BHAGABHAI TRIBHOVANDAS PATEL,AHMEDABAD vs. ITO.WARD 4(2)(1), AHMEDABAD

These two appeals have been filed by the Assessee, one against the order passed by the Ld. Commissioner of income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 10.04.2024 passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short] in quantum proceedings u/s 143(3) r.w.s. 263 of the Act and other against the order of ld. CIT(A) dated 15.04.2024 passed in penalty proceedings u/s 271(1)(c) of the Act for Assessment Year (AY) 2011-12.

The ld. AO has grievously erred in law and or on facts in not considering fully properly the explanations furnished and the evidence produced by the appellant.

The Commissioner of appeal has confirmed the addition of Rs.2,44,553/-, the cost of improvement which is to be deleted. As the Commissioner of appeal also has not taken into consideration reply and evidence given to them.

With regard to the disallowance of 30% of expenses, the ld. Counsel for the assessee submitted that all the relevant details such as ledger account of the conveyance, electricity, municipal tax, accounts fee, repairs, maintenance, stationery, tea expenses and other miscellaneous expenses have been duly submitted before the Revenue Authorities and hence disallowing 30% of the expenses is against the settled principles of the law.

On the other hand, the ld. DR argued that the Assessee, though submitted that he has spent the amount of Rs. 2.44 lakhs on cost of improvement but no details of cost of improvement have been submitted, hence the same has been rightly disallowed by the Revenue Authorities. With regard to the miscellaneous expenses disallowed, the ld. DR argued that in the absence of complete vouchers and details, the Assessing Officer has rightly disallowed the expenses at the rate of 30% instead of disallowing the entire amount.

Heard the arguments of both the parties and perused the record before us.

With regard to the cost of improvement, we find that the cost of improvement was incurred to make the house livable during the year 2007 itself. The sources of the cost of improvement have not been questioned and the Revenue Authorities disallowed the cost of improvement only on the ground that the expenses incurred were revenue in nature so cannot be considered as capital expenditure. We find that the issue of capital expenditure/revenue expenditure is not to be considered at this juncture and the cost of improvement incurred to make the house livable in the year 2007 can be genuinely considered to be cost of improvement which is eligible for deduction from the capital gains. The appeal of the Assessee on this ground is allowed.

With regard to the disallowance of 30% of expenses on the amount of Rs. 2.6 lakhs, we find that the Assessee has submitted the entire details such as municipal tax, accounts fee, repairs, maintenance & miscellaneous expenses. All the due and relevant details have been submitted before the Assessing Officer and Assessing Officer has also not brought on record & 1161/Ahd/2024 Bhagabhai Tribhovandas Patel Vs. ITO Asst. Year : 2011-12 - 4– details of any expenses which cannot be allowed. The only grievance of the Assessing Officer was that the Assessee did not give the bifurcation of these expenses. However, we find that all the heads of expenses have been duly furnished and there was no reason to disallow 30% of the expenses on ad- hoc basis. Hence, the appeal of the Assessee on this ground is liable to be allowed. In the result, appeal of the assessee is hereby allowed.