2019 (12) TMI 599 - AT - Income Tax

Disallowance of cost of construction cost of improvement of property while computing the Long Term Capital Gain - No documentary evidences in support of the construction work of boundary wall - HELD THAT - The assessee has not produced any documentary evidences in support of the construction work of boundary wall except the receipts issued by these persons namely Shri Sharwan Lal Saini, Shri Arjun Lal Kumawat and Shri Sita Ram Verma, as well as affidavit of these persons. However, if the boundary wall which is a matter of fact and existence is found existed on the plot of land then the claim of the assessee cannot be rejected in toto. Only dispute between the assessee and AO is with regard to correct cost of construction of boundary wall. AO has not conducted any enquiry to contradict the claim of boundary wall on the plot of land. AO has denied the claim of cost of construction but has not denied that boundary is constructed. Therefore, once the existence of the assessee s boundary wall is not denied by conducting any enquiry or verification of the fact by the AO then the claim of cost of construction made by the assessee cannot be denied in toto. The assessee has claimed the cost of construction at ₹ 3.83 lacs and filed the receipts as well as affidavits of three persons to whom payment was made for the work of cost of construction of boundary wall. Though the AO could not examine these persons for want of service of notice yet the cost of construction of boundary wall could have been otherwise estimated by the AO through expert being DVO. In the absence of carrying out such an exercise of ascertaining the correct cost of construction on the part of the AO, the evidences produced by the assessee cannot be rejected. Accordingly, in the facts and circumstances of the case, the claim of cost of construction of boundary wall deserves to be allowed. It is clarified that since it is a case of construction of boundary wall, therefore, the non-mentioning of the same in the sale deed will not ipso fact lead to the conclusion that boundary wall was not in existence on the plot of land. Thus the appeal of the assessee is partly allowed.

Summary

Issues:
1. Enhancement of income from Long Term Capital Gain
2. Disallowance of cost of construction as cost of improvement of the property

Issue 1: Enhancement of income from Long Term Capital Gain
The appeal was against the order of the ld. CIT(A) confirming the action of the AO in increasing the income from Long Term Capital Gain. The delay of three days in filing the appeal was condoned due to a valid reason provided by the assessee's representative. During the hearing, the assessee decided not to press Ground No. 1 of the appeal, which was subsequently dismissed.

Issue 2: Disallowance of cost of construction as cost of improvement of the property
The AO disallowed the deduction claimed by the assessee for the cost of construction while computing Long Term Capital Gain, as there was no mention of construction in the sale deed. The AO issued summons to verify the construction work, but they were returned unserved. The assessee contended that the construction was of a boundary wall, not a building, and provided details of costs and payments made. The ld.AR submitted ledger accounts, receipts, and affidavits as evidence. The ld. DR argued that the source of construction cost remained unexplained, as there were no withdrawals from the business entity. The Tribunal noted that while the AO did not deny the existence of the boundary wall, no enquiry was conducted to ascertain the correct cost of construction. As the boundary wall's existence was not disputed, the claim for the cost of construction was allowed. The Tribunal clarified that the non-mentioning of the boundary wall in the sale deed did not negate its existence, and partially allowed the appeal.

In conclusion, the appeal was partly allowed concerning the disallowance of the cost of construction as a cost of improvement of the property.