Can cost of improvement be in cash?

[AMEY SHARMA]

I've done expenses such as fencing, lighting, and various other expenses amounting to say ₹ 3 lac all in raw cash? is any disallowance or penalty initiated? Note: when i sale property capital gain tax is attracted meaning it was not my business expenditure

[DEV KUMAR KOTHARI]

Can cost of improvement be in cash?

Ans. Yes.

Take care to ensure that you have accounted for the same and recorded in cash book, ledger and Balance sheet.

If you have not maintained books of account, then you must be able to show sources from which you spent expenses (like cash balance in cash inflow statement, withdrawals from bank, cash income earned like salary or other income. Other wise expenses can be added in income as undisclosed expenses.

AI Summary

Cost of improvement in cash requires books or source evidence; otherwise treated as undisclosed expense. Cash payments for cost of improvement are acceptable if recorded in the cash book, ledger and balance sheet; where no books exist, the payer must demonstrate sources of cash (cash balances, bank withdrawals, or cash income) to substantiate the expenditure. Absent such records or source evidence, the amounts may be treated as undisclosed expenses and added to income, exposing the taxpayer to assessment adjustments.