2014 (3) TMI 65 - AT - Income Tax

Tribunal overturns disallowance of expenses, directs fresh assessment

The Tribunal set aside the disallowance of litigation and electricity expenses in the computation of long-term capital gains, as well as the addition of ... Expenses incurred on valuation of property – Held that:- No cross verification from the returns or accounts of Smt. Beena Devi who was the original owner of the property have been carried out to verify as to what amount was spent from her books, bank of account or cash in hand in respective years - This is so because the assessee is claiming 50% of expenses incurred by Smt. Beena Devi in defending and improving her title over the property - This becomes a crucial factor for ascertainment of claim of the assessee - There is no indication as to what has been done by department in the case of Smt. Shakuntla Golyan on these issues i.e. the another co-owner to whom half of the property was gifted by Smt. Beena Devi along with the assessee – thus, the matter remitted back to the AO for adjudication. Cash credits – Held that:- On one hand the CIT(A) finds fault with assessee's explanation that the documents were not filed before assessing officer and at the same time he has adverted to the merit of the documents that it amounts to giving contradictory findings - Besides, both the companies i.e. M/s Vitir Chattels Pvt. Ltd. and Nulon India Ltd. are claimed to be regularly assessed and family related concerns of the assessee - If the amount of Mr. Yash Golyan is lying in one of the family related concern i.e. Vitir Chattels Pvt. Ltd. and then transferred to another concern i.e. Nulon India Ltd. and both of them are assessed – thus, the assessee’s discharge of onus is to be weighed from the assessment record of these concerns – thus, the matter remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Issues Involved:1. Disallowance of litigation and electricity expenses in the computation of long-term capital gains.2. Addition of Rs. 16 lakhs as unexplained cash credit under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Litigation and Electricity Expenses:The assessee contested the disallowance of litigation expenses and electricity charges incurred to improve the valuation of a property sold for Rs. 15 crores. The property had been involved in extensive legal battles since 1992, which culminated in a High Court order in 2006 evicting an illegal occupant. The property was subsequently gifted to the assessee and another individual, who sold it in the relevant assessment year, each receiving Rs. 7.5 crores.The assessee claimed litigation expenses of Rs. 2,16,20,948 (indexed) and electricity expenses of Rs. 3,65,315 as part of the cost of acquisition. The Assessing Officer (A.O.) disallowed these claims, stating they were neither related to the transfer of the asset nor supported by evidence. The CIT(A) upheld the A.O.'s decision, noting the lack of documentary evidence and head-wise, year-wise details to substantiate the expenses.The assessee argued that the expenses were necessary to improve the market value of the property and cited legal precedents to support the inclusion of such expenses in the cost of acquisition. However, the CIT(A) rejected this argument, emphasizing the absence of evidence and noting that the expenses were not directly connected to the transfer of the property.2. Addition of Rs. 16 Lakhs as Unexplained Cash Credit:The A.O. added Rs. 16 lakhs to the assessee's income as unexplained cash credit, questioning the identity, creditworthiness, and capacity of the lender, Master Yash Golyan. The assessee explained that the amount had been lying in the accounts of M/s Vitir Chattels Pvt. Ltd. and M/s Nulon India Ltd. since 2003 and was transferred to the assessee's account in the relevant year. The CIT(A) upheld the A.O.'s decision, citing the lack of confirmation and supporting documents such as bank statements and IT returns of Yash Golyan and the companies involved.The assessee argued that the confirmation from the companies and the continuity of the amount in their books since 2003 should suffice to prove the genuineness of the transaction. The assessee also highlighted that the companies were related family concerns and regularly assessed for income tax.Tribunal's Decision:The Tribunal noted that both issues required further examination and methodical verification of facts and records. Specifically, it highlighted the need for cross-verification from the returns or accounts of the original owner, Smt. Bina Devi, and the treatment of similar claims by the co-owner, Smt. Shakuntla Golyan. Regarding the cash credit, the Tribunal pointed out the contradictory findings of the CIT(A) and the need to consider the assessment records of the related companies.The Tribunal set aside both issues back to the file of the A.O. for fresh adjudication, directing a thorough verification of the facts and records in accordance with the law. The appeal was allowed for statistical purposes.Order Pronounced:The order was pronounced in open court on 21-2-2014.