2025 (3) TMI 652 - AT - Income Tax

Tribunal allows cost of improvement claims despite plain paper bills without VAT registration for property transfer

ITAT Hyderabad allowed the assessee's appeal regarding LTCG computation. The AO and DRP had disallowed cost of improvement claims for property transfer, ... LTCG computation - Disallowance of cost of improvement while computing the long term capital gains from transfer of property - AO and the DRP disbelieved the claim of the assessee only on the ground that the bills submitted by the contractor is on a plain paper and does not contain sales tax and VAT registration - HELD THAT:-Merely for the reason that the said sum was not referred to in the sale deed, it cannot be said that the amount paid by the assessee is not for the purpose of purchase of the property. Similarly, the assessee has paid a sum to Jayabheri Properties who is the original developer of the property. Although, the assessee has purchased the property from Smt. Atluri Laxmi Surya Kumari, but, the property was under the maintenance from the developer Jayabheri Properties and while transferring the property to the assessee, whatever dues payable to Jayabheri Properties has been cleared by the assessee by paying a sum of Rs. 13,36,199/- by cheque and the same has been adjusted against the consideration payable to the seller. This fact has been confirmed by Jayabheri Properties. Therefore, we are of the considered view that, once relevant evidences has been filed to prove payment for infra expenses related to the impugned property to the developer, in our considered view, merely for the reason of not referring the said payment in the sale deed dated 19.02.2010, it cannot be said that the payment is not for the purpose of purchase of the property. Likewise, the assessee claimed that she has paid a sum to Nagabasi Reddy brothers for carrying-out further interior works to the flat after she purchased from Smt. Atluri Laxmi Surya Kumari. To support her contention, the assessee has furnished a bill from the contractor. The Assessing Officer and the DRP disbelieved the claim of the assessee only on the ground that the bills submitted by the contractor is on a plain paper and does not contain sales tax and VAT registration. Thus, when the payment is made by cheque and the person who carried-out the work has confirmed the payment for the purpose of interior works, merely for the reason of no VAT registration for the vendor, the genuineness of payment cannot be doubted. Since the assessee has furnished relevant evidences to prove payment to Nagabasi Reddy brothers for carrying-out interior works, in our considered view, the said payment partakes the nature of cost of improvement to the building and the same needs to be allowed as cost of acquisition and improvement while computing long term capital gains from the sale of property. AO and the DRP erred in not allowing the claim of additional payments made to Smt. Atluri Laxmi Surya Kumari, Jayabheri Properties and to Nagabasi Reddy brothers. Thus, we direct the Assessing Officer to delete the additions made towards disallowance of cost of improvement while computing the long term capital gains from transfer of property. Appeal of the Assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were: Whether the final assessment order dated 13.01.2023 was time-barred under section 153(1) of the Income Tax Act, 1961. Whether the Assessing Officer erred in disallowing the cost of acquisition and improvement claimed by the assessee, including payments made to Smt. Atluri Laxmi Surya Kumari, Jayabheri Properties, and Nagabasi Reddy Brothers. Whether the Assessing Officer failed to follow the directions of the Disputes Resolution Panel (DRP) regarding certain expenses.ISSUE-WISE DETAILED ANALYSISTime-Barred AssessmentThe relevant legal framework includes section 153(1) of the Income Tax Act, which mandates the completion of assessments within a specified period. The Tribunal considered precedents such as the Rajasthan High Court's decision in PCIT vs. Virendra Choudhary, which emphasized adherence to statutory timelines.The Tribunal found that the assessment order dated 13.01.2023 was issued beyond the statutory period, rendering it non-est in law. This determination was based on the timeline of the proceedings and the statutory requirements under section 153(1).Disallowance of Cost of Acquisition and ImprovementThe relevant legal framework involves sections 48 and 49 of the Income Tax Act, which govern the computation of capital gains, including the cost of acquisition and improvement. The Tribunal examined the evidence provided by the assessee, including bank statements and confirmations from the parties involved.The Tribunal noted that the Assessing Officer disallowed the claims primarily due to the absence of references in the sale deed and lack of supporting documents. However, the Tribunal emphasized that the actual consideration paid should be considered, as supported by the Madras High Court's decision in S.P. Balasubrahmanyam vs. ACIT.The Tribunal concluded that the payments made by the assessee, supported by bank transactions and confirmations, should be allowed as part of the cost of acquisition and improvement. The Tribunal directed the Assessing Officer to delete the disallowances.Failure to Follow DRP DirectionsThe Tribunal considered the legal obligation of the Assessing Officer to adhere to the DRP's directions under section 144C(10) and (13) of the Act. The Tribunal found that the Assessing Officer failed to implement the DRP's directions regarding the allowance of expenses for a solar water heating system.The Tribunal emphasized the binding nature of the DRP's directions and concluded that the Assessing Officer's failure to follow them constituted a violation of the statutory provisions.SIGNIFICANT HOLDINGSThe Tribunal held that the final assessment order was time-barred and thus non-est in law. It also established that the actual consideration paid, supported by evidence, should be considered for computing capital gains, as articulated in the Madras High Court's decision in S.P. Balasubrahmanyam vs. ACIT. The Tribunal directed the deletion of disallowances related to the cost of acquisition and improvement.The Tribunal further reinforced the principle that the Assessing Officer must adhere to the DRP's directions, highlighting the statutory mandate under section 144C.In conclusion, the Tribunal allowed the appeal, providing relief to the assessee by quashing the time-barred assessment order and directing the allowance of the disputed costs. The other grounds raised by the assessee were dismissed as infructuous, given the relief granted on the primary issues.