Income Tax Appellate Tribunal - Hyderabad
Girish Kumar Malpani, Hyd, Hyderabad vs Acit, Circle-6(1), Hyderabad, ... on 31 March, 2017
THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B" (SMC), HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
ITA No. 1206/Hyd/2016
Assessment Year: 2006-07
Shri Girish Kumar Malpani, vs. The Asst. Commissioner of
Hyderabad. Income Tax, Circle-6(1),
Hyderabad.
PAN - AEAPM0871K
(Appellant) (Respondent)
Assessee by : Shri K.C Devdas
Revenue by : Shri K.J Rao
Date of hearing : 22-03-2017
Date of pronouncement : 31-03-2017
ORDER
This is an appeal filed by Assessee against the order of CIT(A)-9, Hyderabad dated 22-02-2016, on the issue of denial of cost of construction / improvement while calculating the capital gains.
2. Briefly stated, Assessee along with five others sold a property to M/s Sreya Constructions for a consideration of Rs. 2,35,85,500/-. Assessee's share being Rs. 39,30,916/- has been offered as sale consideration on which there is no dispute. While computing the capital gains, Assessee had claimed cost of acquisition of the property at Rs. 22,78,461/- on which also there is no dispute. Assessee also claimed cost of construction at Rs. 9,46,513/-. Out of this amount, the dispute was on proportionate share in claim of construction cost to an extent of Rs. 7,42,499/-. Assessee claimed along with five co-owners, spent an amount of Rs. 45,00,000/- and the same was claimed to have been paid to 2 ITA No. 1206/Hyd/2016 Shri Girish Kumar Malpani, Hyderabad.
M/s Maheshwari Megaventures Ltd., which was entrusted the work of construction of property. A.O noticed that the sale document mentions that property being open plot of land with small room of 2,00 Sq. ft. When it was put forth to Assessee as to how such huge cost was shown for only small room, Assessee submitted the agreement of construction entered with M/s Maheshwari Megaventures Ltd., and also photographs of the land showing the existence of the building. A.O however, disbelieved the same and an amount of Rs. 7,42,499/- was disallowed. There are other disallowances, which were accepted but the dispute is only with reference to the addition of cost claimed, while working out the short term capital gains.
3. Before the Ld. CIT(A), Assessee furnished additional evidence in the form of statements of accounts of M/s Maheshwari Megaventures Ltd., and the additional evidences were admitted as per Rule 46A and forwarded to A.O for his verification. The A.O reported on 16-12-2016 and the remand report was extracted by the CIT(A) in the order in para 6.4. After obtaining the remarks of the Assessee, Ld. CIT(A) rejected the contentions. The order in para 7.4 & 7.5 is as under:
"7.4. Thus, the A.O gave a detailed Remand Report stating that no building of the value of Rs. 45 lakhs existed on the said property and the cost of construction claimed by the assessee was not correct. Further, the A.O was of the opinion that before the commencement of construction of any building, necessary statutory approvals were required to be taken from municipal authorities, which the assessee could not produce at the time of assessment proceedings or the remand proceedings. Therefore, the claim of the assessee remains unsubstantiated. Thus the assessee's contentions that the contractee commenced the work on an oral agreement cannot be given any credence without any supporting documentary evidence. Further, the A.O, in the remand report has categorically stated that the ledger copies reveal that major expenditure was incurred before date of execution of construction agreement and that 3 ITA No. 1206/Hyd/2016 Shri Girish Kumar Malpani, Hyderabad.
the bills/vouchers for interiors revealed that the said purchase was intended for hotels/restaurants, and not construction of house.
