house and due to the involvement of personal use, the disallowance has been made/confirmed by the AO/CIT(A) - similar expenses have been accepted in the past and subsequent AYs, no disallowance is warranted on this count - the assessee is running the business of bill discounting from her house and therefore the involvement of personal use cannot be ruled out - similar expenses have been allowed in the earlier and subsequent AYs - the ad hoc disallowances are restricted to 1/3 of the expenditure claimed by the assessee Decided partly in favour of Assessee. Regarding the adhoc disallowance of office expenses, assessee has claimed the expenses under various head - assessee has not produced proper voucher for the expenditure and personal expenditure of the proprietor, CIT(A) is justified in confirming the ad hoc disallowance Decided against Assessee.

Summary

Issues Involved:
1. Deduction of indexed cost of improvement claimed by the assessee.
2. Assessment of income from house property.
3. Disallowance of expenditure on rental, electricity, repairs, maintenance, and office expenses.

Detailed Analysis:

1. Deduction of Indexed Cost of Improvement:
The assessee contested the decision of the CIT(A) confirming the AO's disallowance of Rs. 22,09,388 as indexed cost of improvement claimed in the return of income and an additional indexed cost of Rs. 43,07,218 claimed during assessment proceedings.

Facts and Arguments:
- The assessee, as the sole Executrix of her late mother's estate, entered into a Development Agreement with a developer, receiving Rs. 3,35,00,000 for exclusive development rights of a land parcel.
- The assessee claimed an expenditure of Rs. 43,86,789 towards property improvement, considering Rs. 16,73,681 as the cost of improvement in the capital gain computation.
- The AO requested original bills and vouchers from the developer, which the assessee failed to provide, leading to the disallowance of the claimed indexed costs.
- The CIT(A) upheld the AO's decision, noting that there was no binding obligation on the assessee to reimburse the developer for efforts made years earlier without a formal agreement.

Judgment:
- The Tribunal found that the assessee provided sufficient details and supporting documents for the Rs. 22,09,388 claimed in the return of income. The disallowance was thus unjustified, and the amount was allowed.
- However, the Tribunal upheld the CIT(A)'s decision to deny the additional indexed cost of Rs. 43,07,218, agreeing that the reasons for denial were justified.

2. Assessment of Income from House Property:
The assessee challenged the CIT(A)'s assessment of house property income at Rs. 42,000 against Rs. 5,040 declared.

Facts and Arguments:
- The assessee owned two properties: one self-occupied in Mumbai and another in Goa.
- The AO estimated the deemed value of the Goa property at Rs. 12,000 per month, which the CIT(A) adjusted to Rs. 5,000 per month, considering it a premium holiday location.

Judgment:
- The Tribunal noted that both the AO and CIT(A) based their estimations on assumptions without a reasonable basis.
- The Tribunal directed the AO to accept the value shown by the assessee, setting aside the higher estimates.

3. Disallowance of Expenditure on Rental, Electricity, Repairs, Maintenance, and Office Expenses:
The assessee contested the disallowance of expenses related to rent, electricity, repairs, maintenance, and office expenses.

Facts and Arguments:
- The AO and CIT(A) disallowed 2/3 of the expenses on the grounds of personal use, as the business was run from the assessee's home.
- The assessee argued that similar expenses were accepted in past and subsequent years.

Judgment:
- The Tribunal acknowledged the personal use factor but noted the consistency of expense claims in other years.
- The Tribunal reduced the disallowance to 1/3 of the claimed expenses, partially allowing the assessee's appeal.
- Regarding the disallowance of Rs. 15,000 for office expenses due to insufficient vouchers, the Tribunal upheld the CIT(A)'s decision, finding it justified.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal providing relief on specific counts while upholding other disallowances based on the presented evidence and legal principles.