Bhagwanbhai R. Makwana Vs ITO (ITAT Ahmedabad)
Conclusion: Certain expenses related to cost of improvement of land put forward by assessee were disallowed noting lack of proper and sufficient evidence to support claims of cost incurred for improvement of property.
Held: During the course of assessment, AO observed that assessee had earned short term capital gain on sale of a property along with several co-owners. AO, based on his findings, disallowed certain claims of expenses towards cost of improvement of the aforesaid land sold during the year under consideration while computing the capital gain amounting to Rs.1,54,07,417/-. In total, 50% of the expenses claimed by assessee, amounting to Rs. 47,20,489, related to legal fees, land leveling and development, compound wall and boundary construction, bore-well, and security and supervisor salaries was disallowed. AO further made an addition of Rs. 3,64,566 under section 69 for unexplained investment, and levied interest under Section 234A/B/C as well as initiated penalty under Section 271(1)(c). Aggrieved, assessee appealed against the AO’s order before CIT(A), who also confirmed the AO’s order. On appeal before Tribunal. Department contended that all the payments were made in cash and not through banking channels and there was no documentary evidence apart from the Affidavit that the sum of Rs. 65 lakhs was paid by Shri Jashwanthbhai D. Patel to Shri Dineshbhai Mohanbhai Patel on behalf of assessee. Further, it was also submitted that there was no specific proof of land leveling and development being actually carried out by assessee, during the period 2000 to 2005.It was held that affidavit filed by assessee, without any supporting evidence / documents with regards to actual work being carried out on site and without any proof of incurrence of expenses, hold no value and the tax authorities had not erred in facts and in law in disregarding the same as evidence. However, considering assessee that a reasonable amount of expenses might be allowed in the hands of the assessee, in the interest of justice, 50% of the cost of land purchased by the assessee amounting to Rs. 5,25,000/- on 15.04.2008 (50% of Rs. 5,25,000/-) towards land leveling and development expenses was allowed. With regard to borewell expenses of Rs. 4,07,978/- paid to Shri Bharat Patel, the entire expenses might not be disallowed in toto, in the interest of justice, 25% of such expenses as claimed were allowed to assessee, in the interest of justice. With regards to electricity expenses of Rs. 29,580/-,it was not clear whether this bill pertained to assessee and accordingly, AO was directed to verify the genuineness of the aforesaid bill of Rs. 29,580/- and allow relief to assessee in accordance with law in absence of any supporting documents of actual incurrence of expenses, the same were liable to be added in the hands of the assessee. With respect to litigation expenses, since assessee had produced some documentation to show that there was an ongoing litigation with regards to the property in question, on an estimated basis, in absence of any documentary evidence 25% of such expenses were allowed to assessee, in the interest of justice. In absence of any documentary evidences having been produced by the assessee 50% of the cost of land was herby allowed as cost of construction of boundary wall (i.e. 50% of Rs. 5,25,000/- was allowed to assesse).
