2017 (10) TMI 237 - AT - Income Tax

Disallowance u/s 40(a)(ia) - Held that - Hon ble Supreme Court in the case of Palam Gas Service v. CIT (2017) (2017 (5) TMI 242 - SUPREME COURT) has recently decided the issue against assessee by holding that disallowance u/s 40(a)(ia) shall be made even if the entire amount of covered expenditure are paid during the financial year and nothing remains to be paid at the year end, which decision of Hon ble Supreme Court is binding on the assessee as it is now law of the land. Capital gain on sale of assessee s share in the said flat - cost of acquisition of the flat and cost inflation index - Held that - The assessee was not able to discharge burden of proof/onus of proof cast u/s 106 of 1872 Act as the assessee did not file documents for showing that the flat was exclusively owned by father of the assessee and payments for acquisition of the flat was exclusively paid by father of the assessee. The assessee could not rebut the presumption of ownership of the flat jointly with the mother and father of the assessee , with cogent evidences that the assessee name is merely included in the said flat for name sake . The assessee only filed one unsubstantiated accounts for assessment year 2003- 04 of father of the assessee which only showed general description Office Premises without having any details of the said flat and verification from the Revenue that the total consideration was paid by the assessee s father which was reflected in his statement of affairs/balance sheet filed with revenue. The father of the assessee had also not paid taxes on capital gain earned from the sale of the said flat and hence no taxes on this sale of flat is paid to Revenue. Contentions of the assessee cannot be accepted. The assessee has however filed purchase agreement for the purchase of this flat for the first time before the tribunal. We have perused both the sale agreement and purchase agreement which are placed on record in paper book filed with the tribunal. Thus the capital gain on sale of assessee s share in the said flat (being 1/3 )is to be brought to tax in the hand of the assessee. However, the A.O. is directed to give relief for the cost of acquisition of the flat and cost inflation index, as per provisions of section 48 & 49 of the Act in accordance with law after verification of the purchase deed dated 29-11-1999 and other cogent and credible material brought on record by the assessee.

Summary

Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.
2. Addition of ?20,00,000 as Long Term Capital Gains.
3. Denial of cost of purchase and indexation benefits.

Issue-wise Detailed Analysis:

1. Disallowance under Section 40(a)(ia):
The assessee initially raised an issue regarding the disallowance of ?7,000 on account of brokerage, ?15,000 on account of commission, and ?17,985 on account of interest paid on loan under Section 40(a)(ia). However, the assessee's counsel chose not to press this ground, acknowledging the binding decision of the Hon'ble Supreme Court in the case of Palam Gas Service v. CIT (2017) 394 ITR 300 (SC). The Supreme Court held that disallowance under Section 40(a)(ia) applies even if the expenditure is paid during the financial year and nothing remains payable at the year-end. Consequently, this ground was dismissed on merits.

2. Addition of ?20,00,000 as Long Term Capital Gains:
The assessee contested the addition of ?20,00,000 as Long Term Capital Gains, arguing that the flat sold was owned by Mr. Prahladrai Bhartiya, who also received the sale proceeds. The AO observed that the assessee failed to provide substantial evidence such as the purchase agreement, bank statements, or balance sheets to support the claim that Mr. Prahladrai Bhartiya solely financed the flat's purchase. The AO, therefore, attributed 1/3rd of the sale consideration to the assessee, resulting in a taxable long-term capital gain of ?20,00,000. The CIT(A) upheld this addition, noting that the assessee did not provide evidence to prove otherwise and that none of the co-owners paid capital gains tax on the sale.

3. Denial of Cost of Purchase and Indexation Benefits:
The assessee argued that if the flat was presumed to be owned by him, the cost of purchase and indexation benefits should be allowed. The Tribunal observed that the purchase agreement dated 29-11-1999, produced for the first time before the Tribunal, needed verification by the authorities below. The Tribunal directed the AO to give relief for the cost of acquisition and cost inflation index as per Sections 48 and 49 of the Act, after verifying the purchase deed and other credible material brought on record by the assessee.

Conclusion:
The Tribunal dismissed the ground related to disallowance under Section 40(a)(ia) based on the Supreme Court's decision. It upheld the addition of ?20,00,000 as Long Term Capital Gains, given the lack of evidence to support the assessee's claim that the flat was solely owned and financed by Mr. Prahladrai Bhartiya. However, the Tribunal directed the AO to allow the cost of acquisition and indexation benefits after proper verification, thereby partly allowing the appeal for statistical purposes.