2024 (4) TMI 452 - AT - Income Tax

Mode of computation of capital gains enshrined in section 48 - AO negatived the claim of deduction of transfer expenses in full and disallowed the claim of the indexed cost of improvement claimed - This represents the amount being expenditure in cash for making payment to labourers on civil construction - HELD THAT - AO has accepted that the assessee has submitted vouchers in support of transfer expenses and that payments were made through assessee s bank account. It is therefore evident that genuineness of the impugned payment as transfer expenses in connection with transfer of property is well established. Despite that disallowance is made only for the reason that copy of agreements with respect to commission services was not submitted. The contention of the assessee is that in real estate business there is no practice to enter into written agreement between the seller of the property and the commission recipients for rendering the services of arranging prospective buyers. The commission recipients act on oral instructions of the seller of the property. Undoubtedly, the commission has been paid through the bank account of the assessee with J K Bank. We are, therefore of the view that the impugned disallowance is not justified. The Hon ble Karnataka High Court has held in Govind Raju (N) 2015 (8) TMI 271 - KARNATAKA HIGH COURT and CIT vs. Venkat Rajendran 2015 (7) TMI 656 - KARNATAKA HIGH COURT that brokerage in connection with transfer is deductible expenditure. Ground No. 1 to 5 are accordingly decided in assessee s favour. Disallowance of cost of improvement - cash expenses allegedly spent for improvement are not supported by proper documentation and hence are not allowable deduction - HELD THAT - As perused the copy of sale deed placed as describes the assessee as owner of land measuring 2 bighas and 16 biswas along with built-up house. No clear description of built-up house is given therein. Before the AO/DRP it was stated that on bare plot of land purchased in the year 2009 the assessee constructed during AY 2011-12 thereon two storey building having built-up area of 62659 meters on ground floor, first floor and terrace. There is thus no clarity about the house constructed on the land purchased. As stated before the Ld. AO/DRP that payments were made to the contractor, Mr. C Prasad for civil construction. No details of cash paid to the contractor were given nor the Contractor has given any details of disbursement of cash to the labourers for work done by them. The source of availability of the impugned cash is also vague. If relatives and friends provided cash, the assessee ought to have brought on record details of such friends and relatives who gave monetary help. No supporting evidence has been brought on record. How much cash was available with the assessee at the relevant time with supporting evidence was also not given. Ground relating to the above disallowance the assessee has raised new/fresh pleas e.g. (i) that the Ld. AO could have called Mr. C. Prasad, Civil Contractor for verification, though initially it was stated before the Ld. AO that he was no more and hence confirmation from him cannot be obtained. It was on 26.12.2022 when limitation to frame assessment was about to expire, copy of receipt and cash vouchers allegedly signed by Mr. C. Prasad was submitted. There is no whisper in the assessment order or in the direction of the Ld. DRP that the assessee requested for verification of the receipt cash vouchers by producing him before the Ld. AO. (ii) that the Revenue could have got the cost of construction valued through Departmental Valuation Officer. No such plea was ever taken before Ld. AO/DRP. (iii) that disallowance of brokerage and construction cost was in effect re-opening the assessment of AY 2011-12 which have since become time barred. Nothing of this sort of plea is forthcoming from the records. It is evident that the aforesaid new/fresh pleas involved investigation of facts. Nothing has been stated by the Ld. AR why such pleas were not raised before the Ld. AO/DRP. In the absence of any reasonable cause for not raising new/fresh pleas before the Ld. AO/DRP we decline to entertain them. The impugned disallowance of cost of improvement (indexed cost) is justified and therefore sustained. Ground No. 6 to 10 are accordingly decided against the assessee.

Summary

Issues Involved:
1. Disallowance of Brokerage Expense of Rs. 45 Lakh.
2. Disallowance of Construction and Improvement Cost of Rs. 31,86,363.

Summary:

Issue 1: Disallowance of Brokerage Expense of Rs. 45 Lakh
The assessee contended that the brokerage commission paid to three brokers was supported by tax invoices, confirmation letters, and PAN details. The payments were made through cheques. The AO and DRP disallowed the brokerage expense, insisting on agreements between brokers and the assessee, which the assessee argued was not a trade practice in real estate transactions. The Tribunal noted that the assessee provided sufficient proof, including invoices and bank statements, to establish the genuineness of the payments. The Tribunal held that the disallowance was not justified, referencing judgments from the Karnataka High Court that brokerage in connection with transfer is a deductible expenditure. Thus, grounds 1 to 5 were decided in favor of the assessee.

Issue 2: Disallowance of Construction and Improvement Cost of Rs. 31,86,363
The assessee claimed to have spent Rs. 73,00,000 on constructing a residential house, with Rs. 41,13,637 paid through bank transactions and Rs. 31,86,363 paid in cash to laborers. The AO and DRP disallowed the cash payments, citing lack of proper documentation, unverified sources of cash, and absence of cash voucher numbers. The Tribunal agreed with the AO/DRP, noting the lack of clarity and supporting evidence regarding the source of cash and the payments to laborers. The Tribunal also declined to entertain new pleas raised by the assessee that were not presented before the AO/DRP. Consequently, the disallowance of the cost of improvement was sustained, and grounds 6 to 10 were decided against the assessee.

Conclusion:
The appeal of the assessee was partly allowed, with the disallowance of brokerage expense being overturned and the disallowance of construction and improvement cost being sustained.