2024 (5) TMI 543 - AT - Income Tax

Computation of Long-Term Capital Gain derived from transfer of property - Indexed cost of improvement - AO not considering the cost of construction as per work order to complete the Semi-Finished Residential Flat - AO rejected the claim of the assessee only on the ground that the assessee could not justify the payment of consideration to the vendor with necessary bank statement - HELD THAT - We are of the considered opinion that the argument of AO that the work order and agreement entered into by the assessee with the vendor is not genuine is totally incorrect and baseless. At the same time, the assessee is also unable to file further evidences to substantiate his case that he has paid a sum to the vendor for additional construction work in the property. Except the work order, the assessee could not furnish relevant bank statement to prove payment to the builder. Unless the assessee file necessary evidences to substantiate its claim, it is difficult for the AO to accept the claim of the assessee only on the basis of the work order. Therefore, we are of the considered opinion that the matter needs to go back to the file of the AO for further verification. Thus, we set aside the order of the AO and restore the issue back to the file of the AO with a direction to reexamine the claim of indexed cost of improvement on the basis of work order and agreement entered into with the vendor for putting up further construction in the property. AO is directed to call for necessary record from the Bank, if so necessary to ascertain the true nature of the work order entered into by the assessee with the vendor. In case the AO finds that the assessee has paid additional amount for further construction, then the AO is directed to allow deduction towards indexed cost of improvement while computing the Long-Term Capital Gain derived from transfer of property. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues involved: Assessment of long term capital gains, consideration of indexed cost of improvement, verification of necessary evidences.

Assessment of long term capital gains:
The appeal was filed against the assessment order for A.Y. 2014-15, where the Assessing Officer determined the total income towards Long-Term Capital Gain derived from property transfer without allowing deduction towards the cost of acquisition due to lack of necessary details. The draft assessment order was challenged before the DRP-1 Bengaluru, which led to the final assessment order determining the total income at a different amount. The assessee contended that the Assessing Officer erred in not considering the indexed cost of improvement, providing evidence of additional construction work and housing loan availed. The CIT (DR) supported the rejection of the claim due to lack of sufficient evidence. The Tribunal found that the Bank sanctioned a housing loan based on the agreement and work order for construction, indicating the genuineness of the claim. The matter was remanded to the Assessing Officer for further verification, directing to allow deduction towards indexed cost of improvement if payment for further construction is substantiated.

Consideration of indexed cost of improvement:
The assessee claimed indexed cost of improvement based on a work order and agreement with the vendor for additional construction work. The Assessing Officer rejected the claim citing lack of evidence to justify the payment. The Tribunal observed that the Bank sanctioned a housing loan considering the additional amount paid for construction, indicating the genuineness of the claim. However, the assessee failed to provide further evidence to substantiate the payment to the vendor. The Tribunal set aside the Assessing Officer's order, directing reexamination of the claim with necessary verification to allow deduction towards indexed cost of improvement if payment for further construction is proven.

Verification of necessary evidences:
The Assessing Officer rejected the claim of indexed cost of improvement as the assessee could not justify the payment to the vendor with necessary bank statements. The Tribunal noted the housing loan sanction based on the agreement and work order, indicating the genuineness of the claim. However, the lack of additional evidence to prove the payment for further construction led to the remand of the issue for further verification by the Assessing Officer, emphasizing the need for substantiating claims with necessary evidences for consideration in the assessment of Long-Term Capital Gain derived from property transfer.