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Facts
The appellant, a non-resident Indian, sold immovable property in A.Y. 2016-17 without filing an income tax return. The AO initiated reassessment proceedings, disallowing a substantial portion of the claimed cost of improvement and brokerage expenses for lack of evidence, leading to a significant addition to capital gains, which was confirmed by the DRP.
Held
The Tribunal partly allowed the appeal, remanding the matter back to the Assessing Officer. The AO is directed to re-examine the claim for cost of improvement by examining the contractor on oath and considering additional evidence. Similarly, the AO must also re-evaluate the disallowance of brokerage expenses based on new evidence provided by the assessee.
Key Issues
Whether the lower authorities were justified in disallowing the cost of improvement and brokerage expenses due to insufficient evidence, and if the matter requires a fresh examination by the AO.
Sections Cited
144C(13), 147, 139(1), 148(b), 148
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Income Tax Appellate Tribunal, “SMC” BENCH, COCHIN
Before: Shri Inturi Rama Rao
Asst.Year 2016-2017 Feroze Gani The Income Tax Officer Ganis, Convent Road-1 v. Ward International Taxation Thottakkattukara Post Kochi. Aluva, Ernakulam – 683 103. PAN : AWQPG3851R. (Appellant) (Respondent) Appellant by : Sri.Jameskutty Antony, CA Respondent by : Sri.Sanjit Kumar Das, CIT-DR Date of Date of Hearing : 26.03.2025 Pronouncement : 08.04.2025 O R D E R This appeal filed by the assessee is directed against final assessment order dated 10.01.2025 passed u/s.144C(13) r.w.s. 147 of the Income-tax Act, 1961 (“the Act”) for the assessment year 2016- 2017.
Briefly the facts of the case are that the appellant is an individual and a non-resident Indian. No regular return of income u/s.139(1) of the Act was filed by the appellant. Based on the information that the appellant sold immovable property during the financial year relevant to the assessment year under consideration, i.e., A.Y.2016-2017, for a consideration of Rs.60,04,000. The Assessing Officer (“the AO”) formed an opinion that the income chargeable to tax had escaped to tax. Accordingly, the AO issued a notice u/s.148(b) of the Act on 7th March, . Feroze Gani. 2023 and issued a notice u/s.148 of the Act on 29th March, 2023. In response to the notice u/s.148 of the Act, the appellant filed return of income. The AO had passed draft assessment order on 12th March, 2024 proposing to make addition on account of capital gains by disallowing the cost of improvement of Rs.18,58,803 as against the total claim of Rs.22,58,815.
Aggrieved by the above, an objection was filed before the Dispute Resolution Panel (“DRP”) contending that the appellant cannot be expected to produce evidence after the lapse of more than ten years and the AO should have allowed the deduction based on the evidence filed by the contractor, who had actually done the work of the improvement. However, the DRP confirmed the action of the AO.
Pursuant to the directions of the DRP, the final assessment order was passed on 10th January, 2025 after making addition of Rs.37,27,802.
Being aggrieved, an appellant is in appeal before the Tribunal in the present appeal. It is submitted that the appellant had produced evidence in support of the cost of improvement undertaken on the said property in the form of invoice copy of Rs.2,00,000 of Sri.Samuel Thomas and Rs.2,00,012 of Sri.Abraham George, and another documents that the appellant had submitted is an affidavit from one Sri.Shalu, a contractor as per which he received an amount of Rs.18,58,803 from appellant. However, the lower authorities failed to accept the evidence of the contractor in respect of Rs.18,58,803. Similarly, the lower authorities have also disallowed the brokerage of . Feroze Gani. Rs.5,77,840 for want of evidence. It is submitted that the lower authorities ought to have allowed the cost of improvement based on the evidence given by the contractor, who actually executed the work of improvement of the said property. Thus, it is submitted that the evidence furnished simply cannot be brushed aside, placing reliance on the judgment of the Hon’ble Supreme Court in the case of Mehta Parikh & Co. v. CIT (1956) 30 ITR 181 (SC) and the Hon’ble Gujarat High Court in the case of Glass Lines Equipments Co. Ltd. v. CIT (2002) 253 ITR 545 (Guj.).
On the other hand, the learned Senior Departmental Representative relied upon the orders of the authorities below.
I heard the rival submissions and perused the material available on record. The issue involved in the present appeal is relating to the allowability of cost of improvement claimed while computing the capital gains on sale of the property. The lower authorities had denied the claim of cost of improvement for want of evidence in respect of amount of Rs.18,58,805 in the absence of necessary evidence to substantiate its claim. During the course of proceedings before the Tribunal, the appellant had filed an affidavit from the contractor, who was stated to had executed the work relating to the improvement of the property. This evidence was not filed before the lower authorities nor the details. Therefore, I am of the considered opinion that the AO after examining the contractor can come to the conclusion whether the claim made towards the cost of improvement of the property is genuine or not. Therefore, I restore the matter to the file of the AO with a direction to . Feroze Gani. decide the allowability of the cost of improvement after examining the contractor on oath and other evidences as may be produced before him during the remand proceedings. Similarly, in respect of the disallowance of brokerage expenses of Rs.5,77,840, the assessee shall produce all necessary evidences before the AO in support of its claim, and the AO shall decide the allowability or otherwise of it after examining the evidences produced before him.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced on this 08th day of April, 2025.