The Income Tax Appellate Tribunal (ITAT) Pune has made a significant ruling in the case of Arun Tulshidas Kharat Vs DCIT, disallowing the claim of cost of improvement incurred by a company for an individual’s flat. This decision, dated 14th June 2023, underlines the stringent scrutiny applied by tax authorities on claims related to capital gains and the necessity for taxpayers to maintain precise and verifiable records.
The appellant, Arun Tulshidas Kharat, challenged the decision of the Commissioner of Income Tax (Appeals) [NFAC], which had confirmed the disallowance made by the Assessing Officer (AO) concerning the cost of improvement on a flat sold during the Assessment Year (AY) 2014-15. The core issue revolved around the rejection of Rs.28,02,003/- claimed as the Index Cost of Improvement during the computation of Long Term Capital Gain (LTCG) on the sale of the flat.
The AO observed that most of the bills and vouchers submitted for the cost of improvement were not in the name of the assessee but in the names of Wings Travel Management India Private Limited and Smt. Bharati Kharat, thereby questioning their validity in support of the assessee’s claim. Despite the submission of additional evidence to the CIT(A) and arguments regarding the substantive improvement work done on the property, both the AO and CIT(A) found the claims unsubstantiated, primarily due to the lack of direct evidence tying the expenses to the assessee personally.
The ITAT, upon review, upheld the decisions of the lower authorities, emphasizing the absence of concrete documentary evidence to prove that the assessee had incurred the expenditure for the improvement of the said property. The tribunal pointed out that the bills issued in the name of Wings Travel Management India Private Limited, an independent entity, could not be considered proof of expenditure incurred by the assessee for the improvement of his property.
Furthermore, the tribunal dismissed a declaration from Wings Travel Management India Private Limited, considering it a self-serving document lacking independent verification. The ruling underscored the principle that expenditure on capital improvements must be directly attributable and verifiable by the individual claiming the benefit under tax laws.
The ITAT Pune’s ruling in Arun Tulshidas Kharat Vs DCIT sets a precedent on the meticulous documentation and proof required for claims related to the cost of improvement on properties. Taxpayers must ensure that any claim for capital gains tax relief is supported by unambiguous, direct evidence of expenditure incurred. This decision highlights the critical importance of maintaining proper invoices and documentation, particularly when improvements are claimed as deductions in computing capital gains. The case serves as a cautionary tale for individuals and entities alike, emphasizing the need for accuracy and transparency in tax filings and the potential pitfalls of inadequate record-keeping.
FULL TEXT OF THE ORDER OF ITAT PUNE
This is an appeal filed by the assessee directed against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], dated 14.06.2023 under section 250 of the Income Tax Act, 1961 for A.Y.2014-15 emanating from assessment order under section 143(3) dated 21.12.2016.
2. The assessee has raised the following grounds of appeal :
“1. On facts and circumstances prevailing in the case and as per provisions & scheme of the Income-tax Act, 1961 (“the Act”) it be held that the order passed by the First Appellate Authority without considering the submissions filed by the Appellant is unwarranted, unjustified and contrary to the provisions of the Act and facts prevailing in the case. The order passed be set aside. The disallowance sustained be deleted. The Appellant be granted just and proper relief in this respect.
2. Without prejudice to Ground No. 1 and On facts and circumstances prevailing in the case and as per provisions & scheme of the Act, it be held that disallowance of Rs.28,02,003/- made by the Ld. AO and further upheld by the First Appellate Authority is unwarranted, unjustified and contrary to the provisions of the Act and facts prevailing in the case. The disallowance so made be deleted. The Appellant be granted just and proper relief in this respect.
3. The Appellant prays that the appeal be allowed condoning the delay in filing the appeal. The Appellant be granted just and proper relief in this respect.
4. The Appellant prays to be allowed to add, amend, modify, rectify, delete, raise any grounds of appeal at the time of hearing.”
