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Facts
The revenue appealed against the order of the AO concerning AY 2015-16. The AO had reopened the assessment based on information that the assessee sold an immovable property. During reassessment, it was observed that the assessee had entered into a collaboration agreement for development of a commercial complex on land purchased in 1981.
Held
The CIT(A) found the disallowance of the cost of improvements made by the AO as unjustified, considering the credible details of improvement costs furnished by the assessee, amounting to Rs. 79,97,600/- (without indexation) from 1982-83 to 1993-94. The CIT(A) also considered the indexed cost of acquisition and improvements, concluding that the AO's addition artificially inflated the taxable amount.
Key Issues
Whether the cost of improvements claimed by the assessee for developing the property is justifiable and adequately supported by evidence, and whether the AO was justified in disallowing these costs when calculating long-term capital gains.
Sections Cited
148, 147, 144B
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
PER NAVEEN CHANDRA, A. M.: This appeal of revenue is directed against the order of the ld 1. AO giving effect order dated 26.08.2025 pertaining to AY 2015-16. None appeared on behalf of the assessee. We, therefore, 2. extensively heard the ld DR and took his assistance to understand the facts of the case. The case records were perused. Briefly, the facts are that the assessee had filed his return of 3. income for A.Y. 2015-16 on 22/01/2016, declaring total income at Rs. 1,73,16,460/- under the head income from house property, business income and income from other sources.
The AO reopened the assessment on the basis of information 4. that the assessee had sold his immovable property vide notice u/s 148 of the Act dated 05/12/2019. In response to the notice issued, the assessee had filed his return of income for A.Y. 2015-16 on 10/12/2019 declaring total income at Rs. 4,14,95,520/-. During the course of assessment proceedings, it was observed that the assessee had purchased an agriculture land at Sikandarpur, Gurgaon on 06/04/1981. Further on 03/05/2023, the assessee entered into a collaboration agreement along with three other owners with M/s. PNV Construction Pvt. Ltd. for development agreement of commercial complex. As per this agreement, all the owners of the land got 33% of the total built up area and the developer got the rest 67%, against the cost of construction borne by the developer. Further, the assessee had received a sum of Rs. 25 Lacs as refundable interest free security deposit, as per the terms of the agreement. Further, the assessee entered into a final agreement with the same developer, in which the developer included another party M/s Saluja Construction Company Ltd. As per the agreement, the share of the owners was increased to 38%, from 33%. After that, the collaborator had allocated total area of 25,963 Sq. feet to the assessee and the collaborator had also informed the assessee, the cost of construction borne by him at Rs. 2,857/- per sq. Feet. It is pertinent to mention here that all the cost was borne by the developer to develop the above said property. As seen from the records, the sale consideration comes to Rs. 7,41,76,291/- (Rs. 2857/- per sq feet * total area allocated 25963 sq feet). Further, on the return of income filed in response to notice u/s. 148 of the Act the assessee offered Rs. 2,41,90,523 /- on account of capital gain. In support of the above claim, the assessee submitted the copy of Collaboration Agreement, Copy of Final Agreement, computation of capital gain, Computation of sale price per Sq. Feet, Copy of purchase deed of original asset and Copy of Occupation Certificate etc. Therefore, the AO passed an order u/s 147 r.w.s. 144B of the Act by making addition of Rs. 4,92,39,191/- (Rs. 7,34,29,713 – 2,41,90,522) on account of long term capital gain and added it total income of the assessee. We find that the assessee filed additional evidence before the 5. CIT(A) which the CIT(A) forwarded to the AO calling for a remand report. The AO instead of analysing and investigating the evidences, contested the evidence on the basis of Rule 46A. The ld CIT(A) thereafter, considering the facts of the case, found the disallowance of the cost of improvements made by the Assessing Officer as unjustified. The CIT(A) held as under:
“The assessee has furnished credible details of the cost of improvement undertaken on the property over several financial years, specifically from 1982-83 to 1993-94, which collectively amounted to 79,97,600/- (without indexation). The assessee has explained that substantial construction and renovation were carried out during these years to develop the property into a usable commercial space for conducting business activities under the name and style of M/s Sanjeev Industrial Corp. The cost of improvements claimed by the assessee includes multiple phases of construction spread over different years, such as initial building structures, subsequent extensions, reconstruction after partial demolitions by local municipal authorities, and further development in line with business requirements. These amounts, after applying the appropriate indexation benefits, were calculated to aggregate 4,92,39,190/-. The indexed cost of acquisition of the land, amounting to 7,46,578/-, was also duly computed and considered. Based on these computations, the assessee declared longterm capital gains of 2,41,90,522/- in the revised return filed during the reassessment proceedings. However, by rejecting the entire claim of cost of improvements, the AO computed the total taxable long-term capital gains at 7,34,29,713/-, leading to an addition of 4,92,39,191/- over and above what was already offered by the assessee. This disallowance fails to take into account the genuine nature of the costs incurred and the detailed working submitted by the assessee, including documentary evidence such as sales tax assessment orders indicating ongoing business activity at the premises, corroborating the existence of constructed structures. After evaluating the submissions and the evidence placed on record, it is evident that the assessee’s claim for cost of improvements is reasonable and supported by sufficient material. The calculation provided by the assessee, which includes both the indexed cost of acquisition and indexed cost of improvements, results in a more accurate determination of the taxable capital gains. By ignoring these legitimate costs, the AO’s computation has artificially inflated the taxable amount. In view of these findings, the addition of 4,92,39,191/- made by the AO towards long-term capital gains is unsustainable. The assessee’s contentions on grounds 2 and 3, supported by detailed computation and acceptable evidences, are upheld. Accordingly, the appeal on these grounds is allowed in favour of the assessee. We accordingly do not find any reason to interfere with the order of the ld CIT(A), accordingly, the appeal of the revenue is dismissed. We are of the considered view that the CIT(A) has appreciated 6. the additional evidence placed before him and has arrived at a reasoned and justifiable view. We therefore find no reason to interfere with the decision of the CIT(A). In result, the appeal of the revenue is dismissed.