ITAT allows capital improvement claims without bills when AO conducts adequate inquiry and adopts plausible view under Section 55

ITAT Ahmedabad quashed CIT's revision order u/s 263 regarding cost of improvement claim. Assessee sold property purchased in FY 2002-03 during FY 2018-19, claiming capital improvements from FY 2008-09 including interior work and kitchen appliances. AO accepted the claim based on valuation report and bank statements. CIT revised under Section 263, arguing insufficient inquiry without bills/vouchers. ITAT held AO conducted adequate inquiry and adopted plausible view. Capital expenditure u/s 55(1)(b)(2) was allowable as expenses enhanced property value. CIT cannot substitute opinion when AO takes reasonable view after proper verification. Appeal allowed.

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Issues:
1. Revisionary order under Section 263 of the Income Tax Act, 1961.
2. Allowability of cost of improvement in computation of capital gains.
3. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263.
4. Adequacy of inquiries conducted by the Assessing Officer (AO).
5. Plausible view taken by the AO in accepting the cost of improvement.

Analysis:
1. The appeal pertains to a revisionary order under Section 263 of the Income Tax Act, 1961, issued by the Commissioner of Income Tax (CIT) for the Assessment Year 2019-20. The CIT set aside the assessment order passed by the Assessing Officer (AO) under Section 143(3) of the Act, directing a de-novo assessment due to alleged errors in allowing the cost of improvement claimed by the assessee in the computation of capital gains.

2. The Assessing Officer (AO) accepted the assessee's claim for the cost of improvement in the sale of an immovable property without detailed inquiries into supporting documentary evidence. The CIT contended that the assessment order was erroneous as per Section 263 of the Act, citing lack of verification of the allowability of the cost of improvement under Section 55(1)(b)(2) of the Act.

3. The assessee challenged the CIT's jurisdiction under Section 263, arguing that the AO had made necessary inquiries and passed the order after due diligence. The assessee contended that the CIT's differing view did not warrant revisionary proceedings, citing precedents where if the AO takes a plausible view, Section 263 cannot be invoked.

4. During the appeal hearing, the Authorized Representative (AR) of the assessee emphasized that the AO had conducted adequate inquiries into the cost of improvement, supported by documentary evidence submitted earlier. The AR highlighted the Jaipur Bench's decision, stating that if the AO adopts a plausible view after inquiries, Section 263 cannot be invoked.

5. The Tribunal found that the AO had appropriately verified the documents submitted by the assessee, including the valuation report and bank statements, to allow the cost of improvement. The Tribunal emphasized that the expenses incurred were capital in nature and added value to the property, justifying the AO's decision. The Tribunal held that the revisionary proceedings under Section 263 were unwarranted, as the AO's order was not erroneous or prejudicial to Revenue's interests. Consequently, the revisionary order was quashed, and the appeal of the assessee was allowed.

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