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Facts
The assessee, a Non-Resident, sold an immovable property and claimed long-term capital gains after accounting for cost of acquisition and modifications. The Assessing Officer (AO) disallowed a significant portion of these claims, primarily due to lack of specific mention in the sale deed and insufficient supporting documents. The DRP also rejected some claims, while allowing others.
Held
The Tribunal held that payments made for the purchase of property, even if not explicitly mentioned in the sale deed, are admissible as cost of acquisition if supported by evidence like cheques and confirmation from the seller. Similarly, payments for modifications and improvements, when evidenced by bills and confirmations, should be allowed as cost of acquisition and improvement, and disallowance solely based on the absence of VAT registration on bills is not justified.
Key Issues
Whether payments made for property acquisition and improvements, not explicitly detailed in the sale deed but supported by documentary evidence, can be allowed as cost of acquisition and improvement for computing capital gains. Also, whether the assessment order is time-barred.
Sections Cited
143(3), 144C(13), 142(1), 153(1), 153C(1), 144C(5), 144C(10)
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Income Tax Appellate Tribunal, HYDERABAD “A” BENCH : HYDERABAD
Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G
ORDER PER MANJUNATHA G, A.M. : This appeal has been filed by the Assessee against the final assessment order of the learned ADIT- (Intl.Taxn.)-1, Hyderabad, dated 13.01.2023, pursuant to the directions of Disputes Resolution Panel-1 [in short “DRP”], Bengaluru, directions dated 15.12.2022, passed
2 ITA.No.109/Hyd./2023 u/sec.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 [in short “the Act”], relating to the assessment year 2020-2021.
Facts of the case, in brief, are that the assessee is an individual Non-Resident for the impugned assessment year 2020-2021 and has filed return of income on 14.09.2020 declaring total income of Rs.64,11,480/- and claimed refund of Rs.1,37,11,170/ - on account of capital gains on sale of property. The case of the assessee has been selected for scrutiny under CASS and notice u/sec.143(2) was issued. In response to the said notice, the assessee furnished computation sheet. On verification, the Assessing Officer noted that during the year the assessee sold an immovable property for a consideration of Rs.5.18 crores and the assessee has claimed cost of acquisition with indexation and Cost of interiors and modifications to the tune of Rs.4,65,00,704/- and offered long term capital gains Rs.52,99,295/-. Thereafter, the Assessing Officer issued statutory notice u/sec.142(1) of the Act to the assessee calling for Sale deed, Purchase deed, details of expenditure incurred along with documentary evidence. In response to 3 ITA.No.109/Hyd./2023 the said notice, the assessee has submitted the Valuation report issued by Valuer. However, the valuation report submitted by the assessee is not acceptable on the fact that, the valuer has arrived at Rs.70,000/- per sq.yds for land admeasuring 470 Sq.yds. in absence of no supporting document and such value was not referred in the purchase deed. Hence, the valuation report submitted by the assessee was rejected by the Assessing Officer and issued show cause notice dated 26.02.2022 calling for specific information. In response thereto, the assessee submitted bank statement and copy of bill raised by S. Naga Basi Reddy and Reddy Brothers besides payment of Rs.60 lakhs to Smt. Atluri Laxmi Surya Kumari who is the original seller of the property to the assessee towards the modification of the impugned property. However, the Assessing Officer noted that though the assessee had filed confirmation letter, but, not filed the ITR copy of Smt. Atluri Laxmi Surya Kumari reflecting the impugned amount offered for taxation by her. The Assessing Officer further noted that the occupation of Mrs. Atluri Laxmi Surya Kumari is found to be housewife,
4 ITA.No.109/Hyd./2023 not in the field of relevant sector and also assessee could not furnish any registered document/ agreement whereby Smt. Atluri Laxmi Surya Kumari was awarded with the work of modification. Therefore, the Assessing Officer did not accept the claim of the assessee that the impugned sum of Rs.60 lakhs were utilized for the purpose of modification of property and accordingly, he disallowed the impugned sum of Rs.60 lakhs. Similar was the position in respect of various payments made by the assessee towards other expenses incurred for modification of the property. Accordingly, the Assessing Officer determined the long term capital gains of Rs.2,11,58,497/- as against the long term capital gains determined by the assessee at Rs.52,99,295/- vide draft assessment order dated 17.03.2022 passed u/sec.143(3) of the Act.
