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Facts
The assessee claimed deduction for the cost of improvement while computing LTCG from the sale of an immovable property. The property was purchased as a plot with an incomplete building, and the assessee claimed significant expenditure on its construction.
Held
The Tribunal admitted additional evidence presented by the assessee regarding the cost of improvement. However, due to concerns about the authenticity and the need for factual verification, the issue was remitted back to the Assessing Officer for fresh adjudication.
Key Issues
Whether the expenses incurred for construction of an incomplete building purchased by the assessee constitute 'cost of improvement' for the purpose of computing LTCG, and if additional evidence for such claim can be admitted at the appellate stage.
Sections Cited
49(1)
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI NARENDRA KUMAR BILLAIYAShri Ajay R. Singh a/w Shri Akshay Pawar
(Assessment Year: 2016-17) Vishnukumar Gokalchand Gupta ACIT, Circle-19(3) 14, Duplex, 14th & 15th Floor, Matru Mandir, Tardeo Road, Ashinana CHSL, Mumbai-400 007 Laxmibaid Jagmohan Marg, Vs. Nepean Sea Road, Mumbai-400 006 PAN/GIR No. AABPG 6771 H (Appellant) : (Respondent) Appellant by : Shri Ajay R. Singh a/w Shri Akshay Pawar Respondent by : Ms. Kavita Kaushik Date of Hearing : 13.10.2025 Date of Pronouncement : 23.10.2025 O R D E R
Per Saktijit Dey, Vice President:
This is an appeal by the assessee against order dated 29.05.2025, passed by National Faceless Appeal Centre (‘NFAC’ for short), Delhi pertaining to the assessment year (A.Y.) 2016-17.
The solitary dispute in the appeal relates to disallowance of indexed cost of improvement while computing income under the head long term capital gain (‘LTCG’ for short). Briefly the facts are, the assessee is a resident individual. For the assessment year under dispute, the assessee filed his return of income on 04.10.2016, declaring total income of Rs.5,93,20,140/-. The major part of the income was on account of LTCG, arising out of (A.Y.2016-17) Vishnukumar Gokalchand Gupta vs. ACIT sale of an immovable property. Brief factual background relating to the property sold are, the assessee and his wife along with his brother Shri Kamal Kishore Gupta and his wife Mrs. Sandhya Kama Kishore Gupta had purchased an immovable property, being Vikas Bungalow situated at Chembur through registered sale deed executed on 15.12.1988. While the assessee and his wife owned the first floor of the building, the second floor was owned by assessee’s brother and his wife. Subsequently, in the financial year (‘F.Y.’ for short) 1993-94, the assessee’s brother and his wife gifted their share in the property to the assessee. The said property was sold by the assessee in the financial year relevant to the assessment year under dispute for a consideration of Rs.7,93,55,000/-. While computing LTCG, the assessee claimed deduction towards cost of acquisition and cost of improvement and offered net LTCG of Rs.5,77,55,811/-. Insofar as, cost of improvement is concerned, the assessee claimed an amount of Rs.36,52,783/- incurred by him for the first-floor construction and interior work. Whereas, for the second floor, he claimed that his brother has incurred expenditure of Rs.1,04,81,602/- for construction and interior work.
In course of assessment proceeding, the assessee furnished certain documentary evidences to justify the claim of cost of improvement. The Assessing Officer (‘A.O.’ for short), however, was not convinced with the claim made by the assessee. He was of the view that firstly, the said immovable property was a completed house when purchased by the assessee, hence, required no further improvement. He observed, any repair, renovation cannot be considered as ‘cost of improvement’. Secondly, he observed, the assessee did not produce any documentary evidences that the expenditure was actually incurred. Accordingly, he disallowed the claim of indexed cost of improvement of Rs.1,41,34,385/- .
(A.Y.2016-17) Vishnukumar Gokalchand Gupta vs. ACIT 4. The assessee contested the aforesaid disallowance before ld. first appellate authority. In course of hearing, the assessee furnished certain additional evidences to justify the claim. Evidences furnished and submissions made were forwarded to the A.O. for verification. After verifying the evidences furnished and submissions made, A.O. submitted a remand report sticking to his decision taken in the assessment order. Based on the remand report, ld. first appellate authority ultimately confirmed the disallowance.
