Income Tax Appellate Tribunal - Hyderabad
Acit., Circle-5(1), Hyderabad vs Pragnapur Developers Private Limited, ... on 10 December, 2025
आयकर अपील य अ धकरण, है दराबाद पीठ
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
ी रवीश सूद, माननीय या यक सद य एवं ी मधुसूदन साव डया, माननीय लेखा सद य
SHRI RAVISH SOOD, HON'BLE JUDICIAL MEMBER
AND
SHRI MADHUSUDAN SAWDIA HON'BLE ACCOUNTANT MEMBER
आयकरअपीलसं./I.T.A. No. 441/Hyd/2025
( नधारणवष/ Assessment Year: 2022-23)
ACIT, VS. Pragnapur Developers Private
Circle-5(1), Limited,
Hyderabad. Hyderabad.
PAN: AADCV5902G
(अपीलाथ / Appellant) ( यथ / Respondent)
करदाताका त न ध व/ : Shri M. Naga Deepak, Advocate
Assessee Represented by
राज वका त न ध व/ : Mrs. U. Mini Chandran, CIT-DR
Department Represented by
सुनवाईसमा तहोनेक त थ/ : 30/10/2025
Date of Conclusion of Hearing
घोषणा क तार ख/ : 10/12/2025
Date of Pronouncement
ORDER
PER RAVISH SOOD, JM:
The present appeal filed by the revenue is directed against the order passed by the CIT(Appeals), dated 16/01/2025, which in turn arises from the order passed by the Assessing Officer (for short, "AO") under Section 143(3) r.w.s 144B of the Income tax Act, 1961 (for short, 2 "Act") dated 21-03-2024 for the Assessment Year 2022-23. The revenue has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal before us:
"1. The learned CIT(A) erred in allowing the cost of improvement at Rs. 11.25 crores when the assessee himself has made a contradictory claim in the ITR with reference to various financial years of improvement in cost.
2. The Ld. CIT(A) ought to have appreciated the action of the AO that there cannot be an legal sanction to an agreement made by the assessee with Gajwel Developers Pvt Ltd on 26.05.2021 when the later company did not came into existence on that date but incorporated only on 16.02.2022. \
3. The Ld. CIT(A) failed to observe that when the assessee has sold the property to M/s Vivo Biotech Ltd on 28.02.2022 there is no scope for any separate/revised MOU dt. 28.02.2022 by the assessee with Gajwel Developers Pvt Ltd.
4. The Ld. CIT(A) ought to have appreciated that mere making TDS on the payments made to M/s Gajwel Developers Pvt Ltd is not the conclusive proof to certify the genuineness of the transactions towards costs incurred.
5. The Ld. CIT(A) erred in allowing relief to the assessee based on self-serving agreements entered into by the assessee with various concerns without insisting on actual payments made towards cost of improvement for various FYs as per ITR for AY 2022-23.
6. Any other ground that may be urged at the time of appeal hearing."
2. Succinctly stated, the assessee company, which is engaged in the business of developing and operating laboratory space and research & development centres, had filed its return of income for the Assessment Year 2022-23 on 29-12-2022, declaring an income of Rs. 6,36,34,062/-. Subsequently, the case of the assessee company was selected for complete scrutiny under CASS for verifying the substantial amount that 3 it had claimed to have incurred under the head "Cost of Improvement", as was disclosed in "Schedule CG" of its return of income for the subject year, i.e., AY 2022-23. Notices under section 143(2) and section 142(1) were thereafter issued and served upon the assessee company.
3. During the course of the assessment proceedings, the AO observed that the assessee company in its return of income had declared sale of immovable property for a consideration of Rs. 20,56,80,640/-, and after reducing indexed cost of acquisition and cost of improvement, disclosed "Long term capital gain" (LTCG) of Rs. 4,21,57,691/-. The AO called upon the assessee company to furnish complete particulars and documentary evidence in relation to its claim for deduction of "cost of improvement", viz. bills, labour charges, contractual receipts, bank statements evidencing payments, copies of sale deeds and purchase deed and working of capital gains. In response, the assessee company produced copies of an original work contract dated 26.05.2021 with M/s Gajwel Developers (initially climed to be a proprietorship concern) and a revised contract dated 28.02.2022 with Gajwel Developers Pvt. Ltd., along with bank statements showing payments to the contractor, ledger extracts and TDS challans.
