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2017 (5) TMI 201 - AT - Income TaxDisallowing the cost of improvement - adoption of FMV - A.O. has re-worked cost of land mainly on the ground that as per the books of accounts, the cost of land is much below the cost of land claimed by the assessee as on 1.4.1981 - Held that - We do not find any merits in the findings of the A.O., for the reason that the impugned property was purchased in the year 1962. We further observed that as per provisions of section 48 of the Act, the assessee can adopt either cost of the land or fair market value as on 1.4.1981 when the land was purchased prior to 1.4.1981. In this case, admittedly, the land was purchased prior to 1.4.1981. Therefore, we are of the view that there is no error in adopting the fair market value of the land as on 1.4.1981, as against the cost of land in the books of accounts. The assessee has adopted cost of acquisition based on the certificate issued by the SRO. On the other hand, the A.O. has adopted cost of acquisition as per the purchase cost of the land, which was purchased prior to 1.4.1981. Therefore, we are of the view that the A.O. was erred in working out indexed cost of land based on the purchase cost of the property, ignoring the provisions of section 48 of the Act, as well as the SRO value fixed by the State Government. The CIT(A) after considering relevant provisions of the Act, has rightly directed the A.O. to allow cost of acquisition of the land as on 1.4.1981. We do not find any error in the order of the CIT(A). Hence, we uphold the CIT(A) order and reject the ground raised by the revenue. Indexed cost of building - Held that - The assessee has incurred an amount of ₹ 1,77,624/- towards construction of building for the financial year 1988-89 which was declared in the books of accounts. The A.O. never doubted the source of expenditure incurred for construction of building. But, he doubted the genuineness of the expenditure for failure to file the return of income by the assessee. Therefore, we are of the view that the A.O. was incorrect in disallowing the cost of building, despite the assessee has proved the cost of building with necessary evidences and also which was further supported by the sale deed wherein the existence of building was recorded in the schedule of the property. The CIT(A) after considering relevant provisions of the Act, has rightly directed the A.O. to allow cost of building. We find no error in the order of the CIT(A). Hence, we uphold CIT(A) order and reject ground raised by the revenue. Disallowance of cost of development and improvement to the building - A.O. disallowed cost on the ground that the assessee failed to prove the cost of development with necessary evidences - Held that - A.O. was erred in disallowing cost of improvement/development merely on the ground that the assessee has not filed return of income. The filing of return of income is based on the taxable income for the relevant assessment years,. In case the assessee does not have taxable income, the assessee need not to file the return of income. Just because return of income was not filed it cannot be held that the assessee has not proved the expenditure. In this case, the assessee has filed balance sheets filed with the ROC, wherein the amount incurred for construction of building has been disclosed. The assessee also disclosed the existence of building in the sale deed. Therefore, we are of the view that the A.O. was completely erred in disallowing expenses incurred towards improvement of building. The CIT(A) after considering relevant facts has rightly directed the A.O. to allow cost of development/improvement. Disallowance of brokerage and commission - non deduction of TDS u/s 40(a)(ia) - contention of the assessee that the A.O. was erred in disallowing brokerage and commission u/s 40(a)(ia) of the Act, as the said section requires disallowance only in the case of computation of income from profits and gains of business or profession, but not under the head income from capital gains - Held that - We find force in the arguments of the assessee, for the reason that the section 40(a)(ia) of the Act only applies when income is computed under the head profit & gains from business or profession, but not under the head income from capital gains . Therefore, we direct the A.O. to allow expenditure claimed under the head brokerage and commission . Disallowance of expenses on transfer being compensation paid for property dispute - A.O. disallowed claim on the ground that the assessee failed to substantiate the expenditure with necessary evidences - Held that - CIT(A) after considering the relevant documents has directed the A.O. to allow a sum of ₹ 22 lakhs out of ₹ 24,70,000/- claimed by the assessee towards expenses of transfer being compensation paid for resolving dispute and also expenses of litigation. We do not find any error in the order of the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue.
Issues Involved:
1. Re-working indexed cost of land and building. 2. Disallowance of brokerage and commission expenses. 3. Disallowance of expenses on transfer being compensation paid for property dispute. 4. Disallowance of cost of development/improvement to the building. Detailed Analysis: 1. Re-working Indexed Cost of Land and Building: The assessee company sold property in two financial years corresponding to assessment years 2007-08 and 2008-09 but did not file returns initially. The Assessing Officer (A.O.) reworked the indexed cost of land and building based on the purchase cost recorded in the balance sheet, disallowing the fair market value as on 1.4.1981 claimed by the assessee. The CIT(A) held that as per section 48 of the Act, the assessee can adopt either the actual cost or the fair market value as of 1.4.1981 for properties acquired before that date. The CIT(A) directed the A.O. to use the fair market value as evidenced by a certificate from the Sub-Registrar Office (SRO), which the Tribunal upheld. 2. Disallowance of Brokerage and Commission Expenses: The A.O. disallowed brokerage and commission expenses under section 40(a)(ia) for non-deduction of tax at source. The CIT(A) observed that section 40(a)(ia) applies to business income computations, not capital gains. The Tribunal agreed, directing the A.O. to allow these expenses. 3. Disallowance of Expenses on Transfer Being Compensation Paid for Property Dispute: The A.O. disallowed compensation expenses paid to settle a property dispute due to lack of evidence. The assessee provided evidence of a civil suit and a compromise decree, including a payment of ?20 lakhs by demand draft. The CIT(A) allowed ?22 lakhs of the claimed ?24.7 lakhs, which the Tribunal upheld, noting the genuineness of the expenses was not in doubt. 4. Disallowance of Cost of Development/Improvement to the Building: The A.O. disallowed the cost of development/improvement due to insufficient evidence and non-filing of returns in earlier years. The assessee provided financial statements and sale deed details showing a 40,000 sq.ft. building constructed at a cost of ?26,52,000/-. The CIT(A) found the A.O.'s disallowance incorrect, directing the allowance of these costs, which the Tribunal upheld. Conclusion: The Tribunal dismissed the appeals by the revenue and upheld the CIT(A)'s orders on all issues, allowing the assessee's claims for fair market value adoption, brokerage and commission expenses, compensation for property dispute, and development/improvement costs.
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