2019 (12) TMI 492 - AT - Income Tax

Capital gain by accepting 75% of the value estimated by the Registered Value - rejection of details of cost construction expenses and addition made by the assessee - HELD THAT - Since the CIT(A) has already accepted the fact that there was a construction and has not doubted the valuation report of the Registered Valuer. Thus, the Assessee before the AO has given the construction cost and the details while incurring the same. Therefore, the same cost cannot be estimated and cannot be disallowed. The evidences show that there is a construction cost incurred by the assessee and through the records the same was properly valued by the Registered valuer. Therefore, the estimation done by the CIT(A) is not justified in absence of any contrary material before the Assessing Officer as well as before the CIT(A). Therefore, we set aside the directions given by the CIT(A). Ground No.2 is allowed. Disallowance on account of commission paid on sale of property - AR submitted that usually for carrying out any purchase and sale transactions in the case of property, an agent is hired and the same is a common practice - HELD THAT - We have heard both the parties and perused all the relevant materials available on record. As regards commission paid, the assessee has not given any documentary evidence as regards to the payment made to the so-called agent. The evidence was not before the Assessing Officer as well as before the CIT(A). Therefore, in absence of any evidence, the CIT(A) has rightly confirmed this addition on account of commission expenses. Ground No.3 is dismissed. Disallowance of exemption u/s 54 - HELD THAT - We have heard both the parties and perused all the materials available on records. From the perusal of records, it can be seen that the assessee submitted certain documents before the Assessing Officer and the CIT(A) in respect of claiming benefit of exemption u/s 54F of the Act. The fact remains that the assessee sold property situated at Okhla and purchased a flat at Gurugaon. Whether the transaction of purchase is from borrowed fund or through own funds has not been properly verified by the AO or the CIT(A) before rejecting the assessee s said claim u/s 54F. Therefore, it will be appropriate to remand back this issue to the file of the AO to decide this issue a fresh after taking into consideration all the documents pertaining to sale and purchase of the properties and determine whether the investment is made either through borrowed fund or own fund. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 4 is partly allowed for statistical purpose.

Summary

Issues:
1. Disallowance of construction expenses claimed by the assessee.
2. Disallowance of commission on the sale of property.
3. Disallowance of exemption under section 54 of the Act.

Analysis:
1. Construction Expenses Disallowance:
The assessee claimed construction expenses related to a property sold, supported by a valuation report. The CIT(A) accepted 75% of the value estimated by the registered valuer, rejecting the claimed cost. The tribunal found that the assessee had provided details of the construction cost and valuation report. As there was no contrary material, the estimation by the CIT(A) was unjustified. The tribunal set aside the CIT(A)'s decision, allowing Ground No. 2.

2. Commission Disallowance:
The assessee contested the disallowance of a commission paid on the property sale, arguing it was a common practice and reasonable. However, no documentary evidence was presented regarding the payment. As evidence was lacking, the tribunal upheld the CIT(A)'s decision to confirm the disallowance of the commission expenses, dismissing Ground No. 3.

3. Exemption under Section 54 Disallowance:
Regarding the disallowance of exemption under section 54 of the Act, the assessee purchased a property using a mix of own and borrowed funds. The tribunal noted that proper verification of whether the investment was made through borrowed or own funds was lacking. Therefore, the issue was remanded back to the Assessing Officer for a fresh decision after considering all relevant documents. Ground No. 4 was partly allowed for statistical purposes.

In conclusion, the tribunal partly allowed the appeal of the assessee, setting aside the disallowance of construction expenses and remanding the issue of exemption under section 54 back to the Assessing Officer for further examination. The disallowance of the commission on the property sale was upheld due to the lack of documentary evidence.