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2022 (1) TMI 630 - AT - Income TaxDisallowance of Cost of Improvement of cost of assets sold - as per AO there was no evidence in respect of improvements carried out and the year of construction of the same - AO has referred the matter to the DVO u/s 55A - HELD THAT - The Income Tax Authorities has not taken into consideration the DVO s report wherein it is clearly mentioned the probable cost of improvement undertaken during the financial year 1998-1999 as per Annexure-II - in the case of CIT v. Dr.Indra Swaroop Bhatnagar 2013 (2) TMI 456 - ALLAHABAD HIGH COURT had held that DVO s report is binding on the Income Tax Authorities. In the instant case the DVO s report has been received subsequent to the order of the A.O. The A.O. did not have an occasion to consider the same. In the facts and circumstances of the case it is necessary the same needs to be considered. Therefore we restore the issue to cost of improvement of assets sold (with reference to cost of improvement made in the financial year 1998-1999) to the files of the A.O. The A.O. shall take into consideration the DVO s report and accordingly make the computation for long term capital gains. Ground allowed for statistical purposes. Disallowance of Brokerage in respect of transfer of his old asset - HELD THAT - Admittedly the brokerage paid for sale of old asset was not claimed by the assessee neither in the original return of income nor in the revised return of income. The payment has been made in cash. The assessee has only produced receipt of Sri.S.T.Yogesh Neetha Real Estate Bangalore stating that towards brokerage charges for arranging residential premises. Since the payment has been made in cash and the claim has not been made in the original nor in the revised return we confirm the orders of the Income Tax Authorities on this issue. Unexplained cash credit u/s 69A - HELD THAT - As the amount was received through banking channel from the purchaser of the old asset. Therefore the source of amount was never in dispute. The agreement for sale with regard to amenities and movables dated 16.03.2014 narrate the details of the furniture and fixture that are transferred to the buyer of the old asset. The said sum is nothing but linked with the sale of capital asset. Therefore the sum received over and above amount mentioned in sale deed needs to be assessed under the head income from capital gains . It is ordered accordingly. Alternate plea that the entire amount is exempt from tax since the same represents sale of personal effect which are outside the definition of capital asset within the meaning of section 2(14) - Since in the foregoing paragraphs we have held that 15 lakh is linked to the sale of capital asset is to be brought to tax as income from long term capital gains. Therefore the ground 5 raised by the assessee is rejected. Cost of improvement of assets purchased - For the new asset purchased the assessee claims that he had paid an amount to the seller by bank channel for making some renovation at his instance and said amount paid was claimed as part of cost of the new asset for claiming deduction u/s 54 - HELD THAT - Assessee claims that 14.50 lakh has been paid to the seller of flat to make certain modifications for making it habitable. The assessee has produced copy of agreement entered by the assessee and the seller whereby a sum of 14.50 lakh is paid for making necessary modification to make the flat habitable. The A.O. has also referred the new property for valuation as point 8(d) of the reference u/s 55A of the Act. However the DVO has not made valuation of the new property. In the interest of justice and equity we are of the view that this matter requires reexamination by the A.O. and if required the reference may be made to DVO u/s 55A of the Act for valuation of the new asset. It is ordered accordingly. Brokerage on purchase of new asset - HELD THAT - The assessee has filed copy of the receipt from broker Sri.Saadiq Ahmed. However the said receipt does not contain the address of the broker. The amount originally written was 69, 000 and was struck off and 50, 000 is written in hand. Admittedly there is no cheque payment insofar as 50, 000 to the broker. In such facts and circumstances of the case we hold that the Income Tax Authorities are justified in disbelieving the payment of 50, 000 to the broker for purchase of the residential flat. Modification made to the new asset - AO disallowed the claim of the assessee for the benefit of deduction u/s 54 - HELD THAT - The invoices for the cost of improvement of the asset purchased are placed from 43 to 48 of the paper book. The A.O. has also referred the new asset for valuation as per point 8(d) of the reference u/s 55A of the I.T.Act. However the DVO has not done the same. Therefore we restore the issue raised in ground 8 to the A.O. The AO is directed to afford a reasonable opportunity of hearing to the assessee and shall take a decision in accordance with law.
Issues Involved:
1. Cost of Improvement of Assets Sold 2. Disallowance of Brokerage Paid for Transfer of Original Asset 3. Addition under Section 69A 4. Exemption Claim for Sale of Personal Effect 5. Disallowance under Section 54 for Improvements and Renovations 6. Disallowance under Section 54 for Brokerage Paid for New Asset 7. Rejection of Claim for Modifications Made to New Asset Issue-wise Detailed Analysis: 1. Cost of Improvement of Assets Sold: The assessee claimed ?6,50,000 as the cost of improvement for the old assets incurred in FY 1998-99. The AO denied this claim due to a lack of evidence and discrepancies in the valuation report. The CIT(A) upheld this view. However, the ITAT noted that the DVO's report, received after the AO's order, validated the cost of improvement at ?4,64,600 for FY 1998-99. Citing the Allahabad High Court's decision in CIT v. Dr. Indra Swaroop Bhatnagar, which held that the DVO’s report is binding, the ITAT restored the issue to the AO for reconsideration in light of the DVO’s report. 2. Disallowance of Brokerage Paid for Transfer of Original Asset: The assessee claimed ?1,00,000 as brokerage for the sale of the old asset, supported by a receipt. The AO disallowed this due to the payment being made in cash and not claimed in the original or revised return. The CIT(A) affirmed this decision. The ITAT upheld the disallowance, emphasizing the lack of claim in the returns and the cash payment. 3. Addition under Section 69A: The AO added ?15,00,000 under Section 69A, considering it unexplained cash credit, despite the assessee's claim that it was received for amenities sold along with the property. The CIT(A) upheld this addition. The ITAT, however, found that the amount was received through banking channels and linked to the sale of the capital asset. Thus, it should be taxed under “income from capital gains” rather than as unexplained cash credit. 4. Exemption Claim for Sale of Personal Effect: The assessee alternatively claimed that the ?15,00,000 received for amenities should be exempt as it represented the sale of personal effects, outside the definition of capital assets under Section 2(14). The ITAT rejected this claim, maintaining that the amount is linked to the sale of the capital asset and should be taxed as long-term capital gains. 5. Disallowance under Section 54 for Improvements and Renovations: The assessee claimed ?14,50,000 for renovations to the new asset, supported by an MOU. The AO and CIT(A) disallowed this, suspecting it was an attempt to avoid stamp duty. The ITAT noted the DVO had not valued these improvements and restored the issue to the AO for reexamination, possibly involving the DVO’s valuation. 6. Disallowance under Section 54 for Brokerage Paid for New Asset: The assessee claimed ?50,000 as brokerage for purchasing the new asset, supported by a receipt lacking the broker's address. The AO and CIT(A) disallowed this due to the absence of address and payment by cash. The ITAT upheld this disallowance, citing insufficient evidence. 7. Rejection of Claim for Modifications Made to New Asset: The assessee claimed ?19,70,000 for modifications made to the new asset. The AO disallowed this, citing lack of evidence and some expenses not qualifying as integral parts of the house. The CIT(A) upheld this view. The ITAT noted that the DVO had not valued these modifications and restored the issue to the AO for reconsideration, directing a fresh evaluation if necessary. Conclusion: The appeal was partly allowed for statistical purposes, with several issues restored to the AO for reconsideration based on additional evidence and valuations. The ITAT emphasized the need for thorough reexamination and proper consideration of the DVO's reports where applicable.
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