2017 (10) TMI 313 - AT - Income Tax

ITAT partially allows appeal, remands cost of improvement issue to AO for re-examination

The ITAT partially allowed the appeal, remanding the issue of Rs. 1,56,37,380/- as cost of improvement to the AO for re-examination. Additionally, 50% of ... Deductibility of the amount paid as compensation u/s 48 - capital gain computation - CIT(A) has doubted the genuineness of the agreement and has even hinted at the possibility of the assessee having fabricated the story to suit his ends - Held that:- CIT (A) are not backed by any cogent evidence but are more in the realm of surmises and conjectures. Even the Ld DR, during the course of arguments before us, did not put any sort of argument to remotely doubt the genuineness of the agreement. The Ld. DR could not refute the assertion of the Ld. AR that the payee had duly accounted/disclosed the said amount as income in its hands. However, a perusal of the assessment order shows that this aspect has not been looked into at all by the AO. Thus, the findings by the AO and the Ld. CIT (A) are based on two different footings. It remains undisputed that the assessee was not specifically confronted on this issue and a simple order sheet entry was made before making the disallowance. Therefore, on an overall appreciation of the circumstances he failure of the AO to issue a show-cause notice before making the proposed disallowance, the failure of the Ld. CIT (A) to specifically adjudicate on the issue of admissibility of assessee’s claim u/s 48 of the Act coupled with the AO not examining the sale agreement to test its veracity, we are of the considered opinion that the entire issue needs to be restored to the file of the AO for re-examining the issue in light of the evidences filed by the assessee as well as the settled judicial precedents. Accordingly, we restore the issue of determination of the deductibility as an admissible deduction to the file of the AO to be decided in terms of our observations above after giving a proper opportunity to the assessee. Addition towards the cost of improvement - Held that:- To meet ends to justice, taking into account holistic consideration of all the facts, we are of the opinion that half of the amount claimed may be treated as allowed as the factum of improvement by incurring expenses is not doubted and we accordingly sustain 50% of the same. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) to pass the assessment order.2. Disallowance of Rs. 1,56,37,380/- as cost of improvement under Section 48 of the Income Tax Act.3. Disallowance of Rs. 26,35,200/- as indexed cost of land filling, site development, ground leveling, and boundary wall expenditure.Detailed Analysis:1. Jurisdiction of the Assessing Officer:The appellant contended that the AO lacked valid jurisdiction to pass the impugned assessment order. However, this specific issue was not elaborated upon in the judgment, and the primary focus was on the disallowances made by the AO.2. Disallowance of Rs. 1,56,37,380/- as Cost of Improvement:The assessee claimed a deduction of Rs. 1,56,37,380/- paid to M/s U.P. Bone Mills (P) Ltd. as compensation for the breach of a purchase agreement. The AO disallowed this amount, stating it did not qualify as a cost of improvement under Section 48, as it was compensation for the cancellation of an agreement and not for any alteration or addition to the asset. The AO relied on the judgments of Ambat Echkutty Menon vs CIT and CIT Vs Roshanbabu Mohammad Hussein Merchant to support this view.The CIT (A) upheld the AO's decision, questioning the genuineness of the payment and suggesting it was a fabricated story without requisite documentary evidence. The CIT (A) dismissed the assessee's explanation as lacking logic and evidence.At the ITAT level, the assessee argued that the agreement dated 01.07.2008 was genuine and that the compensation paid should be considered a cost of improvement. The assessee cited the Supreme Court's judgment in RM Arunachalam, which overruled the Kerala High Court's decision in Ambat Echkutty Menon, to support their claim. The ITAT noted that the AO did not specifically confront the assessee on this issue and relied on a judgment that had been overruled. The ITAT found that the CIT (A) did not adjudicate on the admissibility of the claim under Section 48 and that the AO did not examine the sale agreement's veracity. Consequently, the ITAT restored the issue to the AO for re-examination in light of the evidence and judicial precedents.3. Disallowance of Rs. 26,35,200/- as Indexed Cost of Land Filling, Site Development, Ground Leveling, and Boundary Wall Expenditure:The AO disallowed the assessee's claim of Rs. 19,28,859/- for site development, boundary wall, and other related activities due to a lack of documentary evidence. The CIT (A) upheld this disallowance, noting the absence of details or evidence.The ITAT, considering the overall facts and circumstances, allowed 50% of the claimed amount, sustaining Rs. 9,64,429.50/- as an allowable expense for cost improvement.Conclusion:The ITAT partially allowed the assessee's appeal. The issue of Rs. 1,56,37,380/- as cost of improvement was remanded to the AO for re-examination, while 50% of the Rs. 19,28,859/- claimed for site development and related expenses was allowed. The appeal was thus partly allowed in terms of these directions.