2018 (9) TMI 532 - AT - Income Tax

Revision u/s 263 - computation of long term capital gain against the sale of immovable property - claim of deduction towards indexed cost of construction of compound wall and the cost of improvements - Held that - As compound wall cannot be demolished for vastu defect even we assume that there was a vastu defect, the assessee has not filed any details except agreement entered with one Mr. Narayana, who is mason. So far as existence of construction of shed is concerned, the assessee has not filed any house number or electricity bill or municipal tax receipt. Only his case is based on agreement entered with Mr.Narayan. On the basis of agreement, it cannot be said that there was a compound wall and also a shed constructed, particularly the sale deed dated 10/11/2009 clearly mentioned that the assessee has only transferred vacant land to the purchaser. CIT has rightly considered that the order passed by the AO is erroneous and prejudicial to the interests of the revenue and directed the AO to disallow the said amount. We find no reason to interfere with the order passed by the ld. CIT(A). - Decided against assessee

Summary

Issues Involved:
1. Validity of the Assessing Officer's acceptance of the assessee's claim for indexed cost of construction and improvement.
2. Legitimacy of the Principal Commissioner of Income Tax's revision of the assessment order under Section 263 of the Income Tax Act, 1961.
3. Consideration of evidence provided by the assessee to support the claim of indexed cost of improvements.
4. Applicability of case law relied upon by the assessee.

Issue-wise Detailed Analysis:

1. Validity of the Assessing Officer's acceptance of the assessee's claim for indexed cost of construction and improvement:
The assessee, an individual who did not initially file a return of income, was issued a notice under Section 148 of the Income Tax Act, 1961. In response, the assessee admitted to a long-term capital gain of ?5,05,415/- from the sale of an immovable property. The Assessing Officer invoked Section 50C and adopted the sale consideration as ?20 lakhs based on the SRO value. The assessee claimed indexed costs of construction and improvement amounting to ?13,63,507/-, supported by contract agreements and receipts. The Assessing Officer accepted these claims and completed the assessment, allowing the indexed costs.

2. Legitimacy of the Principal Commissioner of Income Tax's revision of the assessment order under Section 263 of the Income Tax Act, 1961:
The Principal Commissioner of Income Tax (PCIT) reviewed the records and found that the property sold was a vacant land without any structures or compound wall. The PCIT determined that the Assessing Officer should have disallowed the claim for indexed costs of construction and improvement, as there was no evidence of such structures existing at the time of sale. Consequently, the PCIT issued a show-cause notice to the assessee, proposing to revise the assessment order under Section 263, deeming it erroneous and prejudicial to the interests of the Revenue.

3. Consideration of evidence provided by the assessee to support the claim of indexed cost of improvements:
The assessee submitted a detailed reply explaining the construction of a compound wall and a shed due to a clause in the allotment deed requiring construction within 12 months. The assessee claimed these structures were later demolished due to Vastu defects and provided contract agreements and receipts as evidence. However, the PCIT found no reference to such constructions in the sale deed and concluded that the assessee's explanation was not credible. The PCIT observed that the Assessing Officer had allowed the indexed costs based on insufficient evidence, making the assessment order erroneous.

4. Applicability of case law relied upon by the assessee:
The assessee's counsel cited the case of Shri Boda Dinesh Reddy (HUF) vs. DCIT to support the claim. However, the Tribunal found the facts of the cited case different from the present case. In the cited case, there was evidence of an old building being demolished, whereas, in the present case, no such evidence was provided by the assessee. The Tribunal concluded that the reliance on this case law was not applicable to the current facts.

Conclusion:
The Tribunal upheld the PCIT's decision to revise the assessment order under Section 263, agreeing that the Assessing Officer's acceptance of the indexed costs of construction and improvement was erroneous and prejudicial to the interests of the Revenue. The appeal filed by the assessee was dismissed, affirming the PCIT's directive to disallow the claimed expenditure of ?13,63,507/-. The Tribunal found no reason to interfere with the PCIT's order, and the case law cited by the assessee's counsel was deemed inapplicable.