Case Law Details
P. Vijaya Kumar Vs ITO (ITAT Bangalore)
ITAT Bangalore held that expenditure for cost of improvements incurred towards capital assets is eligible for indexation benefit.
Facts-
During the course of assessment proceedings, the various notices were sent to the assessee and email was also sent to the assessee but the assessee did not respond properly as per the requirement of the AO(Assessing Officer). Accordingly, AO issued show cause to the assessee on 14.11.2018 proposing for assessment u/s 144 of the Income Tax Act. 1961. Even the assessee did not respond to the show cause notice issued by the AO. Thereafter, the AO completed the assessment u/s 144 of the Act on 18/12/2018 and determined income Rs. 87,56,98,093/-.
CIT(A) partly allowed the appeal of the assessee. Being aggrieved, the assessee preferred the present appeal.
Apart from other contentions, assessee contested non-granting benefit of indexation of cost of improvement.
Conclusion-
Held that the expenditure for cost of improvements were incurred from the drawings made by the assessee in the respective years.
Hence the assessee is eligible for indexation benefit for the cost of improvement expenses’ incurred towards capital assets.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal by the assessee is directed against the order of the CIT(A)-2, Bangalore dated 29.3.2019 for the assessment year 2016-17. The grounds of appeal raised by the assessee are as follows:-
1. The order of the learned Commissioner of Income-tax passed under Section 250 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case.
2. The Appellant denies himself liable to be assessed over and above the total income ap returned by the appellant of Rs. 13,65,950/- on the facts and circumstances of the case.
3. The learned Commissioner of Income -tax [Appeals] erred in passing the appellate order without affording the appellant a reasonable opportunity of hearing which i in grave violation of principles of natural justice and consequently the appellant order requires to be cancelled on the facts and circumstances of the case.
4. The learned CIT[A] erred in confirming the addition made by the learned assessing officer of Rs. 4,80,069/- being loan taken against the Birla Sun Life Policy on the facts and circumstances of the case.
4.1 The learned CIT [A] failed to appreciate that loan taken against the Birla Sun Life Policy is an opening balance which was carried forward from the previous year and
5. The learned CIT[A] erred in confirming the disallowing made of 50% of Salaries Wages amounting to Rs.22,54,413/ on the facts and circumstances of the case.
6. The learned CIT[A] erred in confirming the disallowing made of 50% of Salaries Wages amounting to Rs.22,54,413/ on the facts and circumstances of the case.
7. The learned CIT[A] erred in confirming the action of the learned assessing officer in disallowing 50% of Insurance expenses amounting to Rs.63,156/- on the facts and circumstances of the case. The learned CIT[A] erred in confirming the disallowing made of 50% of staff welfare expenses amounting to Rs.22,87,847/- on the facts and circumstances of the case.
8. The learned CIT[A] erred in confirming the action of the learned assessing officer in disallowing Other Expenses to the extent of Rs.10,34,24,550/-on the facts and circumstances of the case.
9. The learned CIT[A] erred in confirming the addition of unsecured loans amounting to Rs. 28,27,25,650/- without appreciating that out of an amount of Rs. 28,27,25,650/-, an amount of Rs. 27,71,25,428/- was an opening balance and only Rs. 56,00,222/- was the increase in the unsecured loans during the year and consequently no addition on this score is warranted on the facts and circumstances of the case.
10. The learned CIT[A] erred in enhancing the long term capital gains of the Appellant by directing the learned assessing officer to compute capital gains without giving the benefit of cost of improvement incurred by the appellant over the holding period of the asset amounting to Rs. 1,40,33,852/- and consequently was not justified in not allowing the appellant the indexation benefit on the cost of improvement claimed by the appellant on the facts and circumstances of the case.
11. The learned CIT[A] erred in enhancing the income of the Appellant without fulfilling the mandatory conditions and the parameters as specified in the provisions of section 251 of the Act on the facts and circumstances of the case.
12. The learned CIT(A) erred in passing the order u/s 250 without appreciating the material on record filed before him substantiating the claims made by the appellant on the facts and circumstances of the case.
