2021 (7) TMI 626 - AT - Income Tax

Disallowance of expenditure towards cost of improvement of the property - Computation of LTCG - AO was of the view that the expenditure incurred by the assessee was not towards improvement of the asset but only to maintain the asset - HELD THAT - AO disallowed this expenditure while computing the LTCG of the assessee because the mode of computation stated in section 48 of the Act only stipulates deduction towards expenditure incurred only and exclusively in connection with the transfer of the property and towards cost of improvement of the property. We do not find it necessary to interfere with the order of the Ld.AO because these expenses are incurred for the purpose of guarding the property and not for the purpose of the improvement of the property and there is no scope for any deduction U/s. 48 of the Act for the same as held by the ld. Revenue Authorities - disallowance of expenditure made by the Ld. AO which was further sustained by the Ld. CIT (A) towards cost of improvement of the property while computing the LTCG of the assessee is hereby confirmed. Disallowance towards expenditure incurred for transfer of capital asset - HELD THAT - We do not find it necessary to interfere with the order of the ld. Revenue Authorities, because the assessee has not provided any cogent evidence to establish that she had paid the amount for incurring brokerage expenses. The Ld. Revenue Authorities after examining the facts of the case have fairly granted deduction being 50% of expenditure incurred towards travelling for the purpose of transfer of the property. Accordingly, the order of the ld. Revenue Authorities are hereby confirmed. The assessee is a NRI and since she does not have any scope to generate cash in India the payment if at all made has to be by cheque or transfer from her bank account. Neither the assessee nor her counsel has clarified as to how the payments were made with evidence. In this situation the claim of the assessee that the payment were made to certain individuals by obtaining a receipt or affidavit from them cannot be relied upon. Levy of Interest U/s. 234A, B and C - HELD THAT - Interest U/s. 234A, B and C of the Act are with respect to the default on the part of the assessee. Section 195 of the Act also imposed an obligation to deduct tax at a specified rate on the part of a person responsible for paying any amount to a Non-Resident which is chargeable to tax under the provisions of the Act. However, it does not absolve the non-resident from payment of tax on the pretext that the payer would have deducted tax at source. As per the provisions of the Act, the NRI assessee would also be responsible for remittance of income tax in the Government treasury if the payer fails to deduct tax at source from the payment made to the NRI assessee which is chargeable to tax under the provisions of the Act. Even in the case of the assessee the provisions of section 234A, B and C of the Act are consequential in nature and therefore we do not find it necessary to interfere with the orders of the Ld. Revenue Authorities on this issue.

Summary

Issues Involved:
1. Disallowance of expenditure towards cost of improvement of the property.
2. Disallowance of expenditure incurred for transfer of capital asset.
3. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.

Issue 1: Disallowance of Expenditure Towards Cost of Improvement of the Property:
The assessee claimed various expenses as the cost of improvement of the property while computing Long Term Capital Gains (LTCG). The Assessing Officer (AO) disallowed specific amounts, such as expenses for construction of watchman quarters and stone cutting charges, due to lack of evidence and relevance to property improvement. The CIT (A) upheld the AO's decision. The tribunal concurred, stating that the expenses did not directly contribute to property improvement but were for maintenance. As the assessee failed to provide substantial evidence, the disallowance was confirmed.

Issue 2: Disallowance of Expenditure Incurred for Transfer of Capital Asset:
The assessee claimed expenses for brokerage and travel related to the property transfer. The AO disallowed a significant portion of these expenses due to insufficient evidence, except for a partial deduction for travel expenses. The CIT (A) upheld the AO's decision. The tribunal agreed, emphasizing the lack of concrete proof of payments made for brokerage and other expenses. The tribunal confirmed the disallowance, noting the absence of evidence regarding payment methods and recipients.

Issue 3: Levy of Interest Under Sections 234A, 234B, and 234C of the Act:
The assessee, being a Non-Resident Individual (NRI), argued that interest levied under these sections was not applicable as tax deductions should have been made at the source by the property purchaser. However, the tribunal held that the NRI remains responsible for tax remittance if deductions were not made at the source. Therefore, the tribunal upheld the levy of interest under sections 234A, 234B, and 234C, as it was consequential to the default on the part of the assessee.

In conclusion, the tribunal dismissed the appeal of the assessee, upholding the decisions of the lower authorities on all issues. The judgment was pronounced on 13th July 2021 by the Appellate Tribunal ITAT Hyderabad, with detailed reasoning provided for each issue addressed in the appeal.