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

The brief facts of the case are that the assessee is an individual and is engaged in the business of real estate under the name and style of “Guru Foundation”. For the Assessment Year 2020-21, the assessee filed his return of income on 09.01.2021 declaring a total income of Rs.1,27,23,340/-.

A search and seizure operation u/s.132 of the Act was conducted on 27.11.2019 in the case of M/s.Asvini Fisheries Group. In connection with the said search, the residential premises of the assessee situated at Chennai was also covered under the search proceedings. Consequent thereto, the case of the assessee was centralized and notices under sections 143(2) and 142(1) of the Act were issued during the course of assessment proceedings.

The assessment was thereafter completed u/s.143(3) of the Act vide order dated 17.09.2021 determining the total income at Rs.1,49,36,531/- as against the returned income of Rs.1,27,23,340/-. While framing the assessment, the AO made, inter alia, the following additions/disallowances:

The AO further noticed that out of the sale consideration received from purchasers of plots at Athur Village, a sum of Rs.4,29,100/- was directly paid by the purchasers to M/s. Vetri Reals towards alleged development and marketing activities. According to the AO, the assessee failed to substantiate the genuineness of such payment by producing any agreement, memorandum of understanding, invoices, bills or evidence regarding the nature and extent of services rendered by M/s. Vetri Reals. Accordingly, the said amount was treated as part of the assessee’s sale consideration and added to the business income. Similarly, in respect of lands situated at Thimmavaram Village, the assessee had claimed deduction towards development expenditure. As the assessee failed to furnish adequate documentary evidence in support of the expenditure claimed, the AO disallowed 30% of the development expenditure amounting to Rs.15,44,612/- and added the same to the income of the assessee.

The AO also examined the claim of Long-Term Capital Loss arising from sale of agricultural land at Madambakkam. The assessee had claimed indexed cost of acquisition and indexed cost of improvement while computing the capital loss. On verification, the AO found that part of the cost of acquisition claimed by the assessee was unsupported by documentary evidence and that no satisfactory evidence had been furnished in support of the cost of improvement claimed. Consequently, the indexed cost of acquisition was recomputed and the entire claim of indexed cost of improvement was disallowed, resulting in reduction of the Long-Term Capital Loss claimed by the assessee and an addition of Rs.16,37,190/-.

Aggrieved by the above assessment order, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A) observed that the assessee had failed to produce any documentary evidence such as agreements, invoices, bills

With regard to the claim relating to Madambakkam land, the Ld.CIT(A) held that the assessee had failed to substantiate the alleged commission payment forming part of the cost of acquisition and had also failed to produce any evidence supporting the claim of cost of improvement. Holding that the burden to establish such expenditure u/s.48 of the Act rested upon the assessee and that no credible evidence had been furnished either before the AO or in the first appellate proceedings, the Ld.CIT(A) confirmed the disallowances made by the AO. Accordingly, the Ld.CIT(A), vide order passed u/s.250 of the Act dated 16.12.2024, dismissed the appeal of the assessee and sustained the additions/disallowances made in the assessment order.

Being aggrieved by the order of the Ld.CIT(A), the assessee is now in further appeal before this Tribunal.

The Ld.AR, appearing on behalf of the assessee, reiterated the submissions advanced before the lower authorities and assailed the additions made by the AO. It was contended that the impugned additions are unsustainable in law and on facts. Accordingly, the Ld.AR prayed for deletion of the additions and for allowing the appeal of the assessee.

Per contra, the Ld.DR, supported the orders of the lower authorities and prayed for sustaining the additions made by the AO and as sustained by the Ld.CIT(A).

We have heard the rival submissions and perused the material available on record. The first issue relates to the addition of Rs.4,29,100/- being the amount paid by the plot purchasers directly to M/s.Vetri Reals. We find that an identical issue had come up for consideration in the assessee’s own case for

The next issue relates to the disallowance of commission and purchase cost in respect of Madambakkam land and the consequential disallowance of capital loss. We find that the assessee had claimed indexed cost of acquisition and indexed cost of improvement while computing the capital loss. During the assessment, the assessee filed the details of the cost of acquisition claimed but not provided the entire documentary evidence in support of the same. Therefore, we are of the view that disallowing the entire claim of the assessee is not reasonable. Having considered the facts of the case and the material placed before us, we are of the view that the ends of justice would be met if the disallowance is restricted only to 30% of the expenditure in respect of the amounts of Rs.2,00,000/- and Rs.12,91,082/- respectively. Accordingly, the AO is directed to sustain the disallowance to the above extent and allow the balance expenditure claimed by the assessee.

Since the cost claimed by the assessee forms part of the computation mechanism under the Act, we further direct the AO to grant the consequential benefit of indexed cost on the expenditure so allowed, in accordance with law, while recomputing the capital gains/loss. The AO shall accordingly rework the computation after giving effect to our above directions. Thus, these grounds are partly allowed for statistical purposes.

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