2.1. Aggrieved by the draft assessment order of the Assessing Officer dated 17.03.2022, the assessee filed objections before the DRP. The DRP after examining the draft assessment order and the submissions of the assessee allowed the expenses of cost of water meters paid to 5 ITA.No.109/Hyd./2023 Jayabheri, purchase of solar water heating system from Matrix Technologies and electrical work expenditure paid to Sri Sairama Enterprises to the tune of Rs.3,90,000/-; Rs.1,08,000/- and Rs.2 lakhs; respectively. However, the DRP rejected the claim of assessee towards cost of acquisition of the property, Infra expenses paid to Jayabheri Properties and cost of interiors paid to S.Nagabasi Reddy Brothers to the tune of Rs.61,86,777/- Rs.13,36,199/- and Rs.38,03,780/-; respectively. Accordingly, the DRP passed it’s directions dated 15.12.2022 u/sec.144C(5) of the Act.
2.2. Pursuant to the above directions of the DRP, the Assessing Officer passed final assessment order dated 13.01.2023 u/sec.143(3) r.w.s.144C(13) of the Act, by determining the long term capital gains of the assessee at Rs.2,07,67,597/- as against the sum offered by the assessee at Rs.52,99,295/- and assessed the total income of the assessee at Rs.2,71,79,437/- as against the returned income of the assessee at Rs.64,11,480/-.
2.3. Aggrieved by the final assessment order dated 13.01.2023 of the Assessing Officer, the assessee carried
6 ITA.No.109/Hyd./2023 the matter in appeal before the Tribunal contending inter alia, disallowance of cost of acquisition of the property of Rs.61,86,777/-; amount of Rs.60 lakhs paid to Mrs. Atluri Laxmi Surya Kumari towards modification of the property; amount of Rs.1,86,777/- paid to Mrs. Atluri Laxmi Surya Kumari for reimbursement of charges paid to Jayabheri Meadows and receipt of Rs.61,86,777/- by Mrs. Atluri Laxmi Surya Kumari, disallowance of cost of improvement of Rs.38,03,780/- paid to S. Naga Basi Reddy towards furniture works which is through banking channel and also not implemented the directions of the DRP wherein the DRP had allowed the expenses incurred towards payment to made to Matrix Technologies for solar water hearing; of Rs.1,08,000/-.
During the course of hearing, Learned Counsel for the Assessee at the very outset drew the attention of the Bench that the assessee is a Non-Resident, filed return of income on 14.09.2021. The Assessing Officer issued notice u/sec.143(2) on 29.06.2021 and assessment order was passed by the him on 13.01.2023 u/sec.143(3) r.w.s.144C
7 ITA.No.109/Hyd./2023 of the Act which is time barred as per provisions of sec.153(1) of the Act. He submitted that as per the provisions of sec.153C(1) of the Act the assessment has to be completed within a period of 18 months and in the instant case the time limit to pass the assessment order was by 30.09.2022, whereas, the Assessing Officer passed his final assessment order dated 13.01.2023 u/sec.143(3) r.w.s.144C of the Act and, therefore, the final assessment order dated 13.01.2023 shall be treated as non-est in the eye of law and liable to be quashed. In support of his submissions, the Learned Counsel for the Assessee, relied on the orders of Hon’ble Rajasthan High Court at Jodhpur in the case of PCIT vs. Virendra Choudhary Income Tax Appeal No.9 of 2021 vide order dated 05.03.2022; Coordinate Bench decisions of ITAT, Hyderabad in the case of Shri Farooq Ali vs. ITO ITA.No.104/Hyd./2023, order dated 10.04.2024 and in the case of Mir Ibrahim Ali vs. ITO ITA.Nos.69 and 91/Hyd.2024, order dated 29.11.2024 and accordingly pleaded that the assessment order dated 13.01.2023 passed by the Assessing Officer u/sec.143(3)
8 ITA.No.109/Hyd./2023 r.w.s.144C of the Act shall not sustain and the same shall be termed as time barred assessment and liable to be annulled.
