2022 (3) TMI 897 - AT - Income Tax

LTCG - Computation of long term capital gain derived from sale of land by reducing indexed cost of acquisition of the property - assessee claimed that it has redeveloped building and renovated without removing existing structure, including plant and machinery - AO recomputed indexed cost of acquisition by taking into account cost of land which was paid by the assessee plus applicable stamp duty - HELD THAT - When the Assessing Officer is not disputing fact that the assessee has paid ₹ 4 crores consideration for acquiring property, then the Assessing Officer ought to have allowed deduction towards cost of acquisition, including cost of building, machinery and fittings, because when the consideration was paid for fittings machinery and same was integral part of building, then the AO cannot simply ignore amount paid for acquiring assets attached to the building. It was not the case of the AO that the assessee has claimed depreciation on machinery and fittings, including building. It is also not the case of the Assessing Officer that the assessee has demolished existing building and dismantled plant fittings. Unless the Assessing Officer proves that the assessee has demolished existing building and dismantled machinery fittings and realized amount from sale of said dismantled assets or written off as scrap, then he cannot deny cost incurred by the assessee to acquire those assets. In our considered view, the Assessing Officer has completely erred in not considering cost incurred by the assessee to acquire asset while computing capital gain derived from sale of property. CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer Disallowance of amount paid for construction of building - AO has disallowed payment on the ground that the assessee could not produce original bills in support of various expenditure incurred for construction of building - Amount paid to M/s. Bharath Polymers - HELD THAT - We do not agree with the reasoning given by the Assessing Officer for the simple reason that when the assessee has explained reasons for not furnishing original bills and further, filed photocopies of bills along with corroborative evidence to prove incurrence of expenditure for construction of building, AO ought to have allowed deduction towards payment made to above party. AO without appreciating facts has simply disallowed payment made by the assessee towards construction of building without assigning proper reasons. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. Payment made to M/s. Devi Designers Decorations - reasons given by the Assessing Officer to disallow amount paid to above party is incorrect and without any basis. If at all, the Assessing Officer was having any doubt on payment made by the assessee, then A.O. should have summoned the supplier to verify fact of payment made by the assessee. The Assessing Officer without carrying out proper enquiry, has simply rejected contention of the assessee only on the ground that original bill was not furnished by the assessee. In our considered view, whether the bill submitted by the assessee is in original or duplicate, as long as other corroborative evidences supports claim of the assessee, then the Assessing Officer ought to have allowed deduction towards amount paid for construction of building. The learned CIT(A), after considering relevant facts has rightly directed the Assessing Officer to allow deduction towards amount paid to M/s. Devi Designers Decorations. Hence, we are inclined to uphold findings of the learned CIT(A) and reject grounds taken by the revenue. Appeal filed by the revenue is dismissed.

Issues Involved:
1. Addition of ?1,98,57,543/- regarding the cost of acquisition and indexation of a demolished building.
2. Deletion of disallowance of ?1,52,19,882/- for short-term capital gains without verifying the genuineness of the bills.
3. Application of Rule 46A of IT Rules, 1962, and acceptance of additional evidence without remanding the matter to the Assessing Officer.

Detailed Analysis:

1. Addition of ?1,98,57,543/- Regarding Cost of Acquisition and Indexation:
The first issue pertains to the addition made towards the computation of long-term capital gain derived from the sale of land by reducing the indexed cost of acquisition of the property. The property in question was acquired for ?4 crores, which included the cost of land, building, machinery, and fittings. The assessee claimed the total consideration paid for the property, including the building, machinery, and fittings, as part of the cost of acquisition. The Assessing Officer (AO) recomputed the indexed cost of acquisition by considering only the cost of land and excluding the cost of the building, machinery, and fittings on the grounds that the building was demolished and a new one constructed. The CIT(A) ruled in favor of the assessee, stating that the entire amount paid for acquiring the property, including the building and fittings, should be considered in the cost of acquisition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO erred in not considering the cost incurred by the assessee to acquire the asset while computing the capital gain derived from the sale of the property.

2. Deletion of Disallowance of ?1,52,19,882/- for Short-Term Capital Gains:
The second issue involves the deletion of disallowance of ?1,52,19,882/- while computing short-term capital gains. The AO disallowed the payments made to M/s. Bharath Polymers and M/s. Devi Designers & Decorations for the construction of the building, as the assessee could not produce original bills. The assessee explained that original bills were lost and submitted photocopies instead. The CIT(A) accepted the photocopies along with other corroborative evidence, such as tender quotes and letters of intent, and allowed the deduction. The Tribunal agreed with the CIT(A), stating that the AO should have allowed the deduction as the assessee provided sufficient evidence to prove the expenditure incurred for the construction of the building.

3. Application of Rule 46A and Acceptance of Additional Evidence:
The third issue concerns the application of Rule 46A of the IT Rules, 1962, and the acceptance of additional evidence without remanding the matter to the AO. The CIT(A) accepted the photocopies of bills and other documents submitted by the assessee without remanding the matter to the AO for verification. The Tribunal found that the CIT(A) acted correctly in accepting the additional evidence, as the assessee had provided a reasonable explanation for the non-availability of original bills and submitted sufficient corroborative evidence to support its claims. The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance was incorrect and without basis.

Conclusion:
The appeal filed by the Revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on all issues, emphasizing that the AO erred in not considering the cost of the building, machinery, and fittings in the cost of acquisition, disallowing payments for construction based on the non-availability of original bills, and not accepting sufficient corroborative evidence provided by the assessee. The order was pronounced in the open court on 16th March 2022.

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