4. The AO observed that the assessee company had in its return of income for the subject year initially disclosed year-wise cost of improvement during the period spread over FY 2013-14 to FY 2017-18, 4 which, when indexed, aggregated to a specified amount. However, the AO observed that the assessee company, during the course of the assessment proceedings, had revised/claimed the cost of improvement at Rs. 15,32,65,306/- (stating payments made to M/s Gajwel Developers and supporting ledger and bank statement extracts and TDS challans).
5. On perusal of the record, the AO had certain serious reservations regarding the claim of the assessee company for deduction of "cost of improvement" for multi-facet reasons, viz. (a) though the original work contract was dated 26-05-2021 but M/s Gajwel Developers Pvt. Ltd., i.e., the contractor company which was claimed to have carried out the improvement to the subject property, as per the records of the Ministry of Corporate Affairs (MCA) was shown to have been incorporated only on 16-02-2022; (b) the assessee company had though sold the property to M/s Vivo Biotech Ltd. by way of sale deed dated 26/28-02-2022, but the revised MOU/contract dated 28-02-2022 executed between M/s Gajwel Developers Pvt. Ltd. (supra) and the assessee company appeared to have been executed after or with the sale; (c) the signatory named in the MOU/contract dated 28.02.2022 as director of the assessee company, viz. Shri. Garimella Venkat Subrahmanyam was not a director at the relevant point of time as observed by the AO; and
(e) the assessee company had not filed certain documents which the AO considered necessary to corroborate the year-wise basis of the 5 expenditure that was claimed to have been incurred towards the cost of improvement of the subject property.
6. Apart from that, the AO observed that the assessee company, when filing its return of income, had disclosed year-wise improvements for earlier years, i.e., FY 2013-14 to FY 2017-18, but had, during assessment proceedings, taken a volte-face and claimed a lump sum amount of Rs. 15,32,65,306/- as having been incurred towards construction/improvement during the subject year, i.e., FY 2021-22. The AO, based on the aforesaid facts that had unfolded in the course of the assessment proceedings, doubted the genuineness and veracity of the claim and the chronology of events as were raised by the assessee company.
7. The AO, observed that though the payments towards the "cost of improvement" of the subject property were shown to have been made by the assessee company during FY 2021-22 and that the original agreement provided for development work to be completed by 31-03- 2022 (with a revised cut-off date in the revised contract), but that the contractor company's incorporation date on MCA suggested that the corporate entity did not exist on the date on which the original MOU was executed. Accordingly, the AO held a firm conviction that, in the backdrop of the aforesaid facts and the lack of corroborative approvals/permissions, as well as the absence of full documentary 6 evidence, the claim of the assessee company of having incurred expenditure towards the cost of improvement of the subject property was not established.
8. The AO, based on his aforesaid deliberations, disallowed the claim of the assessee company for deduction of "cost of improvement"
of Rs. 15,32,65,306/-, and computed the Long-term capital gain (LTCG) on the transfer of the subject property at Rs. 19,54,22,998/-.
Accordingly, the AO vide his order passed under Section 143(3) r.w section 144B of the Act, dated 21-03-2024, recomputed the total income of the assessee company at Rs. 21,68,99,368/-.
9. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). The assessee company in the course of the appellate proceedings assailed the disallowance of its claim for deduction of "cost of improvement" by the AO based on multi-facet grounds, viz. (a) payments were actually made to the contractor and evidenced by bank statements and tax was deducted at source on the subject payments; (b) the original work contract was entered into by the assessee company with the proprietorship concern which later became a private limited company and therefore, the AO's reliance on incorporation date was misplaced; (c) the sale agreement expressly contemplated carry-forward of development work and the obligation to pay the development cost was cast upon the assessee company; and 7
(d) the AO ought not to have treated the MOU as fake merely due to overlap of directors or change in corporate form.
10. Ostensibly, the assessee company challenged the AO's action on facts and law before the CIT(A), and disputed the AO's conclusion regarding the genuineness of the payments that were made by the assessee company towards the cost of improvement of the subject property. Also, the assessee company to support its claim for deduction had again filed before the CIT(A) supporting documents, viz. agreements, bank statements, ledger extracts and Form DIR-12 and other material.
