2016 (7) TMI 57 - AT - Income Tax

Disallowance of 20% of the claim of expenditure not fully supported by vouchers - Held that - Though, the AO does say that the expenditure was not fully supported, he has not pointed out even a single specific instance. His conclusion that there were some personal elements in the claim of expenditure is also not supported by any specific findings. We find the disallowance to have been made purely on surmises. Such disallowance stands deleted. - Decided in favour of assessee. Adoption of cost of the shed - capital gain computation - Held that - As per the assessee this valuation report was obtained by the purchaser for raising a loan. Even if we accept the contention of the assessee that there was indeed a building in the plot, it is a fact that the balance sheet of the assessee did not reflect the cost of the building. On the other hand, it is an admitted position, that the HUF of which the assessee is the Karta had filed its return showing the cost of the shed in its balance sheet. The said HUF was also assessed to tax. When all these are seen together, in our opinion, it is clear that the building was owned by HUF, whereas the land was owned by the assessee. In such a situation, for computing the capital gains the assessee could not have deducted the cost of construction, since the construction did not belong to the assessee. Nevertheless, we find that the ld., CIT(A) in all fairness, had directed the AO to give the benefit of the cost of shed, as shown by the HUF in its balance sheet, while computing the capital gains of the assesee. As already mentioned by us, we cannot accept the pleading of the assessee that the building belonged to him, but not to HUF. - Decided against assessee Agricultural income not accepted but considered under the head Income from other sources - Held that - It might be true that that assessee was having 8 acres of agricultural land wherein Coffee was cultivated. However, mere ownership of agricultural property would not transform itself into income. The claim of assessee was that it had earned an agricultural income of ₹ 4,85,000/- from 8 acres of Coffee plantation. Assessee was not able to produce any evidence except for a certificate from the Revenue Inspector, Srimangala Hobli which gave details of crops grown. Assessee did not show anything to prove the sale of agricultural produce or receipts there from. In such situation, we cannot fault the ld. AO for following the NABARD guidelines. As per such guidelines income from a Coffee plantation would be in the range of ₹ 1000/- to 26,000/- from the 5th year to 9th year. The AO had taken an average of ₹ 12,000/- and estimated the agricultural income at ₹ 96,000/-. The average of ₹ 26.000/-and ₹ 1,000/- would be ₹ 13,500/- and not ₹ 12,000/-. Accordingly, income from 8 acres can be fairly estimated at ₹ 1,08,000/- therefore, we direct the addition to be restricted to ₹ 3,77,000/-. - Decided in favour of assessee in part

Summary

Issues Involved:
1. Disallowance of 20% of the expenditure.
2. Adoption of cost of shed for computing capital gains.
3. Treatment of agricultural income as income from other sources.
4. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Disallowance of 20% of the Expenditure:
The assessee contested the disallowance of 20% of the expenditure made by the Assessing Officer (AO) on the grounds that the claim was not fully supported by vouchers and presumed personal elements in the expenditure. The Tribunal noted that the AO did not point out any specific instance where the expenditure was unsupported or involved personal elements. The disallowance was found to be based on surmises and was thus deleted. The Tribunal allowed ground no. 2 & 2.1.

2. Adoption of Cost of Shed for Computing Capital Gains:
The assessee declared capital gains on the sale of a plot, including the cost of a factory shed. The AO re-computed the capital gains, disbelieving the cost of construction claimed by the assessee. The Tribunal examined the sale deed, which did not mention any building, and the purchase deed, which indicated superstructures on the plot. The Tribunal found that the building was owned by the HUF, not the assessee, and thus the cost of construction could not be deducted by the assessee. The Tribunal upheld the CIT(A)'s direction to give the benefit of the cost of the shed as shown by the HUF in its balance sheet. Ground no. 3 & 3.1 were dismissed.

3. Treatment of Agricultural Income as Income from Other Sources:
The assessee declared agricultural income from 8 acres of coffee plantation, which the AO reclassified as income from other sources based on NABARD guidelines. The Tribunal noted that the assessee could not produce evidence of sale or receipts from agricultural produce, except for a certificate from the Revenue Inspector. The Tribunal found the AO's estimation based on NABARD guidelines reasonable but corrected the average income calculation, estimating the agricultural income at ?1,08,000/-. The addition was restricted to ?3,77,000/-, providing partial relief to the assessee. Ground no. 4 & 4.1 were partly allowed.

4. Levy of Interest under Sections 234A, 234B, and 234C:
The assessee contested the levy of interest under sections 234A, 234B, and 234C of the Income Tax Act. The Tribunal noted that this ground was consequential and did not require adjudication.

Summary:
The appeal of the assessee was partly allowed, with the Tribunal deleting the disallowance of 20% of the expenditure, upholding the CIT(A)'s decision on the cost of the shed, and providing partial relief on the addition of agricultural income. The levy of interest under sections 234A, 234B, and 234C was deemed consequential and not adjudicated.