Aruna Kailashprasad Malpani Vs ITO (ITAT Mumbai)
Section 48 Claims Get a Second Chance – Rule 29 Evidence Admitted for Cost of Improvement and Brokerage
Background
The assessee, an individual, filed her return of income for Assessment Year 2022-23 declaring a total income of ₹49,27,400. The return was selected for scrutiny, principally to examine the computation of long-term capital gains arising from the transfer of an immovable property.
In computing the capital gains, the assessee claimed deduction towards the cost of acquisition, cost of improvement and expenditure incurred in connection with the transfer. Although the Assessing Officer accepted a substantial portion of these claims, certain components were disallowed for want of adequate supporting evidence.
The disputed items included renovation expenditure of ₹6,14,738, whose indexed cost was claimed at ₹19,48,719, and brokerage expenditure of ₹3,70,000 allegedly paid to Mudra Finserv Ltd.
Cost of Improvement Incurred Two Decades Earlier
The assessee explained that the property was in poor condition when it was acquired and that renovation and civil works were undertaken during Financial Year 2000-01 to make it usable.
According to the assessee, bills and vouchers had been obtained at the relevant time. However, because more than two decades had elapsed, those documents were no longer available. The payments had also been made largely in cash.
The assessee further contended that the expenditure was duly reflected in her financial records and that the Assessing Officer had accepted the major portion of the cost of improvement. The disputed amount represented only a relatively small component of the overall expenditure.
Regarding the brokerage, the assessee submitted that the payment of ₹3,70,000 had been made in connection with the transfer of the property. The identity of the recipient and the fact of payment were stated to be undisputed.
CIT(A) Insists on Independent Evidence
The CIT(A) held that the burden of proving the nature, quantum and nexus of the expenditure rested squarely upon the assessee.
The explanation that the expenditure was incurred many years earlier and that the documents could not be preserved was held insufficient. According to the CIT(A), tax adjudication could not proceed merely on general probabilities, assumptions or equitable considerations.
The CIT(A) also rejected the argument that the disputed expenditure was only a small part of the total cost of improvement. Every component of the cost claimed under section 48 had to be independently established, irrespective of its materiality.
Regarding brokerage, the CIT(A) held that the mere existence of a payment entry or identification of the payee did not prove that the expenditure was incurred wholly and exclusively in connection with the transfer. In the absence of an agreement, correspondence or contemporaneous evidence explaining the role of the intermediary, the claim remained unsubstantiated.
The disallowances were therefore confirmed.
Additional Evidence Before the Tribunal
Before the Mumbai Tribunal, the assessee filed an application under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence.
The additional evidence consisted of:
- the brokerage bill issued by Mudra Finserv Ltd.; and
- the assessee’s balance sheets for the years ending 2008 to 2014.
The assessee contended that these documents were relevant to the controversy, went to the root of the disallowances and could not be produced before the lower authorities.
Reliance was placed on, among others, Smt. Prabhavati S. Shah v. CIT, R.S.S. Shanmugam Pillai & Sons v. CIT, Abhay Kumar Shroff v. ITO and Tek Ram (Dead) through LRs v. CIT to support admission of the evidence.
Rule 29 Is Meant to Assist a Complete Adjudication
The Tribunal examined the documents and found that they had a direct bearing on the very foundation of the disputed disallowances.
The controversy was whether the renovation expenditure was genuinely incurred and whether the brokerage payment had a direct nexus with the transfer of the capital asset. The balance sheets and brokerage bill were relevant to answering these questions.
The Tribunal accordingly held that the additional evidence was necessary for a just and complete adjudication of the appeal and admitted it under Rule 29.
Matter Restored for Verification
Although the evidence was admitted, the Tribunal did not itself allow the cost of improvement or brokerage.
Since the documents had not been examined by the Assessing Officer, their verification required factual investigation at the first stage. The Tribunal therefore considered it inappropriate to determine their evidentiary value directly.
The order of the CIT(A) was set aside on the disputed issues, and the matter was restored to the Assessing Officer for fresh verification in the light of the additional evidence and any other material or submissions that the assessee might place on record.
The Assessing Officer was directed to grant the assessee an adequate opportunity of being heard and was permitted to make such further inquiry as considered necessary.
The appeal was allowed only for statistical purposes.
Authors’ Comments
The decision is significant on the procedural scope of Rule 29. Additional evidence before the Tribunal is not admitted merely because it improves an assessee’s case. It must be relevant, material and necessary for properly deciding the controversy.
Here, the original disallowances were made principally because of the absence of proof. The subsequently produced brokerage bill and financial statements directly addressed that deficiency. Their admission therefore enabled the matter to be adjudicated on a more complete factual record.