11. We find that the CIT(A) after considering the material on record, and drawing support from the original agreement and surrounding circumstances, as well as by relying on the proposition that change of legal form of the contractor does not per se invalidate an earlier contract, and that the sale agreement contained clauses dealing with ongoing development obligations, observed that the assessee company had incurred cost of improvement and allowed its claim for deduction of "cost of improvement" of Rs.11.25 crores. Accordingly, the CIT(A) partly allowed the appeal. For the sake of clarity, we deem it apposite to cull out the observations of the CIT(A), as under:
"6.1 All the arguments and the submission made by the appellant have been duly considered. After careful perusal of the assessment order passed by the AO, it is noticed that the AO had made core allegation that the appellant claimed the cost of improvement for an amount of Rs.8
15,32,65,306/- which was paid to the Contractor during the year under consideration. The AO's contention that the appellant has claimed cost of improvement from the year 2013-14 to 2017-18 in the return filed, however, the contract work was signed in the year 2021-22 which was subsequently revised to extend the time line to complete the work assigned to contractor.
6.2 The AO's allegation that the work contract was signed by Mr. Garimella Venkata Surya Subrahmanya who was not holding any signatory designation in the appellant company. The appellant in this regard filed the Form DIR-12 as per the company Act 2013 and Rule 17 of the Company rule in which Mr. Venkata Surya Subrahmanya was reported as director of the company. At later stage Mr. Subrahmanya had made resignation from the company as director. The copy of the notice sent by Mr. Subrahmanya has also been filed by the appellant for consideration. Therefore, this allegation made by the AO is countered by the appellant. The submission in this regard by the appellant has been found in order.
6.3 Another allegation made by the AO that the work contract was executed with the Contractor M/s. Gajwel Developers Pvt. Ltd on 26.05.2021 whereas the contractor company came into existence on 16.02.2022. The appellant has submitted during appellate proceedings, that M/s. Gajwel Developers was engaged in the business of construction and development in the capacity of Proprietorship not company at the time of execution of original work contract. Later, the proprietorship was registered as company namely M/s. Gajwel Developers Pvt. Ltd. With ROC on 16.02.2022 and thereafter the work contract was revised with the company. The necessary supporting evidence have been submitted by the appellant in support of its contention. The relevant documents submitted by the appellant have been duly perused. From the original Work Contract, it is noticed that the work contract was executed by the appellant company and M/s. Gajwel Developers not Gajwel Developers Pvt. Ltd. The appellant also relied on the judicial pronouncement in the case of CIT v Madras Auto Service (1986) in which it was held that the legal status of an entity does not affect the enforceability of contracts entered into by it before its change in structure. The undersigned find force in the argument of the appellant and found in order. It is also logical that when an agreement is revised due to a change in the structure of an entity, the original contract can be amended to reflect the change without invalidating it. This may be done through a contract amendment, which is a formal change to an existing contract. Therefore, the allegation made by the AO is not prudently established.
6.4 The instant case is having major four events, they are: i) On 26.05.2021- Original work Contract and conditional development agreement
ii) On 03.12.2021 - Agreement of sale of the property with M/s. Vivo Biotech Ltd. iii) On 26.28/02.2022- The property was sold to M/s. Vivo Biotech Ltd. iv) On 28.02.2022- Revised work Contract and Conditional development agreement 6.5 It is noticed that the original work contract and conditional Development Agreement for the property in question was singed on 26.05.2021 by the appellant and the contractor. Later, an agreement of sale was executed by the appellant company with M/s. Vivo Biotech Ltdon 03.02.2021. The original work contract was revised on 28.02.2022 9 6.6 While going through the agreement of sale made on 03.12.2021 by the appellant company with M/s. Vivo Biotech Limited, it was inserted in the agreement that the appellant company has made a contract work of development of the property under sale, with the contractor and the work has been commenced and will be carried out by the contractor even after the sale of the property. The entire obligation of payment will lie upon the appellant company as per the contract made. The details of the scope of the work as mentioned in the original development agreement as submitted by the appellant are as under: The appellant also submitted that at later stage, the details of the scope of the work as mentioned in the revised development agreement are as under:
Sl Activity Amount in
no Rs. Cr
1. Rock breaking without breaking and disposing Rs.3.50
broken rock
2. Landscaping, bore wells, pipeline, overhead tank Rs.1.50 and sumps
3. Perimeter compound wall Rs.1.40
4. Entrance arcade, security Post & Gate Rs.0.43
5. Road in the interior of the Science park Rs.1.70
