MANCHALA RAVINDER ALIAS RAVIENDRA,HYDERABAD vs. DCIT., CIRCLE-3(1) , HYDERABAD

During the course of the assessment proceedings, the AO observed that the assessee, while computing the capital gains on transfer of certain lands, had claimed deduction of transfer expenses, viz., (i) Tellapur Land: Rs.2,50,000/-; (ii) Medipally Land: Rs.2,00,000/-; and (iii) Miyapur Land: Rs.2,00,000/-. On being queried, the assessee filed with the AO “debit vouchers” to support his claim of having incurred the above mentioned transfer expenses, viz., (i) commission paid in cash to Mr. Srinivas Reddy on 23/08/2015: Rs.2,00,000/-; (ii) commission paid in cash for two flats, i.e., Flat Nos.303 and 305 on 31/03/2016: Rs.2,00,000/-; (iii) commission paid in cash to Mr. Mohan Reddy on 27/11/2015: Rs.2,00,000/-; and (iv) commission paid in cash to Mr. Naresh Reddy on 23/08/2015: Rs.50,000/-. However, the aforesaid explanation of the assessee did not find favor with the AO, for the reason that the same was supported by self-made debit vouchers which did not bear the addresses of the persons to whom the aforesaid commission was stated to have been paid, as well as was silent regarding the mode of payment or bill numbers. Accordingly, the AO, in the absence of proper details/documentary evidence, declined the assessee’s claim for deduction of transfer expenses of Rs. 6,50,000/-.

The AO further observed that the assessee in his return of income had claimed an expenditure of Rs.42,88,912/- towards development expenses of land. On being queried, it was the claim of the assessee that he had incurred the aforementioned expenditure for the development of the subject land transferred by him during the year under consideration. For the sake of clarity, we deem it apposite to cull out the reply filed by the assessee with the AO on the aforesaid issue, as under:

The assessee, aggrieved with the order passed by the AO under section 143(3) of the Act, dated 30/12/2018, carried the matter in appeal before the CIT(A) but without success. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under: “4. DECISION: 4.1 I have perused the assessment order and the submissions of the appellant. 5. Ground No.2: 5.1 The assessee has sold 3 plots of land on which it has claimed commission of Rs.6,50,000/- as transfer expenses. When asked to substantiate the genuineness of the above expenditure, the assessee submitted self made voucher which did not contain the address of the persons to whom commission has been paid, mode of payment or bill no Even during appeal proceedings, the appellant has not furnished any evidence to substantiate the above expenditure towards commission expenditure for sale of the above land. Therefore, disallowance of the above transfer expenses of Rs.6,50,000/- is upheld 5.2 The Assessing Officer has also disallowed indexed cost improvement of the land stating to have been incurred towards development expenses of the land. However, no evidence regarding the cost of improvement of land has been submitted by the assessee during assessment proceedings or appeal proceedings. Furthermore, as claimed by the assessee, that such expenses for development of the land have been paid to M/s Spark Realtors Pvt. Ltd.; enquiries by the Assessing Officer u/s 133(6) did not show any specific expenses incurred by it towards the development of the said land. In view of the above, the disallowance of indexed cost of improvement of the land disallowed by the Assessing Officer is upheld. In the absence of any evidence regarding expenditure incurred towards development of the land, it is held that the Assessing Officer has correctly disallowed deduction u/s 54F. In any case, the deduction u/s 54F is allowed only when the assessee purchases or constructs a residential house within the statutory time period from the date of transfer. In this case, expenditure on development of land cannot be said to be incurred for purchase or construction of a residential house. Therefore, it is held that the Assessing Officer has correctly disallowed the claim of exemption u/s 54F.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.

Shri B Satyanarayana Murthy, CA, Learned Authorized Representative (for short, “Ld. AR”) for the assessee, at the threshold of hearing of the appeal, assailed the declining of the assessee’s claim for deduction of commission expenses of Rs.6,50,000/-. The Ld. AR, to buttress his claim that the assessee had incurred commission expenditure on the transfer of the subject land and rightly claimed the same as deduction while computing the capital gains on the transfer of the respective lands, had taken us through the debit vouchers issued by the assessee, Pages 1-4 of the APB. However, the Ld. AR, when queried about the absence of complete details of the parties to whom the commission was paid, along with their respective addresses, failed to provide any reply. However, he submitted that the said expenses were incurred in respect of the commission paid to the aforementioned persons, as they had facilitated the transfer of the land in question.