However, admission of additional evidence should not be confused with acceptance of the expenditure. The Tribunal has neither held that the renovation expenditure formed part of the cost of improvement nor that the brokerage was incurred wholly and exclusively in connection with the transfer. Both claims remain subject to verification.
For the cost of improvement, the assessee must establish not only that expenditure was recorded in the books but also that it was capital in nature, related to the specific property and resulted in an improvement to the asset. Old balance sheets may support the existence of an amount, but they may not, by themselves, establish the precise nature of the work or its nexus with the property.
Similarly, a brokerage bill establishes a claim by the intermediary but may still require corroboration through payment records, correspondence, the intermediary’s role in the transaction, confirmation and tax reporting.
The decision nevertheless recognises a practical reality: where property improvements were undertaken decades earlier, perfect documentation may not always survive. In appropriate cases, surrounding financial records and corroborative evidence should be examined rather than rejecting the claim solely because the original vouchers are unavailable.
In short, Rule 29 can reopen the evidentiary door—but the assessee must still prove what lies behind it.
Cases Discussed
- Smt. Prabhavati S. Shah v. CIT [1998] 231 ITR 1 (Bom.)
- R.S.S. Shanmugam Pillai & Sons v. CIT [1974] 95 ITR 109 (Mad.)
- Abhay Kumar Shroff v. ITO (1997) 63 ITD 144 (Patna) (TM)
- Tek Ram (Dead) through LRs v. CIT (2013) 357 ITR 133 (SC)
- CIT v. Durga Prasad More (1971) 82 ITR 540 (SC)
- CIT v. Calcutta Agency Ltd.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, MUMBAI
This appeal by the assessee is directed against order dated 10thJanuary, 2026 passed by the learned National Faceless Appeal Centre, Delhi (hereinafter shall be referred as the learned CIT(A)) for assessment year 2022-23, raising following grounds:-
“I. Disallowance of Cost of Improvement:
1. The Ld. CIT(A) erred in upholding the disallowance of renovation expenses being Rs. 6,14,738/- (Index cost of improvement Rs.19,48,719) on the ground that the assessee has not maintained the necessary bills and vouchers in relation to above expenditure incurred in year 2000-2001 and therefore the same was not allowable.
2. The Ld. CIT(A) failed to appreciate that the above expenditure was incurred during the period 2000-2001 and the same was duly reflected in financial of the assessee and due to long passage of time the same was not available and therefore the disallowance ought to be deleted.
II. Disallowance of Brokerage Expenditure.
3. The Ld CIT(A) erred in upholding the disallowance of Brokerage expenses of Rs.3,70,000/- made to Mudra Finserv Ltd. without appreciating that the same was incurred wholly and exclusively incurred in connection with transfer of capital asset.”
2. Briefly stated facts of the case are that assessee, an individual, filed return of income electronically on 31stJuly, 2022 declaring total income of Rs.49,27,400/-. The return was subsequently selected for scrutiny assessment and the statutory notices under the Income-tax Act, 1961 (in short “the Act”) were issued and duly served upon the assessee.
3. During the course of assessment proceedings, the Assessing Officer examined the computation of the long term capital gain arising from transfer of an immovable property. While the major portion of the cost of the acquisition and cost of improvement was accepted, specific component of the claimed cost of improvement and brokerage were disallowed on the ground that the assessee failed to furnish adequate and reliable supporting evidence. In particular, disallowance was made in respect of (1) miscellaneous addition claimed as cost of improvement, (2) certain other charges, and (3) brokerage claimed to have been paid in connection with the transfer.
4. Aggrieved by the said additions and disallowances, the assessee preferred appeal before the learned CIT(A). The learned CIT(A) sustained the disallowances, holding that the burden of proving the nature, quantum, and nexus of the expenditure with the capital asset rests squarely on the assessee; that non-availability of bills and vouchers on account of lapse of time, or payment in cash, does not discharge this burden; that materiality of amount is irrelevant to the requirement of independent substantiation; and that mere identification of the payee, absent contemporaneous agreements or corroborative material, does not establish that brokerage was incurred wholly and exclusively for the transfer. Reliance in this behalf was placed on CIT v. Calcutta Agency Ltd.(supra) and CIT v. Durga Prasad More (supra). The residuary ground was disposed of as general, and the appeal was dismissed on merits. The relevant finding of ld CIT(A) is reproduced as under:
“D1. GROUP 1 Disallowance of Cost of Improvement and Brokerage (Ground Nos. 1 to 3)
Assessee’s Submissions
The appellant has contended that the property was in a poor condition at the time of acquisition and that various expenditures were incurred over a period of time to render the same usable. It has been submitted that such expenditure related to basic civil works and allied activities, and that the payments were made during the period 2000-2001, largely in cash. According to the appellant, although bills and vouchers were obtained at the relevant time, the same could not be preserved due to the long passage of time. It has further been argued that the impugned disallowance represents only a smallportion of the overall cost of improvement accepted by the Assessing Officer and, therefore, the claim ought to have been allowed on principles of practicality and probability.
