2024 (6) TMI 1352 - AT - Income Tax

Re-computation of long term capital gain - Determination of cost of improvement for construction of a concrete bridge on the rivulet in front of the shop for the purpose of providing more accessibility to the shop from the road - HELD THAT - From the record it is evident that the Ld. CIT(A) ignored the fact that the disputed cost was used for construction of bridge/rivulet in front of the shop for improvement of the shop and that the CIT(A) failed to appreciate the vital fact that the amount spent for construction of the bridge was a capital expenditure and was essential to provide access to the shop from the road and to provide improved accessibility to the shop to facilitate greater footfall and capital value addition in turn. We appreciate the contention of the Ld. AR that there is no bar to incur the capital expenditure while the business is running. In the present case the capital expenditure would not become revenue expenditure merely for the reason that it was incurred in connection with cost of improvement to promotion of business activities which ultimately resulted in efficiently carrying on day-to-day business. The facts of cost of construction of bridge have been supported with the site plan and the photograph which is a matter of record which has never been controverted either by the AO or by the CIT(A) or the CIT(DR) to disprove that the cost of improvement/construction incurred in 2009-10 has never been incurred by him. Such disallowance of the cost of construction by the AO merely based on presumption is not tenable in the eyes of laws. Considering the factual matrix and judicial precedents we accept the grievance of the appellant as genuine. Accordingly we hold that the cost of improvement to shop by construction of rivulet was capital expenditure and the cost of in taxation of rivulet would be allowable deduction as claimed by the appellant. We therefore delete the addition. Appeal filed by the assessee is allowed.

Summary

Issues:
Challenge of confirming addition of Rs. 368918/- for re-computation of long term capital gain ignoring cost of improvement of Rs. 195000/- incurred in FY 2009-10 for bridge construction.

Analysis:
The appellant contested the order under section 153A r.w.s 144 of the Income Tax Act, 1961, which disallowed the benefit of Rs. 195000/- incurred on bridge construction in 2009-10. The appellant argued that the bridge was built to enhance business turnover, using borrowed funds confirmed by a sworn affidavit. The appellant stressed that the construction was a capital expenditure for improved shop accessibility. The CIT(A) upheld the addition without considering the merits. The appellant's contentions were supported by evidence and judicial precedents.

The CIT(A) overlooked that the Rs. 195000/- was spent on bridge construction to improve the shop, essential for enhanced accessibility and business growth. The source of funds was clarified as a loan, duly confirmed. The AO failed to prove the expenditure was not incurred, basing disallowance on a presumption. The appellant provided site plans and photos as proof. The High Court and ITAT rulings supported treating approach roads as part of buildings for depreciation.

Judicial precedents highlighted that capital expenditure for business improvement should not be considered revenue expenditure. The appellant's evidence, including site plans and photos, was unchallenged. The AO's disallowance based on presumption was deemed untenable. The cost of bridge construction was accepted as capital expenditure, allowing the deduction claimed by the appellant.

Considering the evidence, legal principles, and precedents, the Tribunal found the appellant's grievance genuine. Therefore, the addition of Rs. 195000/- was deleted, and the appeal by the assessee was allowed.