Apropos the declining of the assessee’s claim for deduction of development expenditure, viz., leveling, rock-cutting and other expenses that were claimed to have been incurred in respect of the 8 Acres 03 Guntas of land at Haridaspally village, Keesara Mandal, Ranga Reddy District, the Ld. AR submitted that the 7 assessee, to render the subject land saleable, had initially incurred the aforesaid expenditure. However, as the assessee thereafter found it difficult to carry on the development work, he entrusted the development of the property to M/S. Spark Realtors Pvt Ltd for carrying out the development, on the basis of which it was agreed to share the developed area in the ratio of 60:40 between the realtor/developer and the assessee company, respectively. Elaborating further on his contention, the Ld. AR submitted that pursuant to the development agreement, the assessee had disclosed the capital gain on the transfer of the said land in the subject year, wherein he had considered the original cost and expenditure incurred towards leveling and rock cutting as the improvement cost for computing the capital gains. The Ld. AR submitted that as the expenditure was incurred during the years 2006 to 2010 towards land leveling, blasting, rock cutting, JCB charges, labour payment and other expenses and the books of account for the said period wherein the said expenditure was recorded were seized by the Income Tax Department pursuant to a survey operation that was conducted at the business premises of the assessee, therefore, the requisite details could not be furnished. However, it was stated that the balance sheet of the assessee for the subject year, which revealed the year-wise land leveling and other expenses incurred, was filed before the AO.

Coming to another facet of the case, the Ld. AR submitted that the assessee had filed his original return of income on 30/12/2016, wherein he had, inter alia, disclosed a business loss of Rs. (-)5,42,616/-, which thereafter was processed by the CPC, Bengaluru under section 143(1) of the Act, dated 22/07/2017, Pages 107-112 of APB. Elaborating on his contention, the Ld. AR submitted that thereafter, the assessee had filed a revised return of income for the subject year on 31/03/2017, vide e-filing acknowledgment No.736255920310317, wherein, inadvertently, the income under the head ‘business or profession’ was wrongly disclosed at Rs.1,06,02,100/-, Pages 13-19, Page-41 of APB. The Ld. AR submitted that a serious infirmity that had crept in while computing the revised income of the assessee was that latter had wrongly taken the “net profit” as disclosed by his trading, profit and loss account for the year ending 31/03/2016 at Rs.92,39,367/-, which included incomes under the other heads of income, viz., (i) sale of fixed assets (six properties); (ii) salary income (from two concerns); and (iii) rental income. The Ld. AR submitted that thought the assessee while computing the income (revised) had separately considered the aforesaid incomes, viz., (i) capital gains on sale of lands; (ii) salary incomes; and (iii) rental income under the respective heads of income, but inadvertently had failed to exclude the same from the net profit as was disclosed in his profit and loss account for the subject year. The Ld. AR, to buttress his aforesaid contention, had taken us through the trading, profit and loss account for the year ending 31/03/2016, Page 21-22 of APB, computation of income (revised), Page 13-19 of APB and the copy of the revised return of income, Page 41 of APB. The Ld. AR submitted that though the assessee had raised the aforesaid issue before the CIT(A), he had failed to deal with and adjudicate the same.

Per contra, Ms. Uppaluri Meena, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) relied on the orders of the authorities below.

We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties and the material available on record.

Apropos the claim of the assessee that the AO had erred in declining his claim for deduction of transfer expenses, viz., (i) Tellapur Land: Rs.2,50,000/-; (ii) Medipally Land: Rs.2,00,000/-; and (iii) Miyapur Land: Rs.2,00,000/-, we find that it has been the claim of the assessee that the aforesaid expenses were incurred towards commission to certain persons, viz., (i) commission paid in cash to Mr. Srinivas Reddy on 23/08/2015: Rs.2,00,000/-; (ii) commission paid in cash for two flats, i.e., Flat Nos.303 and 305 on 31/03/2016: Rs.2,00,000/-; (iii) commission paid in cash to Mr. Mohan Reddy on 27/11/2015: Rs.2,00,000/-; and (iv) commission paid in cash to Mr. Naresh Reddy on 23/087/2015: Rs.50,000/-. However, we find that the same was disallowed by the AO on the ground that the said claim was supported by self-made debit vouchers that did not bear the addresses of the persons to whom the commission was stated to have been paid, the modes of payment, or the bill numbers. We find that the assessee had neither before the authorities below nor before us placed on record any documentary evidence which would irrefutably evidence the incurring of the aforesaid expenditure. In fact, we find that the assessee, to date, has not been able to provide the addresses of the aforementioned persons to whom the alleged commission is stated to have been paid.