6. Parking Plot Marking and sheds Rs.0.20
7. Internal Drainage lines Rs.0.60
8. Internal Power Lines Rs.0.75
9. Pest Control Rs.0.10
10. Rainwater harvesting pits Rs.0.20 11 Effluent Treatment Plant (ETP) Rs.0.35
12. Sewage Treatment Plant (STP) Rs.0.32
13. Common Office Area Rs.0.10
14. Common Canteen and Dining facility to staff Rs.0.10 Total Rs.11.25 Sl Activity Amount in no Rs. Cr
1. Rock breaking without breaking and disposing Rs.3.50 broken rock
2. Landscaping, bore wells, pipeline, overhead tank Rs.1.50 and sumps
3. Perimeter compound wall Rs.1.40
4. Entrance arcade, security Post & Gate Rs.0.43
5. Road in the interior of the Science park Rs.1.70
6. Parking Plot Marking and sheds Rs.0.20
7. Internal Drainage lines Rs.0.60
8. Internal Power Lines Rs.0.75
9. Pest Control Rs.0.10
10. Rainwater harvesting pits Rs.0.20 11 Effluent Treatment Plant (ETP) Rs.0.35
12. Sewage Treatment Plant (STP) Rs.0.32
13. Common Office Area Rs.0.10
14. Common Canteen and Dining facility to staff Rs.0.10
15. Substation and DG back-up Rs.1.25
16. Compressed Air Generator & Pipeline Rs.0.50 Total Rs.13.00 6.7 It is evident here that the cost incurred for improvement of the property was inclusive of the sale agreement made by the appellant. In the layman view, when the agreement was executed keeping in the view that the 10 undergoing development process would be continued even after the sale of agreement and execution of sale, the consideration was finalized between the parties. Once, the appellant company was obliged to pay the development cost, it will only be eligible to claim such cost of improvement. The AO during the assessment proceedings, did not bring any material on record that the development cost paid to the contractor was not genuine or any kind of mischievous act was done to evade the tax. The applicable TDS was also deducted while making payment to the contractor. When the cost was incurred by the appellant company, it will only be eligible to claim such cost unless any circumstantial evidence prevents. The prime obligation rests with the appellant company for making such payments which was part of the sale agreement. Therefore, the cost incurred by the appellant company cannot be denied only on the basis that the property was sold. Further, the revised agreement was made with the contractor only for extension of deadline for completion of development process and such event should not be taken adversely to deny the claim of any deduction. The AO in this regard ought to have looked into the circumstantial evidence that the appellant company has made payment to the contractor as per the contract work which would be binding on the contractor even in the case of selling out of the property. It is also important to clarify that to claim the cost of improvement and indexation cost, the appellant has to furnish evidence and even in the absence of any evidence, the agreement of sale or registered sale deed can also be accepted as evidence. In the instant case, the agreement of sale also includes the provision of ongoing development work project and accordingly the terms and conditions were inserted in the clause of the agreement which justified the claim of the appellant.
6.8 There are various judicial pronouncement in which it has been held that when the payment towards cost of improvement have been paid by any person and there is substantial evidence in this regard, the claim of cost of improvement cannot be denied. The judicial pronouncements relied upon by the appellant have also been perused and taken in considering before deciding the issue. Further, In the case of S.P. Balasubramaniyam vs. Income-tax Officer [2013] 37 taxmann.com 260 (Chennai - Trib.)/[2013] 24 ITR(T) 47 (Chennai - Trib.)/[2013] 144 ITD 525 (Chennai - Trib.)[29-04-2013], the Hon'ble ITAT, Chennai Bench has held as under:
"2. The brief facts of the case are that the assessee is a renowned playback singer, actor and proprietor of recording theatres filed return of income showing net taxable income at Rs. 34,80,280. The assessee also declared short-term capital gain of Rs. 35,48,200 in respect of sale of building at Hyderabad. The assessee while computing capital gains claimed cost of improvement of property at Rs. 39,69,500 which was paid to contractors for improvement and construction of the property. It was the submission of the assessee that he has purchased a semi-finished building and made alterations and additions for using it as dubbing and recording theatre. In this process, the assessee made payments to contractor for the works. It was also the submission of the assessee that the assessee has deducted TDS on payments made to these contractors. However, the Assessing Officer while completing the assessment did not accept the submission of the assessee and excluded cost of improvement for the purpose of computing capital gains. On appeal, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the 11 expenditure of Rs.25,74,500 claimed by the assessee in respect of payment made to one Shri P. V. Prasad as the assessee produced bank account wherein the assessee paid the said sum to Mr. P. V. Prasad for construction purposes. In respect of the balance of Rs. 13,17,000, paid to contractors the Commissioner of Income-tax (Appeals) denied the cost of improvement stating that the assessee himself admitted that contract work was not carried out by the above persons. The assessee is in appeal before us.
