NARAYANAN SUNDARAMAHALINGAM RAJKUMAR,CHENNAI vs. ASSISTANT COMMISSIONER OF INCOME TAX , CHENNAI

The AO called upon the assessee to furnish supporting evidence in respect of the indexed cost of improvement. The assessee furnished year-wise details of expenditure allegedly incurred towards development, re-earth filling, relaying and allied works during the period from Financial Years 2014-15 to 2018-19. However, the assessee expressed his inability to produce complete supporting vouchers and bills. The assessee specifically submitted that, owing to non-availability of records, he was agreeable for a reasonable disallowance

Aggrieved, the assessee is in further appeal before the Tribunal.

The sole issue arising for consideration in the present appeal is whether the authorities below were justified in disallowing the entire indexed cost of improvement amounting to Rs.16,37,890/- while computing Long-Term Capital Gain on sale of the Nanganallur property.

The Ld.AR submitted that the assessee had furnished year-wise details of expenditure incurred towards development and improvement of the property. It was contended that the property had undergone various developmental activities over a period of years and the expenditure was genuinely incurred. Due to passage of time, complete vouchers and supporting documents could not be preserved.

It was further submitted that even before the AO, the assessee had candidly accepted that in the absence of complete supporting evidence, a reasonable disallowance of 30% may be made. The AO, however, without appreciating the factual matrix and without bringing any material on record to establish that no expenditure whatsoever had been incurred, proceeded to disallow the entire claim.

The Ld.AR argued that complete disallowance of the indexed cost of improvement is arbitrary, excessive and contrary to settled principles governing estimation of expenditure where complete records are not available.

The Ld.DR relied upon the orders of the lower authorities and submitted that the assessee failed to produce documentary evidence in support of the expenditure claimed. Therefore, the AO was justified in disallowing the claim and the Ld.CIT(A) rightly confirmed the addition.

We have carefully considered the rival submissions and perused the material available on record. It is an undisputed fact that the assessee claimed indexed cost of improvement amounting to Rs.16,37,890/- while computing Long-Term Capital Gain arising from sale of the Nanganallur property. It is equally undisputed that the assessee furnished year-wise details of expenditure incurred over several years but was unable to produce complete supporting vouchers and bills due to lapse of time. The assessment records further reveal that the assessee himself had accepted that, in the absence of complete documentary evidence, disallowance of 30% of the claim may be considered. The AO disallowed the entire claim primarily on the ground that supporting evidence was not furnished and further observed that some of the items of expenditure described by the assessee did not appear to be relatable to a residential flat.

In our considered opinion, the approach adopted by the AO and confirmed by the CIT(A) is not sustainable. It is a settled proposition that where an assessee has furnished particulars of expenditure and the Revenue does not establish that the claim is wholly fictitious or bogus, complete disallowance is not warranted merely because supporting records are deficient. The correct course in such circumstances is to make a fair and reasonable estimate having regard to the facts and circumstances of the case. The authorities below have not brought any positive material on record to demonstrate that no improvement

We also find merit in the contention of the assessee that he had himself offered a disallowance of 30% on account of deficiencies in supporting evidence. The said offer appears to be fair and reasonable in the peculiar facts of the case. The Revenue has not brought any material before us to justify disallowance of 100% of the claim. Considering the totality of circumstances, the nature of expenditure claimed, the year-wise details furnished by the assessee, the absence of any finding that the claim is entirely bogus, and keeping in view the principles of reasonable estimation, we are of the view that ends of justice would be met if the disallowance is restricted to 30% of the indexed cost of improvement. Accordingly, we direct the AO to allow 70% of the indexed cost of improvement claimed by the assessee and restrict the disallowance to 30% thereof.

In the result, the appeal of the assessee is partly allowed.