2019 (3) TMI 1107 - AT - Income Tax

Long term capital gain - deduction of expenditure related to sale of assets - Exemption u/s.54F - After claiming certain expenditure of sale, i.e. development of land, commission expenses and after indexation of cost of land and further claiming exemption u/s.54F etc., the assessee claimed total long term capital gain at Nil - AR contended that the assessee was not having good terms with these two persons to whom payment of commission was made through banking channel - HELD THAT - It was explained that the amount was genuinely paid to these two persons. It is seen as an admitted position that the assessee could not produce these two persons before the AO despite request made by him in this regard. In view of the fact that the ld. AR has claimed that these two persons can be now made available, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is restored to the file of AO. We order accordingly and direct him to examine the claim of the assessee in respect of commission paid to these two persons at ₹ 8.00 lakh which is shared by both the assessees in question. Development cost of land claimed by the assessee - AO disallowed 10% of total expenses incurred by the assessee and computed capital gains accordingly - HELD THAT - It is apparent from the report of the Inspector that the claim of the assessee stood verified and vouched that he carried out development of land by constructing boundary wall, borewells, installation of electrical pump sets etc. When the report of the Inspector was given to the AO fortifying the claim of the assessee, there could have been no reason to disallow 10% of the expenditure incurred by the assessee in this regard. Such an ad hoc addition, in our considered opinion, cannot be sustained. We, therefore, order to delete the addition. Exemption claimed u/s.54F - HELD THAT - As evident from the above extracted portion of the assessment order that the limited scrutiny was qua exemption, inter alia, u/s.54 etc. and capital gain consideration. All the issues taken note by the AO in the case of both the assesses are qua the computation of the ultimate amount of capital gains from the transfer of the same property. It is not as if the AO, after initiating limited scrutiny for examination of capital gains, proceeded to make some other addition under some other heads etc. As such, no fault can be found in the action of the AO in examining different facets of the computation of capital gain. We, therefore, dismiss the additional ground raised in both the appeals.

Summary

Issues:
1. Verification of commission payments made by the assessee.
2. Disallowance of development cost of land.
3. Exemption claimed under section 54F of the Income Tax Act.
4. Denial of exemption under section 54F for construction cost.
5. Jurisdictional issue regarding CASS scrutiny.

Issue 1 - Verification of Commission Payments:
The assessee claimed a deduction for commission payments made to certain individuals. The AO disallowed a portion of the claimed amount as two individuals did not respond to verification requests. The CIT(A) upheld the disallowance due to lack of evidence. The Tribunal ordered a re-examination by the AO as the assessee claimed availability of the two persons for verification, emphasizing the need for proper evidence.

Issue 2 - Disallowance of Development Cost:
The AO disallowed 10% of the development cost claimed by the assessee for land development. The Inspector's report confirmed the development activities carried out by the assessee. The Tribunal found the disallowance unjustified and ordered deletion of the addition, as the Inspector's report supported the assessee's claim.

Issue 3 - Exemption under Section 54F:
The assessee claimed exemption under section 54F for expenses incurred on a residential house. The AO disallowed a portion of the claimed amount without sufficient basis. The Tribunal held that the ad hoc disallowance was unjustified, as the Inspector verified the construction activities. The Tribunal directed deletion of the addition.

Issue 4 - Denial of Exemption for Construction Cost:
In a separate case, exemption under section 54F was denied for construction cost due to lack of proper documentation. The AO cited ongoing construction as a reason for non-verification. The Tribunal ordered a re-verification with relevant documents and directed the assessee to provide necessary proofs for the claimed construction cost.

Issue 5 - Jurisdictional Issue Regarding CASS Scrutiny:
The assessee raised a jurisdictional issue regarding the AO's examination beyond the scope of limited scrutiny under CASS. The AO's actions were challenged for exceeding the specified scrutiny areas. The Tribunal found the AO's actions justified as they related to the computation of capital gains, dismissing the jurisdictional challenge raised by the assessee.

In conclusion, the Tribunal partially allowed both appeals, directing re-examination of certain aspects by the AO, emphasizing the importance of proper verification and supporting documentation in tax assessments.