IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "C", MUMBAI
BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND
DR. S.T.M. PAVALAN, JUDICIAL MEMBER
ITA No. 1781/Mum/2010
Assessment Year: 2004-05
Mrs. Pilloo C.J. Cursetjee ACIT RG 16(1)
10, Darbhanga Mansion 12, Matru Mandir
Carmichael Road Vs. Mumbai-400 007
Mumbai -400 025
PAN :ACVPC 1036 F
(Appellant) (Respondent)
Appellant by : Shri Percy Pardiwala
Respondent by : Shri Sanjeev Jain
Date of hearing : 08.04.2014
Date of Pronouncement : 14.07.2014
ORDER
PER DR. S.T.M. PAVALAN, JM:
This appeal filed by the Assessee is directed against the order of the
Ld.CIT(A) -27, Mumbai dated 16.12.2009 for the Assessment Year 2004-05.
2. In Grounds No. 1 to 7, the assessee has agitated the decision of the
Ld.CIT(A) confirming the action of the AO in not allowing the deduction of
Rs.22,09,388/- being indexed cost of improvement claimed by the assessee in the
return of income and further confirming the action of the AO in not allowing the
additional indexed cost of improvement of Rs.43,07,218/-(Sic) claimed by the
assessee during the course of the assessment proceedings.
2.1 Briefly stated, the assessee, an individual, in the return of income had shown
a net long term capital gain on development right at Rs.3,92,835/- after claiming
indexed cost of improvement at Rs.22,09,388/- on the cost of improvement incurred
at Rs.16,73,681/-. The assessee, being the sole Executrix of the last Will and
Testament and of the Estate of her mother Late Mary Cursetjee, during the year
under consideration entered into a Development Agreement dated 03.04.2003 with
ITA No. 1781/Mum/2010
2 Ms. Pilloo C.J. Cursetjee
Assessment Year: 2004-05
M/s. Ramesh Builders (`developers'). Under the said development agreement,
Developers had paid a sum of Rs.3,35,00,000/- to the assessee for obtaining from
her full and exclusive development rights in respect of the piece of a land
admeasuring 15,941/- square meters. The said land was originally owned by Late
Ms.Mary Cursetjee, mother of the assessee, who died on 30.10.1996. As per her
unrevoked last Will and Testament dated 29.11.1994, she appointed her only child,
the assessee as her only heir and next kin. The said Will also appointed the assessee
as the sole executrix of the said Will and of her Estate. According to the assessee,
she had incurred an expenditure of Rs.43,86,789/- (in various years) towards cost of
improvement of the property, which the assessee had paid to the developers. Out
of the said expenditure, the assessee considered an amount of Rs. 16,73,681/- as
cost of improvement while computing the long term capital gain in respect of the
property. Further, the assessee had claimed indexation benefit in respect expenses
aggregating to Rs.7,56,568/-. During the assessment proceedings, the assessee had
further claimed the indexed cost of improvement at Rs.65,16,566/- as against
Rs.22,09,388/- originally claimed in the return of income. In connection to the
aforementioned claim, the AO requested the assessee to produce original
bills/vouchers/books of accounts of M/s. Ramesh Builders to examine the claim and
the personal presence of the developer. In response, vide letter 12.10.2006, the
assessee requested the AO to directly summon Mr.Ramesh Thakkar, a partner in
M/s. Ramesh Builders. However, the AO after noting that it is the duty of the
assessee to furnish the evidence of any claim made by her, rejected the indexed
cost of improvement of Rs.22,09,388/- on the cost of improvement at
Rs.16,73,681/- and also the additional claim of cost of indexation of Rs.
Rs.43,07,218/-(Sic) (Rs.65,16,566/- claimed during the assessment proceedings
(minus) Rs.22,09,388/- claimed in the return of income) claimed by the assessee.
2.2 During the first appellate proceedings before the Ld.CIT(A), it was the claim
of the assessee that the land which was transferred to her during the previous year
was owned by the Late Mother and had been acquired by the State Government
under the Land Ceiling Act and she had taken the help of one Mr. Ramesh Thakkar
partner of Ramesh builder to recover the possession of the land with understanding
ITA No. 1781/Mum/2010
3 Ms. Pilloo C.J. Cursetjee
Assessment Year: 2004-05
if the land was recovered, the builder would have the right to develop the same on
mutually accepted terms, the cost would be borne by the builder and would be
recovered once development agreement was reached as the owner was not in
financial position to bear the cost. The land was recovered in 1992 from the State
Government after surrendering 20% of the land to the State Government and
certain boundary walls were made, the building plans were developed and the
builder incurred the expenditure of Rs.43.83 lakhs on all these activities on behalf of
the owner, mother of the assessee who died in 1996 and the assessee became the
owner of the building. In April 2003, the assessee signed a development agreement
with M/s. Ramesh Builders for which they paid a sum of Rs.3.35 crores for obtaining
exclusive development rights for the plot of land. It was stated that the builder had
raised debit notes for Rs.48.80 lakhs in relation towards improvement expenses
incurred on behalf of the assessee which were not paid earlier to him as the owner
of the estate as her late mother did not have fund to pay the expenses. Hence, the
claim was made for the payments made by the builder to be borne by the assessee.
