Ankur Agarwal vs ITO

PER MANISH AGARWAL, AM :

The present appeal is filed by assessee against the order dated 01.05.2025 by Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-15/10867/2019-20 passed u/s 250 of the Income Tax Act,1961 [“the Act”] arising out of assessment order dated 29.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.

Brief facts of the case are that the assessee is an individual and filed his return of income on 31.10.2017, declaring total income of INR 10,43,090/-. The case was selected for complete scrutiny and notice u/s 143(2) followed by notice u/s 142(1) alongwith questionnaire were issued from time to time. The AO observed that the assessee has made cash deposit of INR 26.00 Lakhs in HDFC Bank Account during the period of demonetization in SBN. Besides this, assessee has sold an immovable property for a total consideration of INR 1,05,70,000/- and declared long term capital gain of INR 2,19,464/- after claiming indexed cost of improvement on the cost incurred of INR 15,12,270/-in FY 2009-10; INR 5.00 Lakhs in FY 2015-16 and INR 43,57,812/- in FY 2016-17. As the assessee has not filed any Valuation Report nor any invoice with respect to the expenses claimed towards the cost of improvement, therefore, the AO proposed to disallow indexed cost of improvement claimed by the assessee. After considering the submissions and detailed filed by the assessee which includes Valuation report and bills and invoices of material purchases/ construction work etc., the AO has allowed cost of improvement of INR 95,000/- only for the stamp duty and registration charges paid and the Long Term Capital Gian (“LTCG”) was recompute at INR 77,24,865/- and differential amount of INR 75,05,501/- was added in the hands of the assessee. Further, the AO made the addition of INR 26 Lakhs towards cash deposit in bank account during demonetization period u/s 69A of the Act.

Against the said order, assessee filed an appeal before Ld. CIT(A) who vide order dated 01.05.2025, has partly allowed the appeal of the assessee and deleted the addition of Rs. 26.00 lacs made for the cash deposited in SBN during the demonetization period.

Aggrieved by the order of Ld. CIT(A), assessee is in appeal before the Tribunal by taking various grounds of appeal as mentioned in the appeal memo.

All the Grounds of appeal taken by the assessee are with respect to the confirmation of addition made on account of LTCG. Besides this, the assessee has further taken a legal ground on the validity of the initiation of assessment proceedings by challenging the service of notice u/s 143(2) of the Act.

Before us, Ld.AR for the assessee has made submissions with respect to Ground of appeal No.5 wherein the assessee has challenged addition made of Rs. 75,05,501/- as LTCG therefore, the other Grounds of appeal are dismissed being not pressed.

Heard the contentions of both parties at length and perused the material available on record. It is observed that during the year under appeal, assessee has sold an immovable property for a sum of INR 1,05,70,000/-and after claiming indexed cost of acquisition and improvement of INR 1,03,50,536/-, declared the LTCG of INR 2,19,464/-. The AO allowed indexed cost of acquisition and improvement of INR 28,45,135/- and recompute the LTCG at INR 77,24,865/-by disallowing the indexed cost of improvement claimed by the assessee. The AO alleged that assessee has filed Valuation Report alongwith copies of the bills of the contractors and other agencies carried out the construction/interior work at the subject property however, they are not commensurate with each other. The AO dismissed the claim of the assessee by observing that suppliers are from the place which is far from the property and further observed that certain items claimed as incurred by the assessee towards cost of improvement were not referred by the valuer