13. The appellant denies himself liable to be charged to interest under section 234A 234B and 234C of the Act on the facts and circumstances of the case.
14. The appellant craves leave of this Hon’ble Tribunal to add, alter, substitute and delete any or all of the grounds of appeal urged above.
15. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.
2. The ground Nos. 1, 2, 3, 14 and 15 are general in nature, hence no adjudication is required.
3. The brief facts of the case are that the assessee filed return of income on 18/3/2017 declaring a total income of Rs.13,65,950/- and assessee is an individual and engaged in the business of civil contract. The assessee has shown his income under the head ‘income from house property’, ‘income from business and profession’ ‘long term capital gain’and, ‘income from other source’. The case was selected for scrutiny under CASS and statutory notices were issued to the assessee. During the course of assessment proceedings, the various notices were sent to the assessee and email was also sent to the assessee but the assessee did not respond properly as per the requirement of the AO(Assessing Officer). Accordingly, AO issued show cause to the assessee on 14.11.2018 proposing for assessment u/s 144 of the Income Tax Act. 1961. Even the assessee did not respond to the show cause notice issued by the AO. Thereafter, the AO completed the assessment u/s 144 of the Act on 18/12/2018 and determined income as under:-
Income from house property – Rs.1,65,426/-
Income from business or profession – 86,68,09,207/-
Income from capital gains – Rs.66,32,560/-
Income from other sources – Rs.20,90,900/-
4. Accordingly the total income was determined at Rs.8 7, 56,9 8,09 3/-.
5. Feeling aggrieved from the order of the AO, the assessee filed appeal before the CIT(A), who after calling remand report from the AO and after going through the rejoinder submitted by the assessee, partly allowed the appeal of the assessee.
6. Feeling aggrieved from the order of the CIT(A), the assessee is before this Tribunal.
Ground No.4 and 4.1
7. The CIT(A) has decided this issue at para No.6.4 of his order and accepted the additions made by the AO of Rs.47,12,698/- and the balance amount of Rs.4,80,069/- was not accepted. The ld.AR also submitted that balance amount of Rs.4,80,069/- was taken from previous assessment year and which is a carried forward included in the addition of Rs. 51,92,767/- ,therefore, the addition of opening balance is also not justified.
8. During the course of hearing, the ld.AR submitted that the balance amount was loan taken against Birla Sunlife Policy, the total loan was taken of Rs. 13,19,200/- and total outstanding balance is Rs. 17,99,269/- which includes interest Rs. 4,80,069/-therefore, he requested that matter should be sent back to the file of the AO for the purpose of verification.
9. The ld.DR relied on the order of the lower authorities.
10. Considering the submission from both the sides, for the purpose of verification whether loan has been taken from the relevant assessment year or it has been carried forward from the previous year and it includes interest also as submitted by the AR( Authorised Representative) , this issue is sent back to the file of the AO for the purpose of verification and also as per the arguments of the asseseee. If it is found that difference amount includes interest and carried forward from the previous year the AO shall delete the addition. The assessee shall produce necessary documents for substantiating his case. These grounds are allowed for statistical purposes.
Ground No.5
12. The ground relates to the disallowance of 50% of the salary and wages amounting to Rs.22,54,413/- and the AR submitted that the CIT(A) is not justified to restrict this issue upto 50% and the CIT(A) has decided this issue in para 6.8 and he has partly confirmed the order of the AO by holding that the assessee could not substantiate the claim fully along with the documentary proof viz., name of the employees, Designation, No. Of working days, salary particulars as per para No. 6.8 of his order .
13. The ld.AR tried to distinguish the findings of the CIT(A) but at the last he fairly accepted that the disallowance can be restricted to 20% from the total disallowance of salary and wages .
14. The ld. Dr. vehemently objected that the assessee was unable to substantiate the payments with the supporting vouchers and other
observation made by the lower authorities.
