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Facts
The assessee sold two immovable properties and claimed cost of improvement. The Assessing Officer disallowed this claim, citing an incorrect valuation report and lack of supporting evidence. The CIT(A) confirmed the addition and dismissed the appeal.
Held
The Tribunal noted that the assessee submitted additional evidence, including a correct valuation report and bills for improvement expenditure, due to a bonafide mistake in filing the initial report for a different property. The Tribunal found this additional evidence required verification.
Key Issues
The core issue was whether the assessee's claim for cost of improvement against capital gains should be allowed, given the initial submission of an incorrect valuation report and subsequent filing of additional evidence.
Sections Cited
Section 148, Section 147, Section 144B, Section 139
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
PER VIJAY PAL RAO, VICE PRESIDENT :
This appeal by the Assessee is directed against the Order dated 11.02.2025 of the learned Commissioner of Income Tax-(Appeals)-National Faceless Appeal Centre [in short “NFAC], Delhi, for the assessment year 2018-2019.
2 ITA.No.706/Hyd./2025 2. The assessee has raised the following grounds of appeal:
1. “Based on the facts and circumstances of the case and in law, the order passed by the Ld CIT(A) is erroneous and bad in law; 2. The Ld CIT(A) erred in computing the capital gains of Rs.8,39,26,364 on the property at Jubilee Hills and Image Garden disallowing the cost of improvement incurred by the Assessee 3. The Ld CIT(A) ought to have allowed the cost of improvement of Rs.96,49,650 incurred by the Assessee at Jubilee Hills and Image Garden wherein all the relevant evidences were submitted 4. The Ld CIT(A) erred in computing the capital gains of Rs.8,39,26,364 on the sale of property disallowing the cost of improvement incurred by the Assessee
5. The Ld CIT(A) ought to have allowed the interest expense claimed by the assessee on income from House property amounting to Rs.2,05,250/-; 6. The Assessee craves leave to add to, alter, am end, modify, substitute, delete and/or rescind all or any one of the grounds of appeal on or before the final hearing.
The solitary issue in this appeal of the assessee is regarding not allowing the claim of cost of improvement against the capital gain arising from sale of property. The assessee is an individual and did not file her return of income u/sec.139 of the Income Tax Act [in short "the Act"], 1961.
3 ITA.No.706/Hyd./2025 The Assessing Officer reopened the assessment by issuing notice u/sec.148 of the Act. In response to the said notice, the assessee filed her return of income on 30.04.2022 declaring total income of Rs.74,33,650/-. While completing the assessment u/sec.147 r.w.s.144B of the Act on 27.03.2023 the Assessing Officer, inter alia, made the addition on account of long term capital gains of Rs.8,39,26,364/-. The assessee challenged the action of the Assessing Officer before the learned CIT(A). However, there was no appearance on behalf of the assessee nor filed any submissions or the relevant details or supporting evidence towards the claim of cost of improvement. The learned CIT(A) has confirmed the addition made by the Assessing Officer and dismissed the appeal of the assessee.
Before the Tribunal, the learned Authorised Representative of the Assessee has submitted that the Assessing Officer while making the addition on account of capital gain has not allowed the cost of improvement of Rs.96,49,650/-. He has further submitted that there was bonafide mistake in filing the valuation report in respect of 4 ITA.No.706/Hyd./2025 the cost of improvement in respect of the property bearing no.1-98/4/10, Madhapur village, Ranga Reddy District instead of the property bearing Municipal No.1-98/4/2, Madhapur village, Ranga Reddy District. The learned Authorised Representative of the Assessee has pointed out that since both the properties are situated side by side and, therefore, due to confusion and bonafide mistake the valuation report of the other property of the assessee was filed before the Assessing Officer resulting disallowance of the claim of cost of improvement while passing the assessment order. He has further submitted that the learned CIT(A) has passed the ex-parte order and, therefore, the assessee did not get an opportunity to furnish all the relevant record in respect of the claim of cost of improvement. The learned Authorised Representative of the Assessee has submitted that the assessee has now filed an application under Rule-29 of ITAT Rules, 1963 for admission of additional evidence in the shape of valuation report of the property bearing no.1-98/4/2 situated at Madhapur (v), bills for improvement expenditure incurred in respect of the property situated at Road No.92,
5 ITA.No.706/Hyd./2025 Jubilee Hills and purchase deed of property bearing no.1- 98/4/2 situated at Madhapur (v). He has pleaded that the additional evidence filed by the assessee may be admitted in respect of the claim of the cost of improvement of the property. The learned Authorised Representative of the Assessee has referred to the valuation report filed before the Assessing Officer placed at Page nos.45 to 69 of the paper book which was inadvertently filed in respect of the other property of the assessee and the correct valuation report in respect of the property bearing no.1-98/4/2 at Madhapur (v) is placed at page nos.71 to 95 of the paper book. Further, the assessee has also now filed the sale deed whereby the assessee purchased the property bearing no.1-98/4/2 situated at Madhapur (v) placed at page nos.139 to 145 of the paper book.
On the other hand, the learned DR has submitted that despite sufficient opportunities the assessee did not file the supporting evidence either before the Assessing Officer or before the learned CIT(A). The assessee has even not filed the return of income u/sec.139 of the Act and even in response
6 ITA.No.706/Hyd./2025 to the notice u/sec.148 of the Act, the assessee has not declared the income from capital gain arising from sale of properties. He has relied upon the Orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. The Assessing Officer noted during the course of assessment proceedings that the assessee has sold two immovable properties for a total consideration of Rs.9.40 crores and cost of acquisition with indexation was claimed at Rs.6,80,37,198/- and cost of improvement with indexation was claimed at Rs.2,18,33,349/-. However, as per the purchase deeds, the cost of acquisition of both the properties are found to be Rs.21,46,000/- and Rs.2,36,000/- respectively. Further on perusal of the valuation report in respect of the property bearing no.1-98/4/2 situated at Madhapur (v), the Assessing Officer found that the said valuation report pertains to some other property and, therefore, the same cannot be accepted. Thus, the Assessing Officer computed the long term capital gains after allowing the indexed cost of acquisition and since
7 ITA.No.706/Hyd./2025 the assessee failed to file any supporting evidence in respect of the cost of improvement, the Assessing Officer has rejected the said claim of the assessee. Now the assessee has filed additional evidence along with the petition under Rule-29 of ITAT Rules, 1963 and explained the reasons for filing a wrong valuation report pertaining to other property which is a bonafide mistake. The assessee has also filed the bills for improvement expenditure incurred in respect of property situated at Road No.92, Jubilee Hills and purchase deed of the property bearing no.1-98/4/2 situated at Madhapur (v). We find that when the claim of cost of improvement was rejected by the Assessing Officer because of wrong valuation report filed by the assessee and now the assessee has filed the correct valuation report in respect of the property in question, then the same is required to be verified and examined. Accordingly, in the facts and circumstances of the case, the matter is remanded to the record of the learned CIT(A) as pleaded by the learned Authorised Representative of the Assessee for re-adjudication of the appeal of the assessee, after giving further opportunity of hearing to the 8 ITA.No.706/Hyd./2025 assessee as well as by considering the additional evidence filed by the assessee.
In the result, appeal of the Assessee is allowed for statistical purposes.
Order pronounced in the open Court on 09.01.2026.