VENKATESWARA RAO RAVIPATI,HYDERABAD vs. ACIT., CIRCLE-6(1), HYDERABAD

The Assessee has raised the following grounds of appeal:

Ground nos.1 and 2 are general in nature and does not require any specific adjudication.

Ground no.3 is regarding the disallowance of cost of improvement of Rs.59 lakhs while computing the long term capital gains.

The assessee is an individual and filed his return of income for the year under consideration on 31.01.2013 admitting total income of Rs.69,73,640/-. The case of the assessee was selected under CASS for verification of the large cash deposits and low capital gain in comparison to the sale consideration. During the course of assessment proceedings, the Assessing Officer noted that the assessee purchased the property i.e., Plot no.656/1 in Sy.no.403/1, Shaikpet village and Hakimpet village at Road No.34, Jubilee Hills, Hyderabad measuring 683 sq. yards vide registered sale deed dated 03.02.2006 for a consideration of Rs.1.40 crores and the same property has been sold vide sale deed dated 10.09.2012 for a consideration of Rs.7.90 crores. The Assessing Officer further noted that as per the sale deed dated 10.09.2012 the Vendor has developed the said property into ground + 4 storied building after taking permission dated 31.12.2010 from Greater Hyderabad Municipal Corporation [in short “GHMC”] and computed the long term capital gains after claiming indexed cost of acquisition, cost of improvement and construction cost, bank interest total amounting to Rs.7,45,62,205/- arrived at long term capital gains of Rs.44,37,795/-. The Assessing Officer further noted that the assessee claimed cost of improvement of Rs.59 lakhs and indexed cost of the same at Rs.1,01,14,285/- shown the expenditure incurred in the year 2005-2006 whereas the property was purchased on 03.02.2006 and therefore, the Assessing Officer questioned the claim of cost of improvement and indexed cost of improvement. The Assessing Officer accordingly disallowed the said claim of cost of improvement. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.

Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that this amount of Rs.59,00,880/- pertains to penalty charges paid by the assessee to the municipality for regularization of extra construction beyond the sanctioned plan. He has further submitted that the payment is duly reflected in the GHMC proceedings dated 28.12.2010 placed at page-15 of the paper book. In the said proceedings, the sanction built-up area is shown as 2064 sq. feet whereas the total built-up area on the site is 11,860 sq. feet and therefore, the additional built-up area which was found as deviation from the sanctioned to the extent of 9796 sq. feet. The learned Authorised Representative of the Assessee has thus submitted that the payment was made by the assessee for regularization of the extra construction and therefore, the same cannot be disallowed once the assessee has produced the record and giving the details of the mode of payment through banking channel. Hence, the learned Authorised Representative of the Assessee has submitted that there was a mistake in mentioning this expenditure incurred in the year 2005-2006 but the payment made in the year 2010. Further, the assessee also made payment of Rs.30,000/- which is also part of this regularization proceedings of the GHMC showing that a sum of Rs.30,000/- was paid on 14.07.2008. Therefore, these two amounts are duly reflected in record of the GHMC are allowable deductions. The correct indexed cost of these amounts is Rs.70,71,097/- and Rs.43,917/- respectively.

On the other hand, the learned DR has submitted that the assessee has failed to substantiate the claim by filing any supporting documents before the Assessing Officer. He has relied upon the Orders of the authorities below.

We have considered the rival submissions as well as relevant material on record. The Assessing Officer has disallowed the claim of the assessee on the ground that the assessee has claimed that the improvement cost was incurred in the year 2005-2006 whereas the property itself was purchased by the assessee on 03.02.2006. It appears that there was a mistake in the details given by the assessee in claiming the cost of improvement whereas the actual payments of these two amounts of Rs.30,000/- and Rs.59,00,880/- are in the year 2008 and 2010 respectively. The assessee has filed the regularization and penalty order issued by the GHMC placed at Page no.15 of the paper book as under:

Ground no.4 is regarding the disallowance of cost of construction of Rs.1,65,90,000/-.

The Assessing Officer has taken the cost of construction at Rs.1,40,00,000/- which is nothing but the cost of acquisition of the property vide sale deed dated 03.02.2006 and has not allowed the deduction on account of construction of the property. The learned Authorised Representative of the Assessee has submitted that the Assessing Officer has assumed that no construction has been done by the assessee on this property after acquisition in the year 2006. The learned Authorised Representative of the Assessee has referred to the sanctioned plan approved by the GHMC and thereafter regularization of extra constructed area over and above the sanctioned plan. He has also referred to the loan taken by the assessee for construction of the building from the bank and Assessing Officer has allowed the interest expenditure while passing the assessment order. Thus, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer has considered the valuation report filed by the assessee at the time of taking the loan from the bank for a sum of Rs.2.40 crores which shows the existing structure of the property which was purchased by the assessee and not the construction and actual built-up area after the construction carried out by the assessee. The learned Authorised Representative of the Assessee has submitted that even the cost of acquisition was Rs.1,53,29,980/- inclusive of stamp duty and indexed cost is Rs.2,62,79,965/-. Though it is allowed by the Assessing Officer however, the cost of construction to the tune of Rs.1,65,90,000/- and indexed cost of Rs.2,72,34,450/- was disallowed by the Assessing Officer on the ground that no construction is carried out by the assessee whereas the GHMC sanctioned regularization/penalty order clearly shows that the assessee has carried out extra construction which was regularized to the extent of 11860 sq. feet. He has also referred to the sale deed whereby the assessee sold the property and submitted that in the said sale deed the total constructed area is 15,800 sq. feet with land admeasuring 683 sq. yards being sold by the assessee. The learned Authorised Representative of the Assessee has then referred to the Annexure-1A annexed to the sale deed placed at page- 33 of the paper book and submitted that the sale deed contains all the details of floor-wise constructed area which includes ground floor, first floor, second floor, third floor and fourth floor total constructed area comes to 15,800 sq. feet. The cost of construction claimed by the assessee @ Rs.1050/- per sq. feet is prevailing rate at that point of time. Thus, the learned Authorised Representative of the Assessee has submitted that ignoring the constructed area by the Assessing Officer while disallowing the claim of cost of construction is unjustified and the same may be allowed.

On the other hand, the learned DR has submitted that the Assessing Officer has considered the valuation report filed by the assessee with the bank and therefore, there was no extra construction as per the said valuation report. He has relied upon the Orders of the authorities below.

We have considered the rival submissions as well as relevant material on record. The Assessing Officer in his finding in Para nos.1.7 and 1.8 held as under: “1.7. During the course of hearing on 28.03.2016, the assessee has file a valuation report dated 28.03.2016, wherein the valuer has adopted rate for cost of construction of building and interiors at Rs.2.24 crores. As per the report the valuer has mentioned that there is overhead tank located in first floor with a capacity of 8000 Itrs. Whereas the assessee claims that the building has constructed for ground four floors, which is contradictory. In view of this the registered valuer Shri Dattathreyudu, who has given the report was contacted who said that the report was given as per the request of the assessee and the values quoted are present values. Therefore, this valuation report does not have any sanctity and the assessee cannot take any support of the report. 1.8. Since the assessee has not filed any evidence, the transfer of land and buildings were deemed to have been purchased in the year 2005-06 for a consideration of Rs.1,53,29,980/- (including registration charges) and the same is sold in the year 2012 after getting the regularisation of the construction of the building in the year 2010. The long term capital gains are computed as under:-

In the result, appeal filed by the Assessee is allowed.