We have given thoughtful consideration and are of firm conviction that in the absence of the requisite details, the aforesaid unsubstantiated claim of the assessee of having incurred the commission expenses is nothing better than a claim raised in thin air which, in the absence of supporting documentary evidence, cannot be accepted. We thus, finding no infirmity in the view taken by the authorities below who had rightly declined the assessee’s claim for deduction of commission expenses of Rs.6.50 lakhs, uphold the same.

Apropos the assessee’s claim for deduction of development expenditure, viz., leveling, rock cutting and other expenses claimed to have been incurred in respect of 8 Acres 03 Guntas of land at Haridaspally Village, Keesara Mandal, Ranga Reddy District, we find on a perusal of the record that the assessee had failed to file any evidence either before the authorities below or in the course of the proceedings before us which would evidence the incurring of the said expenditure towards development of the subject land. Ostensibly, it is the claim of the assessee that he had initially on his own incurred expenses for carrying out land leveling, rock cutting, etc., for development of the aforesaid land, but had failed to place on record any material which would support the same. Although, it is the claim of the assessee that the aforesaid development expenditure towards land leveling, blasting, rock cutting, JCB charges, labour payment and other expenses were incurred during the years 2006 to 2010, and the same which was duly recorded in the books of account for the said year, but as he was subjected to survey proceedings and the aforesaid books of account had been seized by the Income Tax Department, therefore, the requisite details supporting his aforesaid claim of expenses could not be filed. We find that the AO had not summarily rejected the aforesaid claim of the assessee and had rather directed him to produce the copy of the impounding order which would evidence that the documents/books of account for the aforementioned years were seized by the Income Tax Department. However, as the assessee had miserably failed to furnish any material which would support his claim that the books of account/documents supporting his aforesaid claim for expenses were seized by the Income Tax Department and lying with them, the AO had declined the said claim for deduction. Apart from that, the claim of the assessee that he had subsequently given the subject land for development to M/s. Spark Realtors Private Limited also did not find favor with the AO. As is discernible from the record, the AO had issued notice under section 133(6) of the Act to M/s. Spark Realtors Private Limited and had called for the development agreement entered into by the assessee, but the details provided by the said developer did not reveal any specific amount of the expenditure spent towards development of the assessee’s land.

We have given thoughtful consideration and are of the view that as the assessee had failed to substantiate his claim for deduction of the improvement expenses which are claimed to have been incurred by him regarding the subject land, therefore, no infirmity arises from the orders of the authorities below who had rightly declined the same.

Apropos the assessee’s claim for deduction under section 54 of the Act, we find that as the assessee had failed to substantiate his said claim for deduction based on any supporting documentary evidence, the authorities below had rightly declined the same.

Coming to the Ld. AR’s contention that the CIT(A) had erred in not considering the claim of the assessee wherein he had assailed the adoption of the business income at Rs.1,06,02,100/- as against loss of Rs. (-)5,42,616/- declared in his original return of income, we prima facie find substance in the same. As observed by us hereinabove, the assessee filed the original return of income on 30/12/2016, wherein he disclosed a business loss of Rs. (-)5,42,616/-. Thereafter, the assessee revised his return of income on 31/03/2017, wherein he disclosed his business income at Rs. 1,06,02,100/-. As observed by us hereinabove, there is substance in the Ld. AR’s contention that the assessee in his revised return of income had inadvertently failed to exclude certain incomes which were separately offered to tax in the return of income under the other heads of income, viz., (i) sale proceeds of lands; (ii) salary income; and (iii) rental income, as a result whereof the “net profit” of Rs.92,29,367/- was wrongly taken as a basis for computing the business income of the assessee at Rs.1,06,02,100/-, Page 14 of APB. In our view, the aforesaid aspect has not been adjudicated by the CIT(A) despite the same having been raised by the assessee before him. We thus are of the view that the aforesaid aspect requires to be revisited and, therefore, set aside the matter to the file of the AO with a direction to verify the aforesaid claim of the assessee and reframe the assessment considering the said issue.