Appeal decision sets aside LTCG computation for building improvements, directs fresh AO examination and restores disallowed business expenses

ITAT set aside the LTCG computation relating to cost of building improvements to the AO for fresh examination after admitting a valuation report (construction valued at Rs.64,35,472) and directed the AO to provide the assessee a reasonable opportunity to be heard; the ground was allowed for statistical purposes. The tribunal also deleted adhoc disallowances of various expenses, finding no specific adverse finding that expenditures were bogus or not incurred for business, and allowed the related appeal grounds.

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Issues Involved: Appeal against order of ld. CIT(A)-3, Ludhiana dated 01.03.2019 regarding cost of building improvement and disallowance of expenses.

Cost of Building Improvement:
The appellant challenged the disallowance of cost of improvement of the building amounting to Rs.25,04,534. The AO disallowed certain cash withdrawals as cost of construction/improvement while working out Long Term Capital Gains. The appellant contended that the property sold was fully constructed, with a covered area of 24000 sq.ft., and the actual construction cost was Rs.53,06,000. However, the ld. CIT(A) upheld the AO's decision due to lack of conclusive documentary evidence linking the withdrawals to construction. The appellant appealed this decision.

During the appeal hearing, the Valuation Report submitted by the appellant valued the construction at Rs.64,35,472. Considering the availability of this report and the absence of bills/vouchers, the Tribunal set aside the matter to the AO for reevaluation based on the Valuation Report. The ground of appeal was allowed for statistical purposes.

Disallowance of Expenses:
The AO disallowed Rs.1 lakh out of total expenses claimed by the appellant in the hotel business, citing discrepancies in the allocation of expenses between different accounts. The ld. CIT(A) upheld this disallowance despite the appellant's explanation that the expenses were genuine and related to the business.

The Tribunal found the disallowance to be adhoc without a valid basis, as there was no evidence of bogus expenses or non-business-related expenditure. Consequently, the addition was directed to be deleted. The appeal was partly allowed for statistical purposes.

Conclusion:
The Tribunal allowed the appeal in part, directing a reevaluation of the cost of building improvement based on the Valuation Report and deleting the adhoc disallowance of expenses.

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