2018 (2) TMI 668 - AT - Income Tax

Disallowance towards lodging, fooding and travelling expenditure and other expenses - Held that - The assessee came to India to complete the sale transaction of the said ancestral property. During the sale transaction, the assessee stayed in India and incurred other expenses of ₹ 3 lakhs towards airfare, fooding & lodging expenses. We find that the assessee did not produce any documentary evidence either before the AO or the CIT-A in support of the claim of towards lodging, fooding and travelling expenditure incurred by the assessee during the said transaction. However, the CIT-A considering the submissions of assessee has restricted the same to ₹ 1.50 lakhs i.e. 50% of ₹ 3 lakhs under the head other expenses . It is quite, reasonable and justified in the facts and circumstances of the case. Therefore, our interference is uncalled for on this issue. We uphold the order of the CIT-A in restricting the same on this issue. Therefore, the ground no. 1 relating to other expenses is dismissed. Addition towards claim of exemption u/s. 54EC - Held that - Section 54EC mandates that investment in specified bonds to be made within prescribed time by the assessee either out of sale proceeds of capital asset or out of any other means. In the present case, admittedly the assessee had not made any investments in the specified bonds as per provisions of section 54EC of the Act, which has rightly been denied by the AO and confirmed by the CIT-A. In view of aforesaid discussion, we hold that since no amount was invested in the specified bonds mandated u/s. 54EC of the Act, the lower authorities have rightly rejected the claim of assessee in this regard. - Decided against assessee.

Issues Involved:
1. Disallowance of ?4,50,000 under the head 'brokerage and other expenses'.
2. Confirmation of disallowance of ?40,00,000 towards claim of exemption u/s. 54EC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of ?4,50,000 under the head 'brokerage and other expenses':
The assessee, an individual and a citizen of the United Kingdom, was subjected to a search and seizure operation at Netaji Subhash Chandra Bose International Airport on 26-01-2011. The Assessing Officer (AO) issued a notice under section 153A of the Income Tax Act, prompting the assessee to file a return declaring a total income of ?500. During scrutiny, the AO disallowed ?4,50,000 under 'brokerage and other expenses' and ?40,00,000 towards a claim of exemption under section 54EC, determining long-term capital gains at ?70,06,500.

The AO found that the assessee received ?76,50,000 from the sale of ancestral land but did not provide sufficient evidence for the claimed brokerage of ?1,50,000 and other expenses of ?3,00,000. The AO disallowed these expenses due to the lack of documentary evidence, stating that deductions under section 48 require tangible proof of expenses incurred wholly and exclusively in connection with the transfer of the capital asset.

Upon appeal, the CIT-A acknowledged the brokerage of ?1,50,000 as reasonable, considering the common practice in real estate transactions and the corroborative statements from the broker and the assessee. However, the CIT-A restricted the allowance of other expenses to ?1,50,000 (50% of the claimed ?3,00,000) due to the absence of supporting evidence and the likelihood that part of the expenses was for personal purposes.

The Tribunal upheld the CIT-A's decision, finding the restriction to ?1,50,000 reasonable and justified in the circumstances. The assessee's claim for the remaining ?1,50,000 was dismissed due to the lack of documentary evidence.

2. Confirmation of disallowance of ?40,00,000 towards claim of exemption u/s. 54EC:
During the assessment, the AO found that the assessee claimed an exemption of ?40,00,000 under section 54EC but failed to provide evidence of the investment. The assessee argued that the intention was to invest in National Highway Authority of India bonds, but the funds were seized by the IT authorities, preventing the investment.

The AO disallowed the claim, emphasizing that section 54EC requires actual investment within six months of the transfer, which the assessee did not fulfill. The CIT-A upheld this disallowance, noting that the assessee could have arranged funds from other sources to make the investment within the prescribed period.

The Tribunal agreed with the lower authorities, stating that the exemption under section 54EC is contingent upon actual investment in specified bonds within the stipulated time. The assessee's argument that the seized amount should be treated as invested was found untenable. The Tribunal concluded that the conditions for exemption were not met, and the disallowance was justified.

Conclusion:
The Tribunal dismissed the appeal, upholding the disallowance of ?4,50,000 under 'brokerage and other expenses' and the confirmation of disallowance of ?40,00,000 towards the claim of exemption under section 54EC. The judgment emphasized the necessity of tangible evidence for expense claims and strict adherence to statutory requirements for tax exemptions.

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