2024 (7) TMI 1644 - AT - Income Tax

LTCG - assessee is a senior citizen widow of military personnel - determination of long term capital gain by the AO in absence of proper evidence in respect of cost of construction of residential house cost of improvement of residential house done by the late husband of the assessee. HELD THAT - Cost of construction was met with a house loan obtained from HDFC withdrawal from DSOP Fund Retirement Benefits. It is also found that 2 separate valuation reports were furnished before the AO prepared by Government approved valuer. But the same were not accepted by the AO. According to the government approved valuer Rs. 5, 13, 670/- were invested by the late husband of the assessee towards construction of the house during the year 1990-91. The certificate of loan issued by HDFC as well as certificate issued by the Principal Controller of Defence Accounts also supports the same. It is also an admitted fact that the house was sold therefore it must have been constructed but still the AO as well as LD CIT(A)/NFAC has not allowed any reasonable amount towards cost of construction. It is also apparent from the perusal of the bank accounts that substantial amount i.e. more than Rs. 4, 82, 500/- was withdrawn during F.Y. 2003-04 from the Maharashtra Bank Savings Account of the late husband of the assessee for the purposes of renovation of the property. We find that withdrawal entries were there in the name of sutar ply decor construction company etc. Thus being a special case of senior citizen lady being widow of Army personnel we deem it appropriate to accept the contention of the assessee to certain extent. Therefore the cost of construction is estimated at Rs. 5, 00, 000/- in the F.Y. 1990-91 (which was claimed by the assessee at Rs. 5, 13, 670/-) the cost of improvement is estimated at Rs. 4, 70, 000/- in the F.Y. 2003-04 (which was claimed by the assessee at Rs. 4, 82, 500/-). The Assessing Officer is therefore directed to calculate the indexed cost of construction in the year of sale as well as the indexed cost of improvement in the year of sale taking the cost of construction at Rs. 5, 00, 000/- for F.Y. 1990-91 cost of renovation/ improvement at Rs. 4, 70, 000/- for F.Y. 2003-04. We must make it clear here that the above two deductions will be in addition to deductions already allowed by the AO in respect of indexed cost of acquisition of plot Rs. 34, 78, 211/- Cost of new house Rs. 1, 39, 00, 000/- Stamp Duty registration charges Rs. 8, 64, 000/- brokerage charges Rs. 5, 00, 000/-. Thus the grounds raised by the assessee are partly allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

(a) Whether the cost of construction of the residential house, incurred by the late husband of the assessee, can be considered as part of the cost of acquisition for computing long-term capital gains, despite the absence of contemporaneous documentary evidence before the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)]Rs.

(b) Whether the cost of improvements or renovations carried out on the residential property can be allowed as a deduction in computing capital gains, based on evidence produced belatedly before the TribunalRs.

(c) Whether the Tribunal should exercise its discretion to admit additional evidence not produced before the AO or CIT(A) in the interest of justice, particularly considering the special facts of the case involving a senior citizen widow of a military personnelRs.

(d) The correctness of the AO and CIT(A) in rejecting the revised cost of acquisition claimed by the assessee on the ground of non-availability of evidence for construction and improvement costs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Allowability of Cost of Construction and Cost of Improvement for Capital Gains Computation

Relevant Legal Framework and Precedents: The Income Tax Act permits deduction of the cost of acquisition and cost of improvement from the sale consideration to compute capital gains under sections 48 and 55. The cost of acquisition includes the original cost of the asset, and cost of improvement includes expenses incurred on enhancing the asset's value. Indexed cost calculation is allowed to adjust for inflation. The burden of proof lies on the assessee to establish the cost of construction and improvement by producing cogent evidence.

Court's Interpretation and Reasoning: The Tribunal noted that the AO and CIT(A) disallowed the construction and improvement costs due to lack of documentary evidence. However, the assessee, a senior citizen widow of a military personnel, was unable to produce these documents earlier due to the untimely death of her husband who had constructed and improved the house. On the Tribunal's direction, the assessee produced additional evidence including a housing loan certificate from HDFC, certificates of withdrawal from Defence funds, and bank statements evidencing withdrawals for renovation expenses.

The Tribunal accepted the genuineness of these documents and considered the special circumstances of the assessee. It found that the house was indeed constructed in 1990-91 with funds from a housing loan and Defence fund withdrawals, and renovated in 2003-04 with funds withdrawn from bank accounts. The Tribunal also noted that two valuation reports from government-approved valuers, indicating construction costs of Rs. 5,13,670, were submitted but not accepted by the AO.

Key Evidence and Findings: The housing loan certificate showed principal repayments and outstanding loan amounts consistent with construction financing in 1990-91. The Defence fund withdrawal certificates confirmed investment of retirement benefits into the house construction. Bank statements revealed substantial withdrawals for renovation in 2003-04. The valuation reports corroborated the claimed construction cost.