Brief facts of the case :
3. As emanating from the assessment order and submission of the ld.Authorised Representative(ld.AR) of the assessee, the assessee E-filed its Return of Income for A.Y.2014-15 on 20.01.2016. The assessee’s case was selected for scrutiny. The assessee has sold Flat No.1103, partly situated on 11th Floor and partly on 12th Floor in B-Wing along with adjacent terrace, car parks of “SHRINIWAS BLOSSOM BOULEVARAD CO. OP. HOUSING SOCIETY LTD.”, Village Ghorpadi for Rs.3,50,00,000/- vide sale deed dated 27.06.2013. Assessee had shown income from Long Term Capital Gain(LTCG). Assessee had claimed deduction of Rs.2,67,85,735/- as Index Cost of Acquisition and Rs.37,1 8,767/- as Index Cost of Improvement. During the assessment proceedings, the Assessing Officer(AO) asked the assessee evidence for Cost of Improvement. Assessee filed bills, vouchers 37 in numbers. The AO observed that bill for Rs.4,47,339/- pertaining to F.Y.2012-13 was in the name of assessee. All other bills, vouchers were in the name of Wings Travel Management India Private Limited and Smt. Bharati Kharat. The AO issued a show-cause notice to the assessee. After considering the submission of the assessee, Assessing Officer disallowed assessee’s claim of Index Cost of Improvement partially and made an addition of Rs.33,84,921/-. In the assessment order, AO also made addition of Rs. 1,99,494/- under section 57 of the Act. It was observed by the AO that assessee had given loan to Wings Travel Management India Private Limited of Rs.3,74,61,162/- and earned interest of Rs.47,56,131/-. Assessee had borrowed loan of Rs.4,34,95,966/- and paid interest @11.25. AO disallowed interest expenditure of Rs. 1,99,494/-.
3.1 Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A).
3.2 The ld.CIT(A) confirmed the additions made by the AO.
Submission of ld.AR :
4. The ld.AR filed a paper book containing 95 pages. Ld.AR pleaded that additional evidence was submitted before the ld.CIT(A) in the form of certain bills which were at page no.15 & 16 of the paper book, issued by Nutech Sales Corporation of Rs.2,07,362/- and Rs.8,189/-. The ld.AR submitted that ld.CIT(A) has not considered the additional evidence filed by the assessee. The ld.AR further submitted that assessee had purchased the impugned flat from the builder in raw condition and then, subsequently made civil work. Ld.AR also filed copies of the photographs to demonstrate the civil work. Ld.AR filed a date wise list of bills of the said civil work. Ld.AR vehemently submitted that AO and ld.CIT(A) failed to consider these evidences of extra work done by assessee which is nothing but cost of improvement.
Submission of ld.DR :
5. The ld.DR invited our attention to the order of the CIT(A) to demonstrate that ld.CIT(A) had considered submission filed by the assessee. Ld.DR invited our attention to the list of bills filed by the assessee which is at page no.27 and 28 of the paper book and explained that most of these bills are in the name of Wings Travel Management India Private Limited and Smt. Bharati Kharat. Therefore, ld.DR submitted that AO and ld.CIT(A) have rightly considered only those bills which were in the name of the assessee and disallowed the bills which were not in the name of the assessee. Ld.DR also submitted that from the photographs, one cannot understand whether the photograph pertains the impugned flat or not! The ld.DR vehemently supported the order of the AO and ld.CIT(A).
Findings and Analysis :
6. We have heard both the parties and perused the records. The only ground which was pleaded before us was regarding cost of improvement. The assessee has filed paper book only with respect to his claim of cost of improvement. Therefore, the only issue before us for adjudication is cost of improvement.
6.1 We have perused the list of bills filed by the assessee which is at page no.27 and 28. Only following bills are in the name of Mr. Arun Kharat.
|Being purchase of Hardware items for Blossom Projects Bill no. 10
|Being purchase of Hardware items for Blossom Projects Bill no. 33
|Being payable for Bathroom Fittings as per Inv no. SCPL/12-13/PIV/CA1 129.
|Camary Square Jali Jaquar Fittings
|Being payable for Bathroom fittings purchased for 1103, as per bill no. SCPL/12- 13/PIV/CA2335
|Being Bill no 19103 dt 30.08.2012 against purchase of TPW 1162 LED Panels
|Being paid for furniture packing charges as per bill no. 631 / 2012- 13.
|Being Bill no 19183 Dt 8.09.2012 against purchase of Electrical goods.
|Being Fevical purchased for Blossom project bill no. 315
|Being paid for Installation of Air Conditioners at Blossom 1103 Service apartment.
|Being amt payable for Modi Mirror used in Blossom 1103 Bill amt 13192 Bill passed for Rs. 10000.
|Being amt payable for Glass purchased for Blossom 1103 apartment Bill Amt Rs. 30623 Bill passed for Rs. 30000.
|Being payable for SS Railing With Glass fittings as per bill no. ST /024/12-13
|Being payable for bill no 2477 Hardware material used in Blossom Buleward Service apartment.