3.1. Coming to not following the directions of the DRP while passing final assessment order by the Assessing Officer in his order dated 13.01.2023, the Learned Counsel for the Assessee drew the attention of the Bench that being the subordinate authority, it is the bounden duty of the Assessing Officer to follow the directions of the DRP. However, the learned Assessing Officer did not allow the expenses claimed by the assessee in connection with solar water heating system amounting to Rs.1,08,000/- which has been allowed by the DRP and thereby, the Assessing Officer has violated the binding provisions of sec.144C(10) and (13) of the Act and without giving effect to the directions of the DRP, the consequential final assessment order passed by the Assessing Officer dated 13.01.2023 u/sec.143(3) r.w.s.144(13) of the Act is in clear violation of the provisions of the Income Tax Act, 1961 and also not in conformity with the provisions of Sec.144C of the Act. He accordingly
9 ITA.No.109/Hyd./2023 submitted that the final assessment order passed by the Assessing Officer be quashed in the interest of justice. In support of the above contentions, the Learned Counsel for the Assessee, relied on the decision of Hon’ble Karnataka High Court in the case of Flextronics Technologies (India) (P.) Ltd., [2023] 148 taxmann.com 123 (Kar.); ITAT, Hyderabad Bench decision in the case of Uber India Research and Development P. Ltd., vs. DCIT ITA.TP.No.106/ Hyd/2022, decision of Hon’ble Gujarat High Court in the case of CIT vs. C-SAM (India) (P) Ltd., 94 taxmann.com 261; decision of Hon’ble Delhi High Court in the case of ESPN Star Sports Mauritius S.N.C ET Compagnie vs. Union of India 68 taxmann.com 377 (Del.); Coordinate Bench decision of ITAT Bangalore in the case of Software Prardigms Infortech (P) Ltd., vs. ACIT 89 taxmann.com 339.
3.2. Coming to the disallowance of cost of acquisition / improvement of Rs.61,88,777/- paid to Mrs. Atluri Laxmi Surya Kumari, Infra expenses of Rs.13,36,199/- paid to Jayabheri Properties Private Limited and cost of interiors of Rs.38,03,780/- paid to Nagabasi Reddy, the Learned
10 ITA.No.109/Hyd./2023 Counsel for the Assessee submitted that though the assessee has made payments by way of cheque through banking channels viz., ICICI Bank from joint account of Myneni Venu and Naga Jyothi-assessee and submitted the description of the expenses date-wise to the authorities below, without considering the same, the DRP rejected the above claims of the assessee on the ground that cost of acquisition was not mentioned in the deed and expenses are not mentioned in the deed is bad in law as held by Hon’ble Madras High Court in the case of S.P. Balasubrahmanyam vs. ACIT [2017] 81 taxmann.com 154 wherein the Hon’ble High Court observed that “for the purpose of computing capital gain, cost of acquisition has to be arrived at on the basis of actual consideration paid by assessee to vendors for purchasing property and not on basis of only apparent consideration stated in the sale deed”. He accordingly, submitted that the decision of Hon’ble Madras High Court is squarely applicable to the facts of the present case and, therefore, the appeal filed by the assessee be allowed on merits and legal facts to meet the ends of justice.
11 ITA.No.109/Hyd./2023
The Learned DR, on the other hand, heavily relied on the orders of the authorities below. He submitted that The assessee has purchased the property vide deed dated 19.02.2010 at Rs.1,14,30,805/- as against the claim of Rs.1,54,50,000/- as per the computation statement furnished by the assessee based on Valuation Report of Valuer. The Assessing Officer disallowed this claim since the valuation was not supported by any documentary proof and that there was no mention of this in the purchase deed. The Assessing Officer also noted from the Purchase Deed dated 19.02.2010 that a sum of Rs.61,86,777/- was paid to Mrs. Atlurilaxmi Surya Kumari prior to registration of the property in question. However, the said sum of Rs.61,86,777/- was not included in the cost of acquisition in order to reduce the registration charges and thereby, the assessee cannot include the said sum for claiming cost of acquisition of the property in question. Similar payment made to Jayabheri Properties and payment made towards cost of interiors, electrical works at Rs.13,36,199/-; Rs.38,03,780/- and Rs.2 lakhs respectively, was also 12 ITA.No.109/Hyd./2023 disallowed in absence of documentary evidence. He submitted that the DRP has allowed certain expenses made towards water meters to Jayabheri, cost of solar water heating and amount paid towards electricals and confirmed the above stated remaining disallowances made by the Assessing Officer. In view of the above, the Learned DR submitted that the final assessment order passed by the Assessing Officer is after verifying all the documents/details furnished by the assessee which is in accordance with law He accordingly submitted that the final assessment order passed by the Assessing Officer be confirmed in the interest of justice.
