2024 (9) TMI 357 - AT - Income Tax

Capital gain computation - Disallowance of expenses of transfer and cost of acquisition - treatment to deduction towards indexed cost of acquisition and expenses of transfer - HELD THAT - CIT (A) having noticed the fact that the cost of construction of the assessee is supported by valuation report submitted by the registered valuer but ignored the said valuation report and considered the average rate of Rs. 380 per sft by taking into taking the rate adopted by the assessee and the rate considered by the AO. Neither the AO is justified in adopting adhoc rate of Rs. 250 per sft nor the learned CIT (A) is correct in taking average rate of 380 per sft without there being any supporting evidences. Assessee justified the cost of construction of Rs. 500/- along with valuation report. Therefore, in my considered view when the appellant is able to establish/substantiate the indexed cost of construction with necessary evidences including the valuation report, the AO and the learned CIT (A) ought to have accepted the cost of construction as claimed by the assessee. Thus, set aside the order of the learned CIT (A) on this issue and direct the AO to adopt the cost of construction as claimed by the assessee. Expenses of transfer being the amount paid to Shri K. Murari Raj - The appellant claimed that Shri K Murari Raj was tenant and was not ready to vacate the house. Unless the tenant vacates the house, the appellant cannot sell the property and hand over the property possession to the buyer. Therefore, the appellant has paid Rs. 6.00 lakhs compensation to Shri K. Murari Raj by way of 2 DDs on 17.04.2015 before the date of registration. Although the appellant could not furnish the relevant evidences to prove that Shri K. Murari Raj was tenant of the property but going by the circumstantial evidences i.e. DD paid to Shri Murari Raj on 17.4.2015 which is almost one month prior to the date of transfer of property on 27.5.2015, the claim of the assessee towards expenses of transfer appears to be reasonable and bonafide. Therefore, out of Rs. 6.00 lakhs towards expenses of transfer considered by the assessee, sum of Rs. 3.00 lakhs appears to be reasonable and allowable. Thus, we direct the AO to allow expenses of transfer being the amount paid to Shri Murari Raj for Rs. 3.00 lakhs out of Rs. 6 lakhs claimed by the assessee and recomputed the capital gain from transfer of property. Apeal filed by the assessee is partly allowed.

Summary

Issues:
Reopening of assessment under section 147 of the I.T. Act, 1961 for A.Y. 2016-17, disallowance of indexed cost of acquisition and expenses of transfer, appeal before CIT (A) and Tribunal, adoption of cost of construction, expenses of transfer claimed by the assessee.

Analysis:
The appeal was filed against the order of the learned CIT (A) relating to A.Y. 2016-17, where the assessment was reopened under section 147 of the I.T. Act, 1961 due to the sale of an immovable property by the assessee. The Assessing Officer disallowed indexed cost of acquisition and expenses of transfer, resulting in an addition to the total income. The CIT (A) upheld these additions, leading to further appeal before the Tribunal.

The Tribunal set aside the issue to the file of the Assessing Officer for re-examination. The Assessing Officer, after issuing notices and receiving no evidence from the assessee, allowed indexed cost of acquisition at Rs. 15,93,266 and disallowed expenses of transfer for Rs. 6.00 lakhs. The total income was adjusted accordingly, leading to the assessee's appeal before the CIT (A).

Before the CIT (A), the assessee submitted a valuation report justifying the cost of construction. The CIT (A) directed the Assessing Officer to adopt the cost of construction at Rs. 380/sft instead of the rates claimed by the assessee and the Assessing Officer. The assessee appealed this decision before the Tribunal, arguing that the cost of construction should be as claimed by them and that expenses of transfer should be allowed.

The Tribunal, after hearing both parties, found that the Assessing Officer and CIT (A) had not justified their rates for cost of construction. Considering the valuation report and evidence provided by the assessee, the Tribunal directed the Assessing Officer to adopt the cost of construction as claimed by the assessee.

Regarding the expenses of transfer, the Tribunal found the claim reasonable based on circumstantial evidence and directed the Assessing Officer to allow Rs. 3.00 lakhs out of the Rs. 6.00 lakhs claimed by the assessee. Consequently, the appeal was partly allowed, and the capital gain from the property transfer was recomputed.

In conclusion, the Tribunal's decision favored the assessee by directing the adoption of the claimed cost of construction and allowing a portion of the expenses of transfer, leading to a partial allowance of the appeal.