14. Considering the submissions and findings of the lower authorities and acceptance made by the ld. AR, we restrict the addition made under this head ( salaries and wages) the ‘disallowance’ is restricted to the 20% from the total disallowance of Rs. 45,08,826/-. Accordingly the assessee gets relief of Rs.13,52,648/- and Rs.901765/- is confirmed.
Ground No.6
15. This issue is regarding disallowance of insurance expenses amounting to Rs.63,156/-. The AO disallowed 50% of insurance expenses of Rs.1,26,312/- and the ld.AR further submitted that in the remand proceedings the AO noticed that it was paid through banking channel, therefore, the disallowance should not be made by the AO.
16. The ld.DR relied on the order of the AO.
17. Considering the rival submissions and perusing the material on record, in the remand proceedings, the AO fairly accepted that the insurance expenses were paid through banking channels, therefore, the payment should not be doubted . Both the authorities below have accepted that the payments have been for the payment of Insurance expenses , therefore, this issue is allowed.
18. In the result, the ground No.6 is allowed.
Ground No.7
19. The AO has disallowed the Workman and staff – welfare of Rs 45,75,693/-. In the remand proceedings, the assessee furnished the copy of running bills duly certified by the government agencies showing proof of having been deducted by the departments. In the said running bill there was details of deductions of royalty, cess, central benevolent fund and welfare fund which was furnished with the copy of ledger extracts. The AO after verification of the necessary bills furnished, accepted that 50% of the workman and software expenses may be allowed to which the CIT(A) has restricted to 50% on the total disallowance.
20. The ld.AR stated that it was deduction made by the contractree from the running bills as per the agreements. No any cash expenditures have been incurred by the assessee, therefore, the addition should be deleted.
21. The ld.DR relied on the order of the lower authorities.
22. After considering the rival submission and perusing the order of the authorities below, we observe that in the remand proceedings, the AO accepted that these are the payments which has been deducted by the contractree from the running bills, therefore, the AO should not have been disallowed the payments expenses. The assessee has not incurred nay expenditures directliy. These deduction are mandatory deductions as per the terms and conditions of the contract, therefore this ground of appeal is allowed.
23. In the result, Ground No.7 is allowed.
26. The assessee has raised ground No.8 in regard to the partial disallowance of Rs.10,34,24, 550/- under the head of other expenses’ as noted by the CIT(A) in his order at para No.6.12. During remand proceedings, the assessee has submitted complete evidences for disallowance of Rs.25,19,88,546/- vide letter dated 20.03.2019 during the course of remand proceedings, whereas the said facts were not brought out in the remand report. The AO had accepted to the tune of Rs.14,85,63,996/- and CIT(A) has also accepted the same. The CIT (A) observed that the assessee was unable to produce the complete evidence even during the appellate proceedings in support of his claim for the balance amount, the ld. AR of the assessee again requested and undertook that the assessee shall produce all bills and vouchers in support of his claim , therefore, the matter may be sent back to the AO for further verification. The ld. DR. objected the prayer of the assessee.
27. Considering the rival submissions, and findings of the CIT (A) as per his observations the appellant’s letter dated 20.03.2019 the complete details were submitted by way of annexure but the same facts were not brought in the remand proceedings. The AO after verifying accepted of Rs. 14,85,63,996/-. Considering the prayer of the assessee we think it fit to send back to the AO for de-novo examinations. This ground of appeal is allowed for statistical purposes.
24. GROUND NO. 09. This issue relates to the Unsecured loan 28,27,25,650/- The ld.AR submitted that out of the total addition, a sum of Rs.27,71,25,428/- was opening balance which cannot be added in the impugned assessment year. A sum of Rs.56,00,222/-has been received during the year. The revenue authorities can not question for loan received in earlier years because it was not the subject matter of scrutiny. The AO can ask only for the amount received during the year instead of the entire existing loan amount outstanding during the year. The assessee had provided confirmation from HIPE transport Ventures for an amount of Rs.11,51,27,659/- which has not been doubted. The assessee has received loan during the year under consideration to the tune of Rs.56,00,222/- and the assessee has sufficient evidence for discharging the allegation by the AO. Therefore, for the fresh examination he requested that the matter may be send back to the AO.
