2015 (9) TMI 1296 - AT - Income Tax

Disallowance of expenses out of the improvement expenses to the property - CIT(A) restricted disallowance to 50% - Held that - The proprietor of M/s Verma Associates though appeared before the AO and accepted the fact of carrying out work however, he failed to substantiate his oral statements with documentary evidence in the form of books of account. The proprietor of M/s Vinayaka Trade and Agency who supplied the Air Conditioners, on one hand admitted to have sold the Air Conditioners to the assessee but on the other hand stated that he did not install the same. Further, the assessee has not claimed any separate expenses on installation of Air conditioners. M/s Nutech Engineering Corporation did not comply with the summon issued by the AO. On perusal of the Bill of M/s M/s Nutech Engineering Corporation which is filed at page no. 104 of paper book of the assesee, it is seen that 250 number of plastic moulded furniture items have been supplied but exact nature of item is not mentioned. Further the registered sale agreement though contains the clause that sale price of the said property include the cost and expenses for fitting and all other facilities provided in the said property, however, there is no specific mention that plastic moulded furniture was part of any fittings. Moreover, the buyer has specifically denied to receive any Air Conditioner or fittings. In view of the above findings, the action of the CIT(A) in restricting the disallowance to 50% of its improvement expenses does not seem proper. In view of the above, in the interest of natural justice,find it appropriate to send the matter back to the file of the Ld. CIT(A) to examine the issue alongwith expenses on repair, air conditioned plastic moulded further after giving due opportunity to the assessee. I hold and direct accordingly. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Whether the repairs/improvement expenses claimed by the assessees on the property were justified.
2. Whether the disallowance of 50% of the total expenditure by the CIT(A) was appropriate.

Issue-Wise Detailed Analysis:

1. Justification of Repairs/Improvement Expenses:
The primary issue was whether the assessees had legitimately incurred improvement expenses amounting to Rs. 11,59,314 each on a co-owned property. The property was sold for Rs. 2.10 crores, and the assessees claimed short-term capital gains after accounting for these expenses. The expenses were distributed among three parties: M/s Verma Associates (Rs. 31,06,880 for repair works), M/s Vinayak Trade and Agency (Rs. 96,000 for air conditioners), and M/s Nutech Engg. Corporation (Rs. 14,34,376 for plastic moulded furniture).

The Assessing Officer (AO) conducted inquiries and found inconsistencies. M/s Verma Associates confirmed the repairs but failed to provide documentary evidence due to alleged theft of records. M/s Vinayak Trade and Agency admitted to supplying but not installing air conditioners. M/s Nutech Engg. Corporation's notice was returned unserved, and subsequent communication was non-compliant. The buyer of the property denied receiving any fittings or furniture. Consequently, the AO disallowed the entire claimed improvement expenses.

2. Appropriateness of 50% Disallowance by CIT(A):
Upon appeal, the CIT(A) partially allowed the assessees' claims, reducing the disallowance to 50%. The CIT(A) acknowledged payments made via account payee cheques and confirmations from the parties involved. However, the CIT(A) also noted the buyer's statement that the property did not include fittings, which created doubt. Thus, the CIT(A) concluded that a 50% disallowance would be just.

Tribunal's Decision:
The Tribunal reviewed the arguments and evidence. The Tribunal found that the AO's inquiries were not fully conclusive and that the CIT(A) had not thoroughly examined the case laws cited by the assessees. The Tribunal observed that while the CIT(A) considered the payments and confirmations, the AO's reliance on the absence of books and the buyer's statements was not entirely justified.

The Tribunal decided to remand the matter back to the CIT(A) for a fresh examination of the expenses related to repairs, air conditioners, and plastic moulded furniture. The CIT(A) was directed to provide the assessees with an opportunity to present their case and to consider the relevant case laws.

Conclusion:
The Tribunal set aside the CIT(A)'s order and remanded the case for a detailed re-examination of the improvement expenses. The appeals were allowed for statistical purposes, and the CIT(A) was instructed to reconsider the evidence and legal precedents while providing the assessees a fair opportunity to be heard.