2012 (10) TMI 851 - AT - Income Tax

Disallowance of renovation property expenditure - Held that - Earlier sale deal was fixed with Smt. Kavita Agarwal vide agreement dated 16.8.2002 for a consideration of Rs.80 lakhs and sum of Rs.25 lakhs was said to have been received which was alleged to have been refunded on 24.10.2002 due to the fact that the deal could not be materialized. Then again the same property was sold to Shri Amit Sibal for a sum of Rs.1,01,00,000/- but the assessee has claimed to have incurred an expenditure of Rs.52,60,758/- to remove certain defects in the construction and therefore in fact the building was sold for a net consideration of Rs.48.31 lakhs as against the earlier agreement with Smt. Kavita Agarwal for Rs.80 lakhs. It is not understood as to what prudence the assessee had used at the first place by refunding the amount of Rs.25 lakhs received from Smt. Kavita Agarwal without forfeiting which always remains as the standard condition in any agreement to sell and then by agreeing to sell the same to another buyer after a period of about five months at a much lower net consideration after considering the alleged claim of expenses. This situation does not arise in reality and is against the normal human behavior. The assessee did not submit the original invoices of construction alleged to have been done on the property. It had submitted only photo copy of invoices and most of the invoices were in the name of Nahar Theatre Pvt. Ltd. and name of the assessee was written after cutting the name of Nahar Theatre Pvt. Ltd - From the details of invoices as placed it is apparent that major amount was alleged to have been spent between 7.4.2002 to 23.10.2002. Therefore, how it can be claimed that alteration/addition/renovations were done at the direction of ultimate buyer Shri Amit Sibal because agreement to sell could only be entered into with him after termination of first agreement of dated 16.,8.2002 which was said to have been terminated on 24.10.2002. Therefore, it emerges from the above that most of the expenses related to the period before entering into agreement to sell with Shri Amit Sibal which ultimately implies that expenses incurred before agreement with Shri Amit Sibal cannot be said to have been incurred at his behest - against assessee. Disallowance of Festival expenses - Held that - As assessee had only one property, the disallowance of Rs.50,000/- out of total festival expenses of Rs.2 lakhs was justified.

Summary

Issues Involved:
1. Disallowance of expenditure on renovation of property.
2. Disallowance of festival expenses.
3. Addition on account of interest charged under sections 234A, 234B, and 234C of the Income Tax Act, 1961.
4. Alleged lack of reasonable opportunity of hearing.

Detailed Analysis:

1. Disallowance of Expenditure on Renovation of Property:
The assessee challenged the disallowance of Rs. 24,48,344/- spent on the renovation of property at 193-Jor Bagh, New Delhi. The Assessing Officer (AO) disallowed the expenditure due to the absence of original books of accounts and original bills, and because the agreement with M/s Corn Hills Promoters Pvt. Ltd. stipulated that the latter would bear the construction costs. The AO also noted discrepancies such as overwritten bills and lack of evidence for the claimed expenses. The CIT(A) partially upheld the AO's disallowance, segregating the bills into those with overwritten names and those without, allowing only the latter.

Upon appeal, the Tribunal noted that the assessee failed to demonstrate specific defects in the property that required renovation and did not produce original invoices. The Tribunal found inconsistencies in the dates and nature of the invoices, indicating that most expenses were incurred before the agreement with the final buyer, Mr. Amit Sibal. The Tribunal also noted that the material was received at Nahar Theatre, with no proof of transfer to the Jor Bagh site. Consequently, the Tribunal upheld the disallowance, rejecting the assessee's first ground of appeal.

2. Disallowance of Festival Expenses:
The assessee contested the disallowance of Rs. 50,000/- out of total festival expenses of Rs. 2 lakhs. The AO disallowed the amount on the grounds that no such expenses were claimed in the previous year and the amount seemed excessive for a single property. The CIT(A) confirmed this disallowance.

The Tribunal agreed with the CIT(A), noting that the assessee had only one property, and the disallowance was justified. Therefore, the second ground of appeal was dismissed.

3. Addition on Account of Interest Charged Under Sections 234A, 234B, and 234C:
The assessee argued against the addition of interest charged under sections 234A, 234B, and 234C, claiming no default was committed. However, this ground was deemed consequential and did not require detailed adjudication.

4. Alleged Lack of Reasonable Opportunity of Hearing:
The assessee claimed that no reasonable opportunity of hearing was granted. However, this ground was considered general in nature and did not necessitate specific adjudication.

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the disallowance of renovation and festival expenses, and finding no merit in the claims regarding interest charges and lack of hearing.