With regard to brokerage, the appellant has submitted that the payment was made in connection with the transfer of the property and that the identity of the recipient and the fact of payment are not in dispute. It has been pleaded that the disallowance was made on a hyper-technical view and that the claim deserves acceptance.
Appellate Analysis and Adjudication
The submissions made by the appellant have been carefully examined in the light of the assessment order and the material available on record. It is a settled legal position that allowance of cost of improvement and transfer-related expenditure is strictly evidence based. The burden to establish the nature of the expenditure, the factum of incurrence, its quantum, and its direct nexus with the capital asset squarely rests upon the assessee.
In the present case, the explanation offered by the appellant that the expenditure was incurred long back and that the payments were made in cash, resulting in non-availability of bills and vouchers, is not sufficient to discharge the statutory burden of proof. While it is not uncommon that older transactions may suffer from imperfect documentation, tax adjudication cannot proceed on general practices, assumptions, or equitable considerations. The Act does not contemplate allowance of expenditure merely on the basis of assertions, probabilities, or the reasonableness of the claim.
The plea based on materiality is also untenable. Each component of cost claimed is required to be independently established, irrespective of whether the amount involved is large or small. In this regard, reliance is placed on the principles laid down by the Hon’ble Supreme Court in CIT v. Calcutta Agency Ltd., wherein it was held that the onus lies on the assessee to prove the expenditure claimed, and in CIT v. Durga Prasad More, which authorises the tax authorities to examine the surrounding circumstances to test the veracity of a claim.
Similarly, in respect of brokerage, mere existence of a payment entry or identification of the payee does not by itself establish that the expenditure was incurred wholly and exclusively in connection with the transfer of the capital asset. In the absence of contemporaneous agreements, correspondence, or other corroborative material establishing the role of the intermediary and the nexus of the payment with the transaction under consideration, the claim remains inadequately substantiated.
In view of the above discussion, the disallowance of cost of improvement and brokerage made by the Assessing Officer is found to be in accordance with law and supported by facts on record. Accordingly, Ground Nos. 1 to 3 are dismissed.
D2. Ground No. 4 – General Ground
Ground No. 4 is general and residuary in nature, whereby the appellant has sought liberty to add, alter, amend, modify, delete, vary and/or withdraw any of the grounds of appeal. Such a ground does not raise any specific grievance requiring independent adjudication. It is a settled position that a general ground of this nature is consequential and does not call for aseparate finding. Accordingly, Ground No. 4 is treated as general and disposed of as such.
E. FINAL DETERMINATION
In the result, the appeal filed by the appellant is admitted for adjudication after condonation of delay but fails on merits. Ground Nos. 1 to 3, relating to disallowance of cost of improvement and brokerage, are dismissed for want of reliable and verifiable evidence. Ground No. 4, being general and residuary in nature, is disposed of accordingly. The appeal is therefore dismissed.”
5. Before us, the assessee moved an application under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, seeking admission of additional evidence, namely, the brokerage bill of Mudra Finserv Ltd. and the assessee’s balance sheets for the years ending 2008 to 2014, on the ground that the same, though relevant, could not be produced before the lower authorities and go to the root of the matter. In support of admission, reliance was placed on Smt. Prabhavati S. Shah v. CIT [1998] 231 ITR 1 (Bom.); R.S.S. Shanmugam Pillai & Sons v. CIT [1974] 95 ITR 109 (Mad.); Abhay Kumar Shroff v. ITO (1997) 63 ITD 144 (Patna) (TM); and Tek Ram (Dead) through LRs v. CIT (2013) 357 ITR 133 (SC).
6. We have heard both sides and perused the record. We find that the additional evidence sought to be produced bears directly upon the very foundation of the disallowances in issue namely, the genuineness and nexus of the cost of improvement and the brokerage expenditure and is accordingly necessary for a just and complete adjudication of the appeal. The evidence is admitted under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963.
7. As this material has not been examined by the Assessing Officer, and its verification necessarily entails an appreciation of facts not undertaken at the assessment stage, we consider it appropriate that the same be tested at the first instance by the Assessing Officer rather than by this Tribunal. The order of the learned CIT(A) on the issue in dispute is set aside, and the matter is restored to the file of the Assessing Officer for verification in light of the additional evidence now admitted, and any further material or submissions the assessee may place on record. The Assessing Officer shall afford the assessee adequate and reasonable opportunity of being heard, and is at liberty to make such further inquiry as may be considered necessary.
8. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 15/09/2026.
