2017 (5) TMI 348 - AT - Income Tax

Assessee's Construction Expenses Verification: Tribunal Emphasizes Evidence & Licensing

The Tribunal directed the Assessee to provide detailed evidence of construction expenditure to substantiate the claim and emphasized the need for thorough ... Denial of cost of construction / improvement while calculating the capital gains - Held that:- For the sake of record the schedule of agreement dated 06-12-2003 shows the ‘property of plot admeasuring 600 Sq. yards (along with portion of old house admeasuring 1000 Sq. feet) out of 1828 Sq. yards equal to 1529 Sq. Meters bearing premises No. 8-2-293/82/8/1323/A, Road No. 67, Jubilee hills layout’. Similar description was mentioned in the other two documents also, which indicate that out of the 1828 Sq. yards of the land, there was a portion of old house admeasuring 1000 Sq. feet. Immediately thereafter the Assessees have entered a memorandum of construction agreement dated 29-03-2005 for construction the residential property with specifications of columns, beams etc., as stated in second page of the construction agreement, for a consideration of ₹ 45,00,000/-. M/s Maheshwari Megaventures Ltd., had shown this receipt of ₹ 45,00,000/- which was accepted by the A.O. It was also on record that the said company has spent only an amount of ₹ 27,77,538/- and balance was offered as profit. As seen from the notes on accounts also, the said company has taken over an entertainment center in the month of Feb 2006 and a restaurant which were not capitalized. However, A.O finds that the bills produced pertain to items for Hotel and other items which are used in hotel / restaurant, but not cost of construction on the project. Since, this forum is not in a position to examine whether the Assessee’s contentions are correct or not, I am of the opinion that the claim is to be reexamined. A.O is directed to examine the issue afresh, in the light of the evidence that may be produced and allow the expenditure accordingly, if the same is spent on the building on the property. Assessee appeal is allowed for statistical purposes. Issues:Appeal against denial of cost of construction/improvement while calculating capital gains.Analysis:The appeal was filed by the Assessee challenging the denial of cost of construction/improvement while computing capital gains. The Assessee, along with five others, sold a property to a construction company. The Assessee claimed a specific cost of construction, which was disputed by the Assessing Officer (A.O). The A.O disallowed a portion of the claimed construction cost, citing lack of evidence and discrepancies in the expenditure. The dispute centered around the authenticity and justification of the claimed construction expenses in relation to the property sold.Before the Commissioner of Income Tax Appeals (CIT(A)), the Assessee submitted additional evidence, including statements of accounts from the construction company. However, the A.O's remand report emphasized the absence of substantial proof to validate the claimed construction cost. The A.O highlighted discrepancies in the expenditure details and questioned the lack of necessary approvals for construction. Consequently, the CIT(A) upheld the A.O's decision to disallow the claimed construction cost, based on the detailed reasoning provided in the assessment order and the remand report.During the proceedings, the Assessee argued that the purchase deeds indicated the existence of a semi-finished building on the property, supporting the claimed construction expenses. The Assessee contended that the absence of the building in the sale deed did not invalidate the expenditure, as the payment was made before the property sale. The Assessee's representative also highlighted the A.O's acceptance of other expenses related to the property transaction, such as license fees and brokerage, while disputing the disallowance of the construction cost.After considering the arguments and examining the documents, the Tribunal observed that the property purchase agreements mentioned a building on the land. The Tribunal directed the Assessee to provide detailed evidence of the construction expenditure and payment details to substantiate the claim. The Tribunal acknowledged the need for a thorough verification of the expenses incurred for construction, including obtaining necessary licenses. Consequently, the Tribunal restored the issue of claimed construction cost to the A.O for fresh verification and directed the Assessee to furnish the required evidence. The Tribunal allowed the Assessee's appeal for statistical purposes, emphasizing the need for a comprehensive reexamination of the claimed construction expenses.In conclusion, the judgment highlighted the importance of substantiating claimed expenses, especially in the context of capital gains calculations. The decision underscored the necessity of providing concrete evidence and fulfilling regulatory requirements to support expenditure claims, ensuring a thorough assessment of the financial transactions involved in property transactions.