2025 (1) TMI 323 - AT - Income Tax

Capital gain computation - Disallowance towards the cost of indexation claimed by the assessee - no documentary evidence was filed in support of the claim of expenses incurred on construction/ renovation expenses in respect of the property on which indexation was claimed - HELD THAT - Denial of the entire expenditure incurred towards as cost of construction by the AO cannot be held to be justified even if the assessee did not submit satisfactory bills/vouchers in support of her claim towards the cost of construction. It is also a fact that the AO in his remand report stated that an amount for the FY 2009-10 was paid for Stamp Duty, MCD Map fee and MCD Development charges and this amount was allowable as these expenditures were paid to the Government department. This further reinforces the fact that the building that was sold was constructed on which expenses were definitely incurred. We hereby direct the AO to allow 50% of the indexation claimed. We also clarify that there will be no further allowance of indexation of Rs. 3,94,860/- as allowed by the CIT(A) as the same in our estimation is also included in the 50% of the indexation amounting to Rs. 24,42,262/- allowed by us. The balance disallowance of Rs. 24,42,262/- claimed towards indexation by the assessee by the AO is confirmed. Ground no.5 6 of the appeal are partly allowed. Disallowance of deduction claimed u/s 80C towards payment of LIC premium - Above claim was stated to be allowable by the AO in his remand report, addition is deleted.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in the judgment are as follows:

Whether the assessment order passed under sections 153C/144 was valid, considering the alleged lack of jurisdiction and failure to record requisite satisfaction.
Whether the disallowance of the deduction claimed under section 80C was justified in the absence of incriminating material from the search.
Whether the addition of Rs. 71,86,571/- under section 69A was valid without incriminating evidence from the search.
Whether the disallowance of the entire cost of construction/renovation expenses of Rs. 48,48,524/- was justified.
Whether the interest charged under sections 234A, 234B, and 234C was appropriate.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Assessment Order under Sections 153C/144

Relevant legal framework and precedents: The assessment under section 153C requires satisfaction that the seized documents pertain to the assessee.
Court's interpretation and reasoning: The court examined whether the assessing officer had valid jurisdiction and followed the necessary legal procedures.
Key evidence and findings: The search yielded incriminating documents related to the assessee, justifying the assessment.
Application of law to facts: The court found that the assessment was based on valid jurisdiction and requisite satisfaction.
Treatment of competing arguments: The assessee's argument of lack of jurisdiction was not upheld due to evidence of incriminating documents.
Conclusions: The assessment order was deemed valid.

Issue 2: Disallowance of Deduction under Section 80C

Relevant legal framework and precedents: Section 80C allows deductions for certain investments, including life insurance premiums.
Court's interpretation and reasoning: The court considered the additional evidence provided for the deduction claim.
Key evidence and findings: The AO's remand report accepted the evidence for the deduction claim.
Application of law to facts: The court found the deduction claim of Rs. 9,640/- to be valid.
Treatment of competing arguments: The Revenue's initial disallowance was overturned based on the AO's acceptance of evidence.
Conclusions: The deduction under section 80C was allowed.

Issue 3: Addition under Section 69A

Relevant legal framework and precedents: Section 69A deals with unexplained money, requiring evidence for additions.
Court's interpretation and reasoning: The court required incriminating evidence to justify the addition.
Key evidence and findings: The addition was not pressed by the assessee, and the court did not address it further.
Application of law to facts: The issue was dismissed as not pressed.
Treatment of competing arguments: The lack of pressing by the assessee led to dismissal.
Conclusions: The addition was not considered further.

Issue 4: Disallowance of Construction/Renovation Expenses

Relevant legal framework and precedents: Expenses must be substantiated with evidence to claim deductions.
Court's interpretation and reasoning: The court evaluated the evidence for the claimed expenses.
Key evidence and findings: The AO and CIT(A) found the evidence unreliable, but acknowledged some expenses.
Application of law to facts: The court allowed 50% of the claimed indexation, acknowledging some expenses.
Treatment of competing arguments: The court balanced the lack of documentation with the existence of the property.
Conclusions: 50% of the indexation was allowed, and the rest disallowed.

Issue 5: Charging of Interest under Sections 234A, 234B, and 234C

Relevant legal framework and precedents: Interest is charged for defaults in tax payments.
Court's interpretation and reasoning: The interest charge was deemed consequential.
Key evidence and findings: The interest was to be recalculated based on the revised assessment.
Application of law to facts: The AO was directed to charge interest per law.
Treatment of competing arguments: The interest was adjusted based on the appeal's outcome.
Conclusions: The interest was to be recalculated accordingly.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The denial of the entire expenditure incurred towards as cost of construction by the AO cannot be held to be justified even if the assessee did not submit satisfactory bills/vouchers."
Core principles established: The necessity of documentary evidence for claims, and the balance between evidence and reasonable estimation.
Final determinations on each issue: The assessment order was upheld, the deduction under section 80C was allowed, 50% of the construction expenses were permitted, and interest was to be recalculated.

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