RADHA ANGALLA,HYDERABAD vs. ITO, WARD-10(5), HYDERABAD

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee reiterated her submissions made before the A.O. and also filed various evidences, including copy of construction agreement with IVR Prime Urban Developers Limited, details of payments made to the builder and source for cost of construction out of loan borrowed from bank. The Ld. CIT(A), after considering relevant submissions, observed that, the assessee purchased unfinished villa for a consideration of Rs. 28,25,000/- and had spent Rs. 2,50,000/- for completing the unfinished work. The purchase/execution was done during July, 2007 and if the work was completed in July, 2007 itself, what was the necessity of entering into an agreement for Rs. 2,13,50,000/- during August, 2007, which does not give any logic. Further, the agreement was also not registered. Therefore, by following the decision of the Hon’ble Supreme Court in the case of CIT Vs. Balbir Singh Maini dated 04.10.2017 reported in [2017] 398 ITR 531 (SC), the Ld. CIT(A) rejected the explanation of the assessee and upheld the long-term capital gains computed by the A.O.

Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.

The learned counsel for the assessee, Shri G. Srinivasa Rao, C.A. submitted that, the A.O. has not disputed the fact that the assessee has purchased semi-finished house for a consideration of Rs. 56,50,000/- and also entered into a construction agreement with IVRCL and the assessee has also entered into construction agreement with IVR Prime Urban Developers Ltd., and spent Rs. 2,13,50,000/-. The payments have been made through banking channels by obtaining housing loan from Corporation Bank. All these details have been furnished to the A.O. and the Ld. CIT(A). However, both the authorities rejected the arguments of the assessee only on the ground that, the purchase of property/ construction was completed in July, 2007, whereas the assessee claims to have entered into construction agreement in August, 2007, even though the assessee has furnished relevant details and proved that, possession of completed building was handed over only in January, 2008. Therefore, he submitted that, the additions made by the A.O. should be deleted.

The learned Sr. A.R. for the Revenue, on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee failed to explain the logic behind entering into construction agreement in August, 2007, even though the property was purchased/constructed in July, 2007. Further, the construction agreement is between related parties. Since the assessee failed to prove the genuineness of transaction, the A.O. has rightly disallowed the cost of construction claimed by the assessee while computing long-term capital gains. Therefore, he submitted that, the order of the Ld. CIT(A) should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. There is no dispute with regard to the fact that the assessee had purchased a semi-finished villa vide document No. 9844/2007 for a consideration of Rs. 56,50,000/-. It is also not in dispute that, the assessee had entered into a construction agreement with IVRCL for a consideration of Rs. 5,00,000/-. In fact, the A.O. has not disputed the purchase cost of the villa and construction cost of Rs. 5,00,000/-. The only dispute is with regard to the further construction cost of Rs. 2,13,50,000/- claimed by the assessee and Shri Anand Rao Linga Rao Angalla on the basis of unregistered construction agreement with IVR Prime Urban Developers Limited dated 17.08.2007. The A.O. and the Ld. CIT(A) rejected the cost of construction on the ground that, the construction agreement was not registered and further, the assessee has not explained the logic behind entering into agreement in August, 2007 when the property was purchased/constructed in July, 2007. In other words, except this observation, the A.O. has not disputed the fact that there was a construction agreement with IVR Prime Urban Developers Limited, and the assessee has paid construction cost through proper banking channels. The assessee has also filed relevant details of bank loan availed from Corporation Bank where the bank has certified loan provided for purchase and construction of house property. From the details filed by the assessee which are available at paper book filed by the assessee, we find that, the assessee has substantiated further construction cost of Rs. 2,13,50,000/-, in which 50% share of the assessee, by filing relevant details, including bank statements, confirmation from the builder and also the source availed through housing loan from Corporation Bank. The assessee has also negated the observation of the Ld. CIT(A) on the issue of entering into agreement in August, 2007 and proved that, the completed house property was handed over by the builder on 09.01.2008, which is evident from possession certificate issued by the builder. Therefore, in our considered view, having noticed the fact that the assessee has furnished relevant details, the A.O. and the Ld. CIT(A) ought not to have rejected the cost of construction incurred by the assessee. Therefore, we direct the A.O. to allow cost of construction/ improvement claimed by the assessee as per construction agreement with IVR Prime Urban Developers Limited, dated 17.08.2007 for Rs. 2,13,50,000/- and compute capital gain, if any, derived from sale of property and delete the addition made towards long-term capital gain of Rs. 1,08,42,200/-.

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

The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file