However, the Ld.CIT(A) had noted that the property of the assessee was acquired in
1980 and the same was released in 1995 to the assessee's mother and the assessee
inherited the property in 1996. The agreement for property with the builder was
signed in 2003. Under such circumstances when the agreement was signed in 2003
for a sum of Rs.3.35 crores for development of the property. The builder must have
taken into account all the money he must have spent on behalf of the assessee's
mother when the final price was reached for the purchase of the development rates
of the property. The builder would not wait for 15 years to recover his money when
there is no written agreement that he would recover his money from the assessee.
The agreement had been signed after a gap of 8 years when the property was
released by the State Government. Therefore, according to the Ld.CIT(A), there was
no binding obligation on the assessee to sign an agreement with the builder for his
efforts to release the property from the State Government acquisition. Thus, the
Ld.CIT(A) was of the view that the claim of development charges by the assessee
was after thought and the said expenditure was not spent by the assessee and
thereby confirmed the disallowance made by the AO. Aggrieved by the impugned
decision, the assessee has raised these grounds in the appeal before us.
ITA No. 1781/Mum/2010
4 Ms. Pilloo C.J. Cursetjee
Assessment Year: 2004-05
2.3 We have heard both the sides and perused the material on record. As regards
the deduction of Rs.22,09,388/- claimed in the return of income, it is relevant to
mention that according to the assessee, the assessee has incurred an expenditure of
Rs.43,86,789/- towards cost of improvement of the property and the break up of the
details is as hereunder:
Particulars of expenditure Amount
Property tax, Development Charges, Betterment charges etc. to Pune 31,78,991
Municipal Corporation etc.
Legal fees, Architect fees, Transport charges Security chgs. Etc. 12,07,798
Total 43,86,789
In the return of income, the assessee, out of the total expenditure of Rs.43,86,789/-
has considered only an amount of Rs.16,73,681 towards cost of improvement while
computing the capital gain in respect of the said property. The details of expenditure
of Rs.16,73,681/- is as hereunder:
S.No Particulars of expenses Amount(Rs.)
1 Expenditure incurred on construction of wall & other exp. On land 1,39,124
2 Transportation charges 2,27,624
3 Labour Contractors 1,29,707
4 Architect Fees 2,25,000
5 Legal Fees 1,15,000
6 Non Agricultural Charges 80,658
7 Betterment Charges 31,948
8 Development charges 7,24,620
Total cost of improvement 16,73,681
While working out the claim of deduction, the assessee has claimed an indexed cost
of Rs.12,92,276/- (in respect of the Development and better charges paid of Rs.
7,56,568/-) and the balance expenditure of Rs. 9,17,113 (Rs. 16,73,681 minus
Rs.7,56,568) as cost of improvement without indexation. Firstly, in respect of the
development and betterment charges of Rs.7,56,568/- paid by the assesee on which
indexation benefit of Rs. 12,92,276/- has been claimed, the perusal of the relevant
records reveals that the assessee has provided the details and supporting documents
of the said expenditure before the AO during the assessment proceedings. When the
facts are being so, we do not find any justification on the part of the authorities
below to make/confirm the disallowance. Secondly, as regards the alowability of
ITA No. 1781/Mum/2010
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Assessment Year: 2004-05
deduction of an expenditure of Rs. 9,17,113/-, (the balance expenditure out of the
total expenditure considered of Rs. 16,73,681), it is the claim of the assessee that
the builder has incurred the expenditure of Rs.12,07,798 and the builder has given
the detailed debit note in connection with the expenditure and out of the said
expenditure, the assessee has claimed only Rs. 9,17,113/- without indexation. In
this connection, it is relevant to state that the perusal of the debit note from the
builder and the details of the expenditure available respectively at pages 83 and 86
of the paper book indicates that the assessee has incurred an expenditure of
Rs.12,07,798/- during the year under consideration and the details of the
expenditure and the payments made by the assessee to the builder is a matter of
record and the same have been made available to the AO during the assessment
proceedings. Therefore, the assessee has discharged the onus by providing the
details of expenditure and payments made thereof during the assessment
proceedings. Also, the assessee cannot be compelled to produce original
bills/vouchers/books of accounts of M/s. Ramesh Builders to examine the claim and
the personal presence of the developer. In view of the aforementioned discussion,
we do not find any justification on the part of the authorities below to deny/disallow
the expenditure claimed by the assessee on this count. Resultantly, the
disallowance/addition of Rs.22,09,388/- made/confirmed by the
AO/Ld.CIT(A) stands deleted.
