Expenditure on improvement of Capital Expenditure needs to be supported by evidence

CASE LAWS DETAILS

DECIDED BY: ITAT, LUCKNOW BENCH `B’, LUCKNOW,

IN THE CASE OF: Ramendra Vikram Singh Vs ITO, APPEAL NO: ITA Nos. 76 to 79/Luc/08,  DECIDED ON: February 27, 2009

RELEVANT PARAGRAPH

12. We have-considered the rival submissions and perused the material on record. So far as facts are concerned, the undisputed facts are that assessees inherited in the co-ownership a Bungalow No. 2, Faizabad Road, Opposite to IT College, Lucknow. This was sold by these assessees vide sale deed dated 20.11.2003. Apparent consideration is declared at Rs. 1,20,00,000/- whereas valuation as per SVA is Rs. 2,48,19,410/-. The assessees objected to the proposal of the Assessing Officer to substitute valuation as per SVA for apparlent sale consideration as per sale deed by submitting a copy of registered valuer’s report showing fair market value at Rs. 56,29,580/-. Accordingly, the. Assessing Officer referred the property to the DVO as provided u/s 50C(2).

13. The area of the land adjacent to the building measured 4312.66 sq mtrs. The building on that land was very old, being 46 years as on 1.4.1981. It was occupied by Shri D.NJha a retired chief justice of Allahabad High Court and he was paying Rs. 161.13 per month. It was continued to be occupied by him, even on the date of transfer as on 20.11.2003 though eviction suit was filed by the purchaser, M/s Fair deal Properties Pvt. Ltd with whom a compromise was reached on 6.4.2004 according to which Shri D.N Jha was paid a sum of Rs. 5 lakhs for vacating the property. The disputed facts are whether some improvements were carried out in the property and whether a sum of Rs. 18 lakhs approx was incurred by Shri Vinay Kumar Singh, the father of the assessees. The assessees sought to justify the claim of cost of improvement by submitting affidavits of two persons namely, Shri Kunwar Virendra Pratap Singh who was claimed to be a friend of Shri V.K Singh and later became his samdhi and Shri Balasher Prasad Singh who. claimed himself to be friend of Shri Vinay Kuamr Singh and used to visit him frequently. For the sake of convenience, we reproduce the affidavits as under:

(i) Affidavit of Kunwar Virendra Pratap Singh notified on 14.11.06

“That late Vinay Kumar Singh was my friend and ‘ subsequently became my samdhi and as such I used to visit him frequently.

That deponent have personally heard the matter of improvement form late Vinay Kumar Singh that on the land and building (Bungalow No. 2, Faizabad Road, Opposite-IT College, Lucknow). Further deponent had heard that handsome amount in several lacs have been invested by said Vinay Kumar Singh for the improvement (mud tilling, construction of boundary wall renovation and on flooring) in the said building during the year 1982 to 1991.

That deponent had also heard from-the said Vinay – Kumar Singh that he made improvement from time to time in the said property on the assurance of the tenant(Chief Justice of the Allahabad High Court) that he will vacate very shortly.”

– ” Affidavit of ShriBaleshwar Prasad-Hotritiedon 10.11.06:

“That late Vinay Kumar Singh son of Late Ram Lai resident of 509/117, Old Hyderabad, Lucknow was my friend and as such I used to visit him frequently.

That during the course of several visit and conversations with the said Vinay Kumar Singh it came to knowledge of the deponent that said Vinay Kumar Singh carried out several work of repairing/ improvement/ construction/ renovation in the land and building’situated at Opposite- IT ‘College, 2- Fuizabad * Road, Lucknow wherein Mr. D.N. Jha, Honourable Chief Justice’ of Allahabad High Court was tenant and the said building was fully occupied by said tenant.

That said improvement were of different nature as some time _ boundary wall, some time general renovation, some ‘time;/ flooring etc. were made. Said improvements were carried out as deponent can remember during the years 1981/82 to 1991/92.

That said Vinay Kumar Singh so may times told the deponent that said judge/tenant made breach of trust as he did not vacate the property despite the repeated preemies. Said Vinay Kumar Singh also told the deponent that on the basis of assurance of said tenant/Judge for vacating the building shortly he invested huge amount in lacs in several times during the said period of years.”

