2020 (7) TMI 747 - AT - Income Tax

Computation of capital gain - Disallowance of indexed cost of improvement claimed on sale of plot - computing the long term capital gain as against long term capital loss computed by the assessee - whether CIT(A) has erred in holding that agreement with contractor and his affidavit in respect of expenditure incurred on cost of improvement looks an afterthought story without any material basis - HELD THAT - The assessee owns a plot of land measuring 200 sq yards and a part of the said plot measuring 133.33 sq yards, has been sold during the year. On perusal of the sale deed so executed by the assessee, the description of the property sold is shown as residential plot no. 10 Plot No.10, Bajrang Nagar, Village- Cha Getor, Tehsil-Sanganer, District Jaipur and even the site plan attached with the sale deed depicts the plot of land and doesn t show any constructed area thereon. At the same time, there is averment towards the end of the said sale deed that in the plot so sold, there is constructed area of 900 sq feet. We therefore find inconsistency in the sale deed so executed so far as the exact description of the property is concerned. It unusual that construction of 900 sq feet as so claimed by the assessee has taken around eight months time to construct and thereafter, as soon as construction was completed, the assessee has sold the property in less than a month. If the intention of both the parties was to sell and purchase a constructed property, in such a scenario, the description of the property so stated in the sale deed should have been a constructed property instead of a plot of land. Further, what stops the assessee in submitting the affidavit of buyer and the photographs of the property in support of its claim rather than merely relying on a third party averments. Therefore, the third party averments can come to the aid of the assessee once it is proved that there was actual construction and then, in support of cost of construction, such averments may be examined along with proof of actual payment which again is absent in the instant case. We are of the considered view that the assessee has failed to discharge the necessary onus placed on him in support of his claim of construction on the property at the time of sale and cost of construction as so claimed has therefore rightly been rejected by the lower authorities and the matter is decided against the assessee and in favour of the Revenue.

Summary

Issues:
1. Disallowance of indexed cost of improvement in computing long term capital gain.
2. Allowability of expenditure incurred on construction of basement on the plot.

Analysis:
1. The appeal was against the disallowance of indexed cost of improvement claimed by the assessee in computing long term capital gain. The assessee sold a plot and incurred expenditure on construction before the sale. The AO disallowed the cost of improvement due to lack of supporting bills/vouchers. The CIT(A) upheld the disallowance. The assessee argued that documents provided were sufficient evidence of the construction cost. The Tribunal noted that the sale deed mentioned a constructed area, but inconsistencies raised doubts. The agreement with the contractor and affidavit were deemed insufficient proof of actual construction. The Tribunal held that the assessee failed to provide verifiable evidence of the construction, leading to the dismissal of the appeal.

2. The main dispute was the allowability of expenditure on the construction of a basement on the plot sold by the assessee. The assessee provided an agreement with the contractor and an affidavit to support the cost of construction. The lower authorities rejected these documents due to lack of supporting evidence. The assessee argued that the rejection was unjustified as the fact of construction was not denied, and the documents provided were not discredited. The Tribunal noted inconsistencies in the sale deed and lack of buyer confirmation or photographs to prove the construction. The agreement and affidavit were considered insufficient evidence of actual construction. The Tribunal held that the assessee failed to meet the burden of proof, leading to the dismissal of the appeal.

Conclusion:
The Tribunal dismissed the appeal, upholding the disallowance of the claimed cost of improvement in computing long term capital gain due to the assessee's failure to provide sufficient evidence of the construction cost. The documents submitted were deemed insufficient to prove the actual construction on the property sold, resulting in the decision against the assessee and in favor of the Revenue.