3. Counsel for the assessee submits that the assessee made payments to various contractors for modification and alteration of the property in order to suit the property as dubbing and recording theatre. Counsel for the assessee submits that the contractors left without carrying out the work due to some differences with the assessee in carrying out the work. The counsel submits that the assessee himself carried out the work later and completed the works. Counsel submits that the assessee had in fact, deducted TDS on payments made to those contractors and remitted the TDS to government account. Therefore, he submits that there is no justification in denying the cost of improvement of Rs. 13,70,000 on the ground that the contractors have not completed the work.
4. The Departmental representative supported the orders of the lower authorities.
5. Heard both sides. Perused the orders of the lower authorities and materials on record. It is a fact that the assessee made payments to sub-contractors which is not in dispute. The assessee also deducted TDS on such payments to contractors is also not in dispute. It is also a fact that the assessee himself carried out the unfinished portion of the building without which he could not have used that property as dubbing and recording theatre. It is a fact that the assessee has sold the property, i.e., dubbing and recording theatre. So it is not the contention of the Assessing Officer that the cost of improvement was not at all met by the assessee. The assessee has paid amounts to contractors deducting TDS. Therefore, in our view, the assessee cannot be denied cost of improvement for the purpose of computing capital gains simply because the contractors to whom the payments were made did not carry out the work. Therefore, we direct the Assessing Officer to consider Rs. 13,70,000 in computing the capital gains as cost of improvement of the asset and recompute the capital gains.
6. In the result, the appeal of the assessee is allowed."
6.9 In the case of ACIT vs. Amrutlal Babaldas Patel [2022] 145 taxmann.com 505 /[2022] 98 ITR(T) 131, the Hon'ble ITAT Bench, Surat Bench held that:
"20. However, we find that the Assessing officer has not disputed the nature of work on which expenses on account of improvement was incurred. Though, the DCIT, Sabarkantha in his report submitted that some development work on the nonagricultural land was carried out 3- 4 years back from the date of his visit, however, the items of works claimed by assessee and reported by DCIT is different. Therefore, 12 keeping in view the entire facts and circumstances of the case, instead of restoring the matter to the file of Assessing Officer, we deem it appropriate to disallow the part of cost of improvement expenses to avoid the possibility of revenue leakage. Considering the fact that neither the assessee could substantiate with documentary evidence about the genuineness of expenses nor the Assessing Officer brought comparable instances for similar improvement expenses on record, therefore, the order of ld. CIT(A) is modified and A.O. is directed to disallow 50% of improvement expenses out of total improvement expenses."
6.10 Under these circumstances and in view of the above discussion, the undersigned is of considered view that as the appellant has incurred the cost of improvement due to which the property cost was estimated at the consideration price and there was nothing infirmity found in the deal and claiming cost of improvement as per the original agreement of work contract. Therefore, the appellant is eligible to claim cost of improvement. Further, as in the original agreement, the cost of improvement was claimed at Rs. 11.25 Crore, the same is hereby allowed. Accordingly, the grounds Nos. 1 to 12 are partly allowed.
7. Ground No. 13 Through this ground of appeal, the appellant has contended against the initiation of penalty proceedings u/s.270A of the Act. In this context, it is pertinent to clarify that mere initiation of penalty proceedings does not constitute ground for appeal before CIT(A) unless the proceedings reach to its finality. In the instant case, as the penalty did not reach to its finality and thus ground raised by the appellant is not sustainable. Accordingly, the ground No. 13 is dismissed.