25. ThE Ld. DR. relied on the order of the lower authorities.
25. We have considered the rival contentions and observed that the details of loan viz. opening balance, additions/payments made during the year, mode of loan taken/refunded, confirmations from the parties and closing balance at the year end has not been provided by the ld. AR. for verifications. In fact the opening balance can of loan cannot be added which was not the subject matter of the scrutiny proceedings. The similar issue has been decided by the Hon’ble Gujarat High Court reported in (2014) 45 taxmann.com 441 in the case of CIT, Gandhinaagar vs. Jagatkuamr Satishbhai Patel in which it has been held as under :-
2. Having perused the documents on record, we notice that the Commissioner (Appeals) had confirmed the Assessing Officer’s order making an addition of Rs. 10,09,000/= under Section 68 of the Income-tax Act, 1961. The Tribunal, however, deleted such addition in the following manner :—
“10. The order issue in A.Y 2000-01 is addition made by the Assessing Officer of Rs. 10,09,000/= on account of unsecured loan. In this regard, we find that out of these loan of this amount, only Rs. 50,000/= was received in the present year and the balance is on account of opening balance. Hence, only this amount of Rs. 50,000/= can be considered for addition under Section 68 in this year. We, therefore, delete the balance addition. Now on account of the loan of Rs. 50,000/= received by the assessee in the present year, we feel that although the assessee could not properly explain the same but the assessee deserves the benefit of telescoping against the addition in the income made by the Assessing Officer, which is confirmed by us. As against a loss of Rs. 1,22,100/= declared by the assessee in the ROI, income assessed by the A.O is Rs. 36,506/= which means that total addition made by the A.O which is confirmed by us also is Rs. 1,58,606/= whereas the fresh loan is only Rs. 50,000/= only. Hence, this addition, of Rs 50 000/= is also deleted Ground No. 3 is allowed. Ground No. 1 was not pressed and hence, rejected as not pressed. Ground No. 4 is consequential and Ground No. 5 is General.”
3. From the above, it can be seen that barring a sum of Rs. 50,000/=, remaining portion of the addition was deleted on the ground that only Rs. 50,000/= were received in the year under consideration and balance was opening balance in the account of the assessee. On that basis, the Tribunal found that the amount of Rs. 9,61,000/= could not have been considered during the year under consideration. We see no error in Tribunal’s view.
Considering the above noted facts, we deem it fit to sending back to the file of AO for de-novo consideration. If AO finds that there is opening balance of loan as on 01.04.2015, the AO will decide the issue as per the above cited judgement. And in respect of others he will decide the issue in accordance with law. This ground is allowed for statistical purposes.
30. In ground Nos.10,11 & 12, the assessee has contested in regard to not giving benefit of indexation for cost of improvement of Rs.1,40,33,852/- and also not granting principal of natural justice for giving opportunity to the assessee as per section 251 of the I.T.Act. by the CIT(A). During the course of hearing, the ld.AR fairly accepted that the evidences provide by the assessee has not been appreciated by the revenue authorities and amount for Rs. 1,40,33,852/- for cost of improvements has not been given. The expenditure for cost of improvements were incurred from the drawings made by the assessee in the respective years. Hence the assessee is eligible for indexation benefit for the cost of improvement expenses’ increased towards capital assets. Considering the rival submissions, we deem it fit to send back the issue to the file of AO for denovo consideration as per law. Further, we observe that the CIT(A) has not violated the principal of natural justice u/s 251 of the Act. The opportunity was provided and remand report was obtained and the assessee has also submitted rejoinder on 27.3.2019 in which he has himself requested to the CIT(A) , not to invoke sec. 251 of the Act. Therefore, this contention is not accepted.
31. The ground No.10 is allowed for statistical purpose & ground No.11and 12 is dismissed.
32. Ground No. 13 is consequential in nature.
32. We make it clear that when the issue has been sent back to the revenue authorities, the assessee should be given three effective opportunities for substantiating his case.
Order pronounced in the open court on 5th September, 2022.
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