Transfer expenses allowed in capital gains computation under section 48 despite no written agreements

ITAT Delhi allowed assessee's appeal regarding transfer expenses deduction under section 48 capital gains computation. Despite absence of written commission agreements, tribunal held that payments made through bank account established genuineness of transfer expenses, citing real estate practice of oral instructions. However, ITAT upheld disallowance of cost of improvement claims for cash expenses to contractor, finding inadequate documentation regarding construction details, cash source, and contractor verification. Tribunal declined to consider fresh pleas raised for first time on appeal without reasonable cause for non-submission before AO/DRP.

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Issues Involved:
1. Disallowance of Brokerage Expense of Rs. 45 Lakh.
2. Disallowance of Construction and Improvement Cost of Rs. 31,86,363.

Summary:

Issue 1: Disallowance of Brokerage Expense of Rs. 45 Lakh
The assessee contended that the brokerage commission paid to three brokers was supported by tax invoices, confirmation letters, and PAN details. The payments were made through cheques. The AO and DRP disallowed the brokerage expense, insisting on agreements between brokers and the assessee, which the assessee argued was not a trade practice in real estate transactions. The Tribunal noted that the assessee provided sufficient proof, including invoices and bank statements, to establish the genuineness of the payments. The Tribunal held that the disallowance was not justified, referencing judgments from the Karnataka High Court that brokerage in connection with transfer is a deductible expenditure. Thus, grounds 1 to 5 were decided in favor of the assessee.

Issue 2: Disallowance of Construction and Improvement Cost of Rs. 31,86,363
The assessee claimed to have spent Rs. 73,00,000 on constructing a residential house, with Rs. 41,13,637 paid through bank transactions and Rs. 31,86,363 paid in cash to laborers. The AO and DRP disallowed the cash payments, citing lack of proper documentation, unverified sources of cash, and absence of cash voucher numbers. The Tribunal agreed with the AO/DRP, noting the lack of clarity and supporting evidence regarding the source of cash and the payments to laborers. The Tribunal also declined to entertain new pleas raised by the assessee that were not presented before the AO/DRP. Consequently, the disallowance of the cost of improvement was sustained, and grounds 6 to 10 were decided against the assessee.

Conclusion:
The appeal of the assessee was partly allowed, with the disallowance of brokerage expense being overturned and the disallowance of construction and improvement cost being sustained.

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