8. In the nutshell, the appeal filed by the appellant is partly allowed."
12. The revenue, aggrieved with the CIT(A) order, has carried the matter in appeal before us.
13. We have heard the learned Authorised Representatives of both parties, perused the orders of the authorities below and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them.
14. We find on a perusal of the record that the following facts emanate from the orders of the authorities below:
13
(i). the assessee company had, in its original return of income, claimed indexed "cost of improvement" spread over the years, i.e., FY 2013-14 to FY 2017-18. However, the assessee company has failed to place on record any purchase bills, contractor invoices, statutory approvals, or any other corroborative documentary evidence that would substantiate its claim of having incurred the year-wise expenditure on improvement as claimed.
(ii). the primary contract relied upon by the assessee company, i.e., the "original work contract" dated 26.05.2021, on its face referred to an arrangement with "M/s Gajwel Developers".
However, the AO, on factual verification available on record, had observed that the said company, viz. M/s Gajwel Developers Pvt. Ltd., i.e., the contractor, was incorporated only on 16.02.2022 as per the Registrar of companies (ROC)(/Ministry of Corporate Affairs (MCA) records. Accordingly, the assessee company could not have executed the original "agreement" with the aforementioned company, which, as on the date of the "original works contract", had yet not come into existence.
(iii). the assessee company had though claimed that it had initially executed the "original work contract" dated 26.05.2021 with a proprietorship concern having an identical/similar name, but had not produced any reliable documentary evidence, viz. 14 copies of the income tax returns, bank accounts, bills, PAN, registration of the proprietary concern to substantiate the existence of the contracting party as a proprietary concern at the relevant point of time.
(iv). the revised agreement dated 28.02.2022 that was executed after incorporation of the private limited company, viz. M/s Gajwel Developers Pvt. Ltd., and the payments reflected in bank statements in FY 2021-22 do not, by themselves, dispel the earlier fundamental deficiency, i.e., the absence of year-wise documentary proof for the years in which the assessee had claimed to have incurred the expenditure towards improvement of the subject property, i.e., spread over the years FY 2013-14 to FY 2017-18. Rather, the payments shown in the record relate to a much later period, and the same cannot retroactively substantiate the purported earlier year expenditure.
(v). the chronology of events involved in the present case is not only unsubstantiated but also highly suspicious. As is discernible from the record, the assessee company had sold the subject property vide a sale agreement/sale deed executed on 26/28.02.2022, i.e., at or about the same time the "revised agreement" dated 28.02.2022 with the contractor is stated to have been executed. Apart from that, there is no material 15 available on record that the alleged improvements were in fact carried out in the earlier years, as was the claim of the assessee company in its return of income. Rather, we find that the sale documentation itself contains clauses and recitals that cast serious doubts as to whether the earlier improvements had ever taken place in the manner during the period asserted by the assessee company in its return of income.
(vi) the signatory/directorship record also points out serious discrepancies. The contractual documents are signed by persons whose status vis-à-vis the assessee company or the contractor company is inconsistent with the ROC records and with the internal records of the assessee company. The assessee's attempt to explain such discrepancies is neither comprehensible nor supported by independent corroborative documentary proof, viz., the board resolutions, contractor invoices bearing GST/serial numbers, third-party receipts, and independent verification of works carried out by municipal or development authorities.
(vii) that no municipal permissions, completion certificates, electrical/utility connections or other statutory approvals had been produced which would support the assessee's claim of having incurred the substantial amount of expenditure towards land development and building/renovation.
16
(viii) the ledger and bank entries produced by the assessee company are neither supported by supplier invoices describing the nature of work nor by running account statements of the contractor showing, viz. WIP reports, measurement sheets, or any third-party certifying documents confirming that works were performed and accepted.
(ix) the assessee had, during the assessment proceedings, made inconsistent and conflicting claims, i.e., different quantum and different year-wise allocation of improvement cost in the return vis-à-vis documents subsequently filed. In our view, such afterthought amplification of the quantum without supporting documentary evidence reveals beyond doubt an attempt on its part to suppress the taxable gain arising on the transfer of the subject property.