We have heard the rival submissions of both the parties, perused the orders of the authorities below and material available on record. Admittedly, the assessee has sold a property for a sum of Rs.5,18,00,000/- vide sale deed dated 05.03.2020 and claimed cost of acquisition with indexation which includes additional amount spent towards cost of interiors and modifications and finally declared long term capital gains of Rs.52,99,295/-. The cost of acquisition
13 ITA.No.109/Hyd./2023 of the property purchased vide sale deed dated 19.02.2010 was at Rs.1,14,30,805/-. The assessee claims to have paid a sum of Rs.61,86,777/- to the seller of the property Smt. Atlurilaxmi Surya Kumari on different dates by cheque. The assessee further claimed that she has paid an amount of Rs.13,36,199/- towards reimbursement of infra expenses to Jayabheri Properties on behalf of the seller. The assessee further claimed that she has put-up additional interior works to the property and for this purpose she has paid a sum of Rs.38,03,780/- to Nagabasi Reddy brothers through cheque. The Assessing Officer did not disbelieve the claim of the assessee. However, disallowed claim of cost of acquisition and improvement only on the ground that the additional amount claimed to have been paid by the assessee is not recorded in the sale deed dated 19.02.2010. Except this there is no observation with regard to claim of the assessee and it’s correctness in light of various evidences filed by the assessee. Therefore, it is necessary to examine the arguments of the assessee towards claim of cost of acquisition including improvements while computing
14 ITA.No.109/Hyd./2023 the capital gain from transfer of the property, in lieu of various evidences filed by the assessee.
Admittedly, the assessee has paid a sum of Rs.60 lakhs to Smt. Atluri Laxmi Surya Kumari on 07.11.2009 and that she had also paid a sum of Rs.1,86,777/- to Smt. Atluri Laxmi Surya Kumari on different dates starting from 03.06.2009 to 01.07.2009. All these payments are made through cheques only. The seller of the property has confirmed the receipt of the amount towards additional consideration put-up in the property. Once the assessee has furnished relevant evidences including confirmation from the seller and proved that additional amount has been paid for the purpose of purchase of the property, in our considered view, merely for the reason that the said sum was not referred to in the sale deed, it cannot be said that the amount paid by the assessee is not for the purpose of purchase of the property. Similarly, the assessee has paid a sum of Rs.13,36,199/- to Jayabheri Properties who is the original developer of the property. Although, the assessee has purchased the property from Smt. Atluri Laxmi Surya
15 ITA.No.109/Hyd./2023 Kumari, but, the property was under the maintenance from the developer Jayabheri Properties and while transferring the property to the assessee, whatever dues payable to Jayabheri Properties has been cleared by the assessee by paying a sum of Rs.13,36,199/- by cheque and the same has been adjusted against the consideration payable to the seller. This fact has been confirmed by Jayabheri Properties. Therefore, we are of the considered view that, once relevant evidences has been filed to prove payment for infra expenses related to the impugned property to the developer, in our considered view, merely for the reason of not referring the said payment in the sale deed dated 19.02.2010, it cannot be said that the payment is not for the purpose of purchase of the property. Likewise, the assessee claimed that she has paid a sum of Rs.38,03,780/- to Nagabasi Reddy brothers for carrying-out further interior works to the flat after she purchased from Smt. Atluri Laxmi Surya Kumari. To support her contention, the assessee has furnished a bill from the contractor. The Assessing Officer and the DRP disbelieved the claim of the assessee only on the ground 16 ITA.No.109/Hyd./2023 that the bills submitted by the contractor is on a plain paper and does not contain sales tax and VAT registration. In our considered view, when the payment is made by cheque and the person who carried-out the work has confirmed the payment for the purpose of interior works, merely for the reason of no VAT registration for the vendor, the genuineness of payment cannot be doubted. Since the assessee has furnished relevant evidences to prove payment to Nagabasi Reddy brothers for carrying-out interior works, in our considered view, the said payment partakes the nature of cost of improvement to the building and the same needs to be allowed as cost of acquisition and improvement while computing long term capital gains from the sale of property. Therefore, we are of the considered view, that the Assessing Officer and the DRP erred in not allowing the claim of additional payments made to Smt. Atluri Laxmi Surya Kumari, Jayabheri Properties and to Nagabasi Reddy brothers. Thus, we direct the Assessing Officer to delete the additions made towards disallowance of cost of 17 ITA.No.109/Hyd./2023 improvement while computing the long term capital gains from transfer of property.
Coming back to other grounds of appeal
filed by the assessee. The assessee has raised various grounds and challenged the assessment order passed by the Assessing Officer on limitation and also the legality of final assessment order passed by the Assessing Officer in light of not following the directions of the learned DRP. Although, the assessee has raised various grounds, but, we do not wish to adjudicate other grounds taken by the assessee, because the assessee has got relief in respect of additions made by the Assessing Officer towards disallowance of cost of acquisition and improvement. Thus, the other grounds taken by the assessee challenging the legality of the assessment order has been dismissed as infructuous.
8. In the result, appeal of the Assessee is allowed.