6.2 All other bills are either in the name of Wings Travel Management India Private Limited or Smt. Bharati Kharat. These bills are for hardware items like commercial ply, hinges, jaguar fittings, fevicol, laminates etc. Some of the bills are mentioned as under :
> Bill dt.05/11/12 in the name of WINGS Travels Management Pvt Ltd for Rs.1,15,400/- for 7 Split ACs.
> Bill dated 05.11 .2012 in the name of Wings Travel Management India Private Limited for Crompton Ceiling Fans 07 pieces and Bajaj Ventilation Fans 05 pieces.
> Bill dated 25.12.2012 again in the name of Wings Travel Management India Private Limited is for water filter machine of 16,450/-.
> Bill of Rs.6093/- issued by Sathe & Company Pvt Ltd in the name of Wings Travel Management India Pvt Ltd for Jaquar Mixer and Azure wash bowl.
> Bill dt.9/08/12 issued by G M Veneers & Ply of Rs.1,71,290/- in the name of Wings Travels.
> The bill dated 18.02.2012 issued by Nutech Sales Corporation is in the name of Wings Travel Management India Private Limited for Rs.2,07,362/-.
> Another bill dated 18.02.2012 issued by Nutech Sales Corporation is in the name of Wings Travel Management India Private Limited for Rs.8,189/-.
6.3 Thus, both the bills issued by Nutech Sales Corporation are in the name of Wings Travel Management India Private Limited and not assessee.
6.4 To claim cost of improvement, assessee has to establish that assessee had incurred expenditure for improvement of the Immovable Asset. However, the assessee failed to file any evidence to prove that the assessee had incurred expenditure for improvement of the impugned immovable asset. The Bills filed by the assessee are mainly in the name of Wings Travel Management India Private Limited, which is an independent entity. Assessee have advanced unsecured loan to Wings Travel Management India Private Limited and charged Interest.
6.5 Therefore, the Bills which are in the name of Wings Travel Management India Private Limited are not the proof of expenditure incurred by the assessee for improvement of the flat owned by him. The Assessee had filed copy of declaration signed by Accounts Manager of Wings Travel Management India Private Limited dated 15/06/2018 that Wings Travel Management India Private Limited had made payment of Rs.25,83,223/- during F.Y.2012-13 through various vendors towards Flat No.B-1103 and company had not claimed the said expenditure. The said declaration of Wings Travel Management India Private Limited is a self-serving document and there is no independent evidence to support the declaration. We have also to take into consideration the fact that assessee is a Founder Director in Wings Travel Management India Private Limited and the letter is issued by Accounts Manager who is directly working under assessee being Director of the Company. Also, the letter is dated 15.06.2018 and assessee has not given any reason why the said declaration was not filed during the assessment proceedings. Therefore, we are of the view that the said declaration is of no help to the assessee. The Wings Travel management India Pvt Ltd is a company, which cannot incur expenditure for individual’s flat.
7. Therefore, in these facts and circumstances of the case, since the assessee has failed to file the necessary documentary evidence for claiming Cost of Improvement and the Assessing Officer has already allowed assessee’s partial claim of Cost of Improvement, to the extent of bills which are in the name of the assessee, we uphold the disallowance of Rs.33,84,921/- made by the Assessing Officer. Accordingly, grounds of appeal raised by the assessee are dismissed. As we have already made it clear that ld.AR of the assessee has pleaded on only one issue i.e. Cost of Improvement. Therefore, we have decided only the issue of Cost of Improvement.
8. The ld.AR had pleaded before us with reference to the issue of cost of improvement that since ld.CIT(A) had not considered the documents filed by the assessee, it may be set-aside to ld.CIT(A). However, we have observed that ld.CIT(A) had considered the submission of the assessee. Hence, there is not merit in this pleading of the ld.Authorised Representative of the assessee.
9. In the result, appeal of the assessee is dismissed.
Order pronounced in the open Court on 12th Dec, 2023.