17. – So far as the claim of cost of improvement is concerned, we are of the considered view that this cannot be allowed. If Shri Vinay Kumar Singh was a reputed contractor and is claimed to have invested Rs. 18 lakhs, in -three instalments of Rs. 10 lakhs, Rs. 4 lakhs and Rs. 4 lakhs in assessment years 1982- 83, 1983- 84 and 1990- 91, then he must have been filing income tax returns and- claim of such expenses must have been declared therein. There is no presumption in law that an assessee has not declared the investments in the return of income and still it can be held that _ such expenses have been incurred. Further, there would be some bank accounts of Shri Vinay Kumar Singh, evidence in the form of withdrawals from the bank account could have come forth. There would be some people, like sub contractors, supervisors or other such persons who would have actually participated in constructing the portion of the building or making alleged improvement in that building. There., would be some reference to Municipal Authorities intimating the activities of construction, as investing Rs. 18 lakhs or say Rs. 10 laks in one year is by no means a small activity which can be carried out without informing the Municipal Corporation.

18. So. far as affidavits of two persons are concerned, in our view, assessee cannot derive any benefit if Assessing Officer” has not cross examined them. Affidavits of unconnected persons have no relevance ._In our considered view, neither Shri Kunwar Virendra Pratap Singh nor Shri Baleshwer Prasad are connected persons with the activities of construction or improvement made in-the building. Connected persons would be either -father of the assessee, who unfortunately is deceased, or the supervisors or the labourers or the suppliers of the material or even Justice D.N Jha who was living in the building in which improvement was carried out. Further, the averments in the affidavits only indicate “hearsay facts”. What they accepted in the affidavits is what they heard from Shri Vinay Kumar Singh or his wife. It cannot be equivalent to averting facts to which they are privy. It is the evidence of witness or their participation in an event or in the transaction that would be relevant. Only such affidavit cannot be brushed aside without the deponent is cross examined. But where witness is not privy to the facts, his affidavits has no relevance. Cross examination of such deponents is not legally necessary. Hearsay evidence or affidavits based on such hear say are irrelevant and are not required to be given credence by Assessing Officer. They are merely self serving evidence to be outright rejected. The reliance by Id. AR on the judgement of Honourable Supreme Court in the case of Metha Parikh (supra) is misplaced. In that case, in addition to the affidavits, there were entries in the cash books and the Revenue authorities had not cross examined the deponents. On those facts, the Honourable Supreme Court in the case of Mehta Parikh (supra) had^ observed as under (head notes):

“(i) that applying-the true ‘principles as to interference with findings of fact of the Tribunal, the Court was under the circumstances entitled to consider whether the finding that Rs, 30,000 represented undisclosed profits was correct;

, (ii) as the cash book of the appellants was accepted, and

the entries therein were not challenged, and neither further accounts nor vouchers were called for, and the persons who gave-the affidavits were not cross-examined, it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made in the affidavit;”

19. Thus in addition to affidavits, there were corroborating evidence, therefore, affidavits could not be brushed aside. Without cross examining the deponent. But in the present case, the authorities are justified in ignoring the affidavits of unconnected persons and without filing supporting evidence.

20. So far as affidavit of mother of the assessees Smt. Kamla Devi is concerned, in our considered view, it is also not relevant. What she averts is that she was in possession of some documents showing investment in cost of improvement but she has not described what sort of documents they were and what they indicated. Similarly, the report of Shri Y.P. MittaI is also of no relevance and cannot be relied upon because it is only Xerox copy and not signed by Shri Mittal.

21. The credit to expenditure on improvement while determining capital gains, can be given when there is evidence. It “Has to be shown that cost of improvement is reflected in the capital account or in the books of account. maintained by the assessee or has been declared to the Income Tax Department.” In absence of such credible evidence the assessee has to make out the case by showing relevant bills and vouchers where expenses are not declared to the Income Tax Department or no other evidence is provided to support the claim, then the authorities are justified in rejecting the same.

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