Application of Law to Facts: Considering the totality of evidence and the special facts, the Tribunal exercised discretion to accept the additional evidence despite it not being produced before the AO or CIT(A). It estimated the construction cost at Rs. 5,00,000 and improvement cost at Rs. 4,70,000, slightly less than the claimed amounts but sufficiently supported by evidence.

Treatment of Competing Arguments: The AO and CIT(A) rejected the claims due to lack of contemporaneous evidence. The Revenue did not raise serious objection before the Tribunal after considering the special circumstances. The Tribunal balanced the strict evidentiary requirements against the equities of the case, especially the assessee's status as a senior citizen widow of a military man.

Conclusions: The Tribunal directed the AO to allow indexed cost of construction and indexed cost of improvement as additional deductions while computing long-term capital gains. This was in addition to other deductions already allowed such as the indexed cost of acquisition of the plot, cost of the new house, stamp duty, registration charges, and brokerage.

Issue (c): Admission of Additional Evidence Before the Tribunal

Relevant Legal Framework and Precedents: Generally, evidence must be produced before the AO or CIT(A) to be admissible. However, the Tribunal has discretion to admit additional evidence in the interest of justice, especially where the assessee could not produce the same earlier due to genuine reasons.

Court's Interpretation and Reasoning: The Tribunal acknowledged that the additional evidence was not produced before the AO or CIT(A). However, considering the assessee's status as a senior citizen widow and the fact that her late husband was the original constructor of the house, the Tribunal admitted the evidence as a special case.

Key Evidence and Findings: The evidence included loan certificates, Defence fund withdrawal certificates, and bank statements. These documents were relevant and credible to establish the cost of construction and improvement.

Application of Law to Facts: The Tribunal exercised its discretion to admit the evidence and considered it in its decision, emphasizing the interest of justice and the unique facts of the case.

Treatment of Competing Arguments: The Revenue raised no serious objection to admission of evidence. The Tribunal found no prejudice to the Revenue and thus admitted the documents.

Conclusions: The Tribunal admitted the additional evidence and relied upon it in allowing part of the claimed construction and improvement costs.

Issue (d): Validity of AO and CIT(A) Rejection of Revised Cost of Acquisition

Relevant Legal Framework and Precedents: The AO and CIT(A) are entitled to reject claims for cost of acquisition or improvement if not supported by adequate evidence. However, the assessee is entitled to revise claims if new evidence is produced.

Court's Interpretation and Reasoning: The Tribunal observed that the AO and CIT(A) rejected the revised cost of acquisition due to non-availability of evidence. The Tribunal found this rejection justified in the absence of evidence before them but considered the additional evidence produced before it.

Key Evidence and Findings: The Tribunal found that the revised cost of acquisition including construction and improvement costs was supported by credible evidence produced before it.

Application of Law to Facts: The Tribunal directed the AO to recompute capital gains allowing the revised cost of acquisition including construction and improvement costs as accepted by the Tribunal.

Treatment of Competing Arguments: The Revenue's objection was limited to lack of evidence. The Tribunal balanced evidentiary rules with equitable considerations.

Conclusions: The Tribunal partially overruled the AO and CIT(A) rejection and allowed the revised cost of acquisition to the extent of construction and improvement costs supported by evidence.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Looking to the position of the assessee that she is a senior citizen and widow of army personnel and considering the fact that her son is also posted in Indian Army, therefore as a special case, we admit these evidences for consideration."

"Considering the totality of the facts of the case & in the interest of justice, being a special case of senior citizen lady being widow of Army personnel, we deem it appropriate to accept the contention of the assessee to certain extent."

"The Assessing Officer is therefore directed to calculate the indexed cost of construction in the year of sale, as well as the indexed cost of improvement in the year of sale, taking the cost of construction at Rs. 5,00,000/- for F.Y. 1990-91 & cost of renovation/ improvement at Rs. 4,70,000/- for F.Y. 2003-04."

"The above two deductions will be in addition to deductions already allowed by the AO in respect of indexed cost of acquisition of plot Rs. 34,78,211/-, Cost of new house Rs. 1,39,00,000/-, Stamp Duty & registration charges Rs. 8,64,000/- & brokerage charges Rs. 5,00,000/-."

Core principles established include the Tribunal's discretion to admit additional evidence in the interest of justice, especially in cases involving senior citizens and widows with genuine difficulties in producing documents. The ruling underscores the importance of balancing strict evidentiary requirements with equitable considerations to arrive at a just outcome.

Final determination on the issues was that the appeal was partly allowed by directing the AO to allow indexed cost of construction and improvement based on the evidence admitted by the Tribunal, thereby reducing the long-term capital gains assessed.