2.3.1 Thirdly, as regard the additional indexed cost of improvement of
Rs.43,07,218/-(Sic) claimed by the assessee, it is relevant to point out that the
assessee, during the course of the assessment proceedings, has revised the claim of
deduction amounting to Rs.65,16,566/- against Rs.22,09,388/- claimed in the return
of income. The facts and the decision of the Ld.CIT(A), in detail, on the issue of
denial of the additional claim is narrated in para 2.2 above. Considering the fact that
the reasons cited by the Ld.CIT(A) are justified for denying the said additional claim,
we do not find any reasons to interfere with the decision of the Ld.CIT(A) on this
count and therefore the same is upheld to the extent of denying the additional
deduction of an amount Rs.43,07,218/-(Sic) claimed by the assessee.
ITA No. 1781/Mum/2010
6 Ms. Pilloo C.J. Cursetjee
Assessment Year: 2004-05
3. In Ground Nos. 8 and 9, the assessee has agitated the action of the Ld.CIT(A)
in assessing the income from house property at Rs.42,000/- as against Rs.5040/-
declared by the assessee.
3.1 Briefly stated, the assessee was owning two properties, one at Mumbai which
was shown as self occupied and the other property was located at Goa of which the
deemed value was estimated at Rs.12,000/- per month by the AO. It was the claim
of the assessee that the property is situated at Varca Village in Salcete District of
Goa and there is no municipality in the hands of the village panchayat and the
panchayat levies the house tax on properties at Rs.6 per sq.mtrs., and the house tax
on the said flat of 88 sq. mtrs., is Rs.521/- per year. Since there is no municipal
corporation, the assessee had assumed a rateable value of Rs.82 per sq. mtrs. per
year. However, on appeal the Ld.CIT(A) had observed that a high value has been
adopted by the AO. However, since the said property is holiday home and was not
let out, but being situated in Goa which is a premium holiday location it would have
some letting out value. Accordingly, the Ld.CIT(A) determined the value at Rs.5000/-
per month which he considered to be a reasonable value. Aggrieved by the
impugned decision, the assessee has raised these grounds in the appeal before us.
3.2 Having heard both the sides and perused the material on record, it is
pertinent to mention that neither the AO nor the Ld.CIT(A) has estimated the value
of property on any reasonable basis. The estimation by both the authorities is based
on assumptions and presumptions which is not legally tenable. In view of that
matter, we direct the AO to accept the value shown by the assessee in respect of
the said property. Resultantly, Ground No 8 and 9 are allowed.
4. In Grounds No. 10 to 13, the assessee has agitated the action of the
Ld.CIT(A) in disallowing the expenditure incurred by the assessee on account of
rental & electricity, repairs & maintenances and office expenses.
4.1 As regards the disallowance 2/3 of the expenditure on account of rent &
electricity, repairs & maintenance the authorities below were of the view that the
assessee was running the business of bill discounting from the assessee's house and
due to the involvement of personal use, the disallowance has been made/confirmed
ITA No. 1781/Mum/2010
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Assessment Year: 2004-05
by the AO/Ld.CIT(A). In this connection, it is pertinent to mention that it is the
contention of the assessee that similar expenses have been accepted in the past and
subsequent assessment years and therefore, no disallowance is warranted on this
count. After considering the entire factual aspect of the case, it is not disputed that
the assessee is running the business of bill discounting from her house and therefore
the involvement of personal use cannot be ruled out. However, considering the fact
that similar expenses have been allowed in the earlier and subsequent assessment
years, we are of the considered view that the ad hoc disallowances are restricted to
1/3 of the expenditure claimed by the assessee. We direct and order accordingly.
Grounds No. 10, 11 and 12 are partly allowed.
4.2 Regarding the adhoc disallowance of Rs.15,000/- on account of office
expenses, it is relevant to state that the assessee has claimed the said expenses
under various head. Due to the reason that there is insufficiency of vouchers and the
involvement of personal expenses of the proprietor, the AO disallowed an amount of
Rs.30,000/- and the same has been reduced to Rs.15,000/- by the Ld.CIT(A).
Considering the fact that the assessee has not produced proper voucher for the said
expenditure and personal expenditure of the proprietor, we are of the considered
opinion that the Ld.CIT(A) is justified in confirming the ad hoc disallowance to the
extent of Rs.15,000/- and thus the same is upheld. Ground No. 13 is dismissed.
5. Ground No. 14 and 15 are general in nature and hence the same do not
require any adjudication.
6. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on this 14th day of July, 2014.
Sd/- Sd/-
(P.M. JAGTAP) (Dr. S.T.M. PAVALAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 14.07.2014
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "C" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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