7.5 In view of all above mentioned facts and circumstances of the case and the detailed reasoning given by the A.O in the assessment order and the Remand Report, the addition made by the A.O is hereby upheld
4. Ld. Counsel referring to the purchase deeds placed on record submitted that the purchase deeds indicated that there was semi-finished building which was purchased along with open land in three separate agreements and there is proof that semi- constructed building was purchased. It was further submitted that immediately after acquiring the property, the parties have entered into the memorandum of understanding and then gave the construction contract to M/s Maheshwari Mega ventures Ltd., which had shown the receipt of Rs. 45,00,000/- in their books of account and also offered profit to a large extent in the hands of company. Since, Assessee has paid the amount much before the property was sold, this expenditure has to be considered as genuine. With reference to the contention that sale deed does not contain any such big property, it was fairly admitted that there seems to be a mistake and basically Assessee sold his land for value, therefore, the seller would not have bothered about the presence of a building at the time of registration. It was submitted that the absence of the building in the sale deed does not vitiate the claim of Assessee, as Assessee along with others have paid the amount for which proof was produced before A.O. It was further submitted that A.O himself has allowed the cost of license fee paid to Municipality and also to brokerage, but only disallowed the value of the building constructed.
5. Ld. DR however relied on the findings of the A.O and the remand report and also the order of the CIT(A).
4 ITA No. 1206/Hyd/2016Shri Girish Kumar Malpani, Hyderabad.
6. I have considered the rival arguments and the documents placed on record. It is observed that total property was purchased by way of three separate purchase bills and the schedules to the deeds mentioned that there was a building. For the sake of record the schedule of agreement dated 06-12-2003 placed in the paper book from pages 1989-1995 shows the 'property of plot admeasuring 600 Sq. yards (along with portion of old house admeasuring 1000 Sq. feet) out of 1828 Sq. yards equal to 1529 Sq. Meters bearing premises No. 8-2-293/82/8/1323/A, Road No. 67, Jubilee hills layout'. Similar description was mentioned in the other two documents also, which indicate that out of the 1828 Sq. yards of the land, there was a portion of old house admeasuring 1000 Sq. feet. Immediately thereafter the Assessees have entered a memorandum of construction agreement dated 29-03-2005 for construction the residential property with specifications of columns, beams etc., as stated in second page of the construction agreement, for a consideration of Rs. 45,00,000/-. M/s Maheshwari Megaventures Ltd., had shown this receipt of Rs. 45,00,000/- which was accepted by the A.O. It was also on record that the said company has spent only an amount of Rs. 27,77,538/- and balance was offered as profit. As seen from the notes on accounts also, the said company has taken over an entertainment center in the month of Feb 2006 and a restaurant which were not capitalized. However, A.O finds that the bills produced pertain to items for Hotel and other items which are used in hotel / restaurant, but not cost of construction on the project. Since, this forum is not in a position to examine whether the Assessee's contentions are correct or not, I am of the opinion that the claim is to be reexamined. Assessee is directed to produce the necessary details of expenditure spent by the said 5 ITA No. 1206/Hyd/2016 Shri Girish Kumar Malpani, Hyderabad.
company on construction and also how the payments are made, as the A.O is doubting the payments also. A.O is directed to examine the issue afresh, in the light of the evidence that may be produced and allow the expenditure accordingly, if the same is spent on the building on the property. Prima-facie Assessee's contentions seems to be valid as the A.O himself has allowed cost pertaining to license fees paid to municipality. If license fee was paid, there must be some license obtained for the construction project. These require a detailed verification/analysis. Therefore, the order of the A.O and CIT(A) to the extent of claim of cost of improvement on this Rs. 45,00,000/- stated to have been spent through M/s Maheshwari Mega ventures Ltd., is restored to A.O for fresh verification and proportionate allowance thereon. Assessee is directed to furnish the necessary evidence to A.O, so as to substantiate the claim. With these observations, the issue is restored to the file of A.O for fresh verification, if required from the buyer also. Accordingly, Assessee grounds are allowed for statistical purposes.
7. In the result Assessee appeal is allowed for statistical purposes Pronounced in the open court on 31st March, 2017.
Sd/-
(B. RAMAKOTAIAH) ACCOUNTANT MEMBER Hyderabad, Dated: 31 st March, 2017 KRK 6 ITA No. 1206/Hyd/2016 Shri Girish Kumar Malpani, Hyderabad.
1) Shri Girish Kumar Malpani C/o B. Narsing Rao & Co CA Plot No. 554, Road No. 92, Jubilee Hills, Hyd. 96
2) ACIT, Circle-6(1), Hyderabad
3) CIT(A) -9, Hyderabad
4) Pr.CIT -6, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File