Assessee wins partial relief on capital gains computation with construction cost at Rs. 500 per sq ft accepted

ITAT Hyderabad partially allowed the assessee's appeal regarding capital gains computation. The tribunal directed the AO to accept the assessee's claimed construction cost of Rs. 500 per sq ft, supported by a registered valuer's report, rejecting both the AO's arbitrary rate of Rs. 250 and CIT(A)'s average rate of Rs. 380 per sq ft. Regarding transfer expenses, the tribunal allowed Rs. 3 lakhs out of Rs. 6 lakhs claimed as compensation paid to a tenant, finding the payment reasonable based on circumstantial evidence including demand drafts issued before property transfer.

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Issues:
Reopening of assessment under section 147 of the I.T. Act, 1961 for A.Y. 2016-17, disallowance of indexed cost of acquisition and expenses of transfer, appeal before CIT (A) and Tribunal, adoption of cost of construction, expenses of transfer claimed by the assessee.

Analysis:
The appeal was filed against the order of the learned CIT (A) relating to A.Y. 2016-17, where the assessment was reopened under section 147 of the I.T. Act, 1961 due to the sale of an immovable property by the assessee. The Assessing Officer disallowed indexed cost of acquisition and expenses of transfer, resulting in an addition to the total income. The CIT (A) upheld these additions, leading to further appeal before the Tribunal.

The Tribunal set aside the issue to the file of the Assessing Officer for re-examination. The Assessing Officer, after issuing notices and receiving no evidence from the assessee, allowed indexed cost of acquisition at Rs. 15,93,266 and disallowed expenses of transfer for Rs. 6.00 lakhs. The total income was adjusted accordingly, leading to the assessee's appeal before the CIT (A).

Before the CIT (A), the assessee submitted a valuation report justifying the cost of construction. The CIT (A) directed the Assessing Officer to adopt the cost of construction at Rs. 380/sft instead of the rates claimed by the assessee and the Assessing Officer. The assessee appealed this decision before the Tribunal, arguing that the cost of construction should be as claimed by them and that expenses of transfer should be allowed.

The Tribunal, after hearing both parties, found that the Assessing Officer and CIT (A) had not justified their rates for cost of construction. Considering the valuation report and evidence provided by the assessee, the Tribunal directed the Assessing Officer to adopt the cost of construction as claimed by the assessee.

Regarding the expenses of transfer, the Tribunal found the claim reasonable based on circumstantial evidence and directed the Assessing Officer to allow Rs. 3.00 lakhs out of the Rs. 6.00 lakhs claimed by the assessee. Consequently, the appeal was partly allowed, and the capital gain from the property transfer was recomputed.

In conclusion, the Tribunal's decision favored the assessee by directing the adoption of the claimed cost of construction and allowing a portion of the expenses of transfer, leading to a partial allowance of the appeal.

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