Before us, ld. Counsel appearing for the assessee referred to the registered sale deed dated 15.12.1988, to emphasize that what the assessee and his brother had purchased was a plot of land with an incomplete building. He submitted, after purchasing the property, both the assessee and his brother had subsequently invested in construction of the building and it was completed in the F.Y. 1993-94. He submitted, the investment made in construction of building was reflected in the balance sheet as well as Wealth Tax returns of both the assessee and his brother. He submitted, on completion of construction, the competent authority, i.e., Brihanmumbai Municipal Corporation (BMC) had issued a Completion Certificate on 08.04.1995. Thus, he submitted, there are enough documentary evidences produced before the Departmental Authorities to establish that after the purchase of the property was made in 1988, substantial investment was made towards cost of improvement. To further substantiate the claim of cost of improvement, ld. Counsel for the assessee furnished before us an application dated 10.10.2025, seeking admission of following additional evidences submitted in a separate paper book:
i. Building Completion Certificate, acknowledged on 15.02.1994 ii. Commencement Certificate, acknowledged on 05.02.1991 iii. Intimation of disapproval (IOD), acknowledged on 21.09.1992 (A.Y.2016-17) Vishnukumar Gokalchand Gupta vs. ACIT iv. Letter of appointment of Architect addressing to Executive Engineer, BMC acknowledged on 21.09.1992 v. Intimation for completion of construction upto plinth level, acknowledged on 04.03.1992 vi. Confirmation of appointment of site Supervisor, acknowledged on 23.03.1992 vii. Sample copies of invoices evidencing construction work
He submitted, since matter relates to more than 18 years back, assessee found it difficult to collate all the evidences at a time. Therefore, was not able to furnish them before the Departmental Authorities. He submitted, after taking great effort, the assessee has been able to collect further evidences from the office of the Municipal Corporation, which are being produced now. Thus, he submitted, the cost of improvement claimed by the assessee has to be allowed.
The ld. Departmental Representative (‘ld. DR’ for short) strongly objected against admission of additional evidences. She submitted, since the assessee had sufficient opportunity to furnish the evidences before the Departmental Authorities, they cannot be furnished at this stage. Without prejudice, ld. DR submitted, in case the additional evidences are admitted, since their authenticity needs to be factually verified, the matter may be restored back to the A.O.
We have considered rival submissions and perused the materials available on record. The assessment order itself reveals that in course of assessment proceedings, the assessee had furnished certain documentary evidences such as Completion Certificate issued by BMC on 08.04.1995, Wealth Tax Returns of the assessee and his brother, balance sheet etc. to establish that after purchase of the land and structure standing over it in the year 1988, both the assessee and his brother have made investments in construction of the (A.Y.2016-17) Vishnukumar Gokalchand Gupta vs. ACIT building. Further, the registered sale deed indicates that the assessee and his brother had purchased a property in the nature of ‘land’ on which an incomplete building was standing. The fact that the assessee owned the first floor of the building and the second floor was subsequently gifted by his brother to the assessee, has not been disputed by the Department. As per section 49(1) of the Act, the cost of acquisition of the asset shall be deemed to be the cost for which previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner of the assessee, as the case may be.
It is the case of the assessee that an amount of Rs.1.41 crores was incurred by him and his brother for construction of the house. To further augment his claim, the assessee has furnished certain additional evidences before us, as noted above. On perusal of these documentary evidences furnished as additional evidence, prima facie, we find some force in the claim of the assessee that after purchasing an incomplete building in the year 1988, both, the assessee and his brother have made investments in further construction. Even, in the submissions before the Departmental Authorities, the assessee has consistently taken this stand. Since the additional evidences furnished by the assessee will have crucial bearing in determining the issue in dispute, we are inclined to admit them. However, considering that the Department has raised concern about the authenticity of these documents and requirement of factual verification of their content, we are inclined to remit the issue back to the file of the A.O. for fresh adjudication, after carefully verifying all the documentary evidences including the additional evidences furnished before us by the assessee in support of its claim of incurring expenditure towards cost of construction. In this context, we may further observe that to verify assessee’s claim of cost of improvement, (A.Y.2016-17) Vishnukumar Gokalchand Gupta vs. ACIT the A.O. in addition to verifying the evidences including the additional evidences, may also make such enquiry as he deems fit to verify the claim of the assessee. Further, it is made clear, the A.O. must pass a reasoned order after considering all the evidences available on record and only after providing reasonable opportunity of being heard to the assessee.
In the result, the appeal is allowed for statistical purpose. Order pronounced in the open court on 23.10.2025. Sd/- Sd/- (N. K. Billaiya) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 23.10.2025 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,