2023 (12) TMI 461 - AT - Income Tax

Addition as per Draft Assessment order u/s 144C - not allowing indexed cost of improvement to the property while computing the capital gains - assessee furnished reply which was rejected by the AO on the ground that assessee has failed to provide details of name, address and PAN of party to whom payment was made, did not furnish invoices, bank statements, reflecting the entries for the payment - whether cash withdrawal amounts were precisely used for the renovation work? - HELD THAT - The submissions of the assessee that being an NRI he has issued cheques to Alok Lal for withdrawal of cash from his bank account for the purpose of utilizing the same for renovation of kitchen, cupboards, etc. cannot be ruled out. The explanation of the assessee is a plausible explanation. The observation of the AO that there is no written agreement to establish the relation between the assessee and the Fourth Dimension and its proprietor Alok Lal cannot be a ground for disbelieving the payments for utilizing the renovation work. In any case, there is no dispute about carrying out of the renovation work and the amount spent was only of Rs. 9,50,000/- for kitchen cup boards, etc.. Therefore, taking the totality of facts and circumstances into consideration, we accept the submissions of the assessee and the explanation as genuine and, therefore, direct the AO to allow the assessee the cost of improvement with indexation and re-compute the capital gains. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Non-allowance of indexed cost of improvement to the property while computing capital gains.

Summary:

1. Non-allowance of Indexed Cost of Improvement:

The assessee challenged the final assessment order dated 19.01.2023, which did not allow the indexed cost of improvement to the property while computing capital gains for AY 2020-21. The property was sold for Rs. 4 crores, with a claimed deduction of Rs. 3,40,43,088/- under section 48, resulting in declared capital gains of Rs. 59,56,912/-. The assessee claimed renovation expenses of Rs. 9,50,000/-, indexed to Rs. 20,04,015/-. The AO rejected this claim due to insufficient documentary evidence, such as the name, address, PAN of the party paid, invoices, and bank statements reflecting the payment.

2. Proceedings Before DRP:

The assessee contended that the payments for the flat purchase were made through an SBI account in New York and that the renovation occurred over 14 years ago, thus regular books of accounts were not maintained. The renovation was managed by the assessee's mother and executed by Alok Lal of M/s Fourth Dimension. The DRP called for a remand report, wherein the AO observed payments totaling Rs. 10,96,800/- to Fourth Dimension or Alok Lal but noted a lack of additional documentary evidence establishing the relationship and precise use of cash withdrawals for renovation. The DRP upheld the AO's order.

3. Assessee's Submissions:

The assessee argued that all renovation costs were incurred through his mother, and payments were made to Alok Lal via cheques. The payments were reflected in the ICICI Bank statement, and the renovation was necessary to make the flat inhabitable. The assessee provided cheque details and argued that the renovation expenses were reasonable for a flat size of approximately 5250 sq. ft. The assessee also cited ITAT Chennai's decision in a similar case to support his claim.

4. Tribunal's Findings:

The Tribunal found considerable force in the assessee's submissions. It acknowledged the plausible explanation that the assessee, being an NRI, issued cheques to Alok Lal for cash withdrawals used for renovation. The Tribunal noted that the absence of a written agreement between the assessee and Fourth Dimension was not sufficient grounds to disbelieve the payments. Given the totality of facts and circumstances, the Tribunal accepted the assessee's explanation as genuine and directed the AO to allow the cost of improvement with indexation and re-compute the capital gains.

Conclusion:

The appeal of the assessee was allowed, and the AO was directed to allow the indexed cost of improvement and re-compute the capital gains. The order was pronounced in the open court on 08/12/2023.