15. We, thus, in the totality of the aforesaid facts, are of a firm conviction that in the absence of supporting bills/invoices and statutory approvals, the incomprehensible chronology of events involved in the present case before us, viz. (i). the timing of incorporation of the contractor entity M/s Gajwel Developers Pvt. Ltd.; (ii). the proximity of the sale transaction with the revised contract; (iii). the inconsistent signatory/directorship record; and (iv). the material failure on the part of the assessee company to produce year-wise supporting documents for 17 the period in which improvement is claimed to have been carried out leads to a safe conclusion that the assessee's claim of having incurred the expenditure towards improvement of the subject property is nothing but a concocted story aimed at suppressing the taxable gain arising on its transfer. Accordingly, we are of firm conviction that the AO's adverse inferences regarding the claim of the assessee company of having incurred a substantial amount of expenditure towards improvement of the subject property is not in the thin air but based on the material available on record. Apart from that, we find that the assessee company had not only failed to discharge the onus that was cast upon it for proving the authenticity of its claim of having incurred the subject expenditure towards improvement of the property under consideration, but had also failed to lead any evidence which would dislodge and disprove the adverse inferences that were drawn by the AO.
16. Apropos the CIT(A) order, we find that he has allowed the claim of the assessee company for deduction of the cost of improvement to the extent of Rs. 11.25 crores (supra) by relying primarily upon the original contractual figure, and on the selected pieces of the material that were placed on his record. We have given thoughtful consideration and are unable to persuade ourselves to concur with the view taken by the CIT(A). We say so, for the reason that the CIT(A) has given undue weightage to the contractual recitals and has underweighted the cumulative effect of the multi-facet suspicious facts that were glaring on 18 the very face of the record before him. In our view, the CIT(A)'s partial acceptance is unsustainable because it effectively requires the Department to accept an ex-post facto reconstruction of events despite the absence of primary, verifiable and supporting documentary evidence.
17. We, thus, after giving a thoughtful consideration, are of firm conviction that, as per the settled mandate of law, where an assessee raises a claim for deduction of an expenditure, then the onus is cast upon him to substantiate the same based on irrefutable documentary evidence. As in the present case before us, the assessee company has not only failed to discharge the onus that was cast upon it for substantiating its claim of having incurred expenditure towards improvement of the subject property transferred by it, but had also failed to dispel the serious infirmities arising regarding its said claim, which in turn were based on the conflicting and contradictory claims borne from the record, therefore, we find no infirmity in the view taken by the AO who has rightly disallowed the same.
18. In view of our aforesaid observations, we are unable to concur with the CIT(A) who has summarily allowed the claim raised by the assessee company for deduction of the indexed cost of improvement and, thus, set-aside his order and restore the order passed by the AO, wherein the latter after excluding the indexed cost of improvement 19 claimed by the assessee company, had computed the Long Term Capital Gain (LTCG) at Rs.19,54,22,998/-.
19. In the result, the appeal filed by the Revenue is allowed, and the order of the CIT(A) is set aside, insofar, he had allowed the assessee's claim for deduction of cost of improvement of Rs. 11.25 crores.
Order pronounced in the open court on 10th December, 2025.
S
SdSd/-/- Sd/- Sd/-
(मधुसूदन साव डया) (रवीश सूद)
(MADHUSUDAN SAWDIA) (RAVISH SOOD)
लेखासद य/ACCOUNTANT MEMBER या यकसद य/JUDICIAL MEMBER
d/-
Sd
Hyderabad, dated:10.12.2025.
*OKK/sps
आदे शक त ल पअ े षत/ Copy of the order forwarded to:-
1. नधा रती/The Assessee : Pragnapur Developers Private Limited, Plot No.156, Road
No.5, Sri Srinivas Nagar Colony, Dammaiguda, Nagaram SO, (K.V. Rangareddy), Rangareddy-500083.
2. राज व/ The Revenue : Assistant Commissioner of Income Tax, Circle-5(1), R.No.224, 2B, IT Towers, Masab Tank, AC Guards, Hyderabad, Telangana-500004.
3. The Principal Commissioner of Income Tax, Hyderabad.
4. वभागीय त न ध, आयकरअपील यअ धकरण /DR,ITAT, Hyderabad.
5. The Commissioner of Income Tax
6. गाडफ़ाईल / Guard file आदे शानस ु ार / BY ORDER Sr. Private Secretary ITAT, Hyderabad.