2023 (7) TMI 1413 - AT - Income Tax

LTCG computation - Disallowing cost of improvement of the building - AO disallowed certain cash withdrawals as cost of construction/improvement while working out Long Term Capital Gains - HELD THAT - We find that though there is no appearance on the part of the ld AR nor any submissions have been filed, however, we find that the assessee has filed a copy of the Valuation Report wherein the value of the construction of the property has been determined at Rs.64,35,472/- wherein the value of the land has been taken at Rs.10,35,472/- and value of the 24000 sq.ft. built up area has been taken @ Rs.225/- per sq.ft. amounting to Rs.54 lacs. CIT(A) has mentioned about the documentary evidence in form of valuation report which could have been filed by the assessee in support of his contentions and the fact that the assessee has since filed a copy of the valuation report, we believe that in the present case, where there are withdrawals from the assessee s account, however, in absence of any bills/vouchers supporting the construction activities, the valuation report would be germane and relevant to determine the appropriate cost of construction which can be allowed to the assessee, we admit the same and deem it appropriate to set aside the matter to the file of the AO to examine the Valuation Report and decide the matter afresh after providing reasonable opportunity to the assessee. In the result, the ground of appeal is allowed for statistical purposes. Disallowance of various expenses claimed by the assessee - CIT(A) confirmed the addition holding that no satisfactory explanation has been submitted by the assessee - HELD THAT - As we find that this is clearly a case of adhoc disallowance which has no rationale and sound basis as no finding has been recorded by the AO that the assessee has claimed any bogus LPG/Diesel expenditure or the expenditure has not been incurred for the purposes of the assessee's business. In the light of same, the addition so made is hereby directed to be deleted. In the result, the ground of appeal is allowed.

Summary

Issues Involved: Appeal against order of ld. CIT(A)-3, Ludhiana dated 01.03.2019 regarding cost of building improvement and disallowance of expenses.

Cost of Building Improvement:
The appellant challenged the disallowance of cost of improvement of the building amounting to Rs.25,04,534. The AO disallowed certain cash withdrawals as cost of construction/improvement while working out Long Term Capital Gains. The appellant contended that the property sold was fully constructed, with a covered area of 24000 sq.ft., and the actual construction cost was Rs.53,06,000. However, the ld. CIT(A) upheld the AO's decision due to lack of conclusive documentary evidence linking the withdrawals to construction. The appellant appealed this decision.

During the appeal hearing, the Valuation Report submitted by the appellant valued the construction at Rs.64,35,472. Considering the availability of this report and the absence of bills/vouchers, the Tribunal set aside the matter to the AO for reevaluation based on the Valuation Report. The ground of appeal was allowed for statistical purposes.

Disallowance of Expenses:
The AO disallowed Rs.1 lakh out of total expenses claimed by the appellant in the hotel business, citing discrepancies in the allocation of expenses between different accounts. The ld. CIT(A) upheld this disallowance despite the appellant's explanation that the expenses were genuine and related to the business.

The Tribunal found the disallowance to be adhoc without a valid basis, as there was no evidence of bogus expenses or non-business-related expenditure. Consequently, the addition was directed to be deleted. The appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal allowed the appeal in part, directing a reevaluation of the cost of building improvement based on the Valuation Report and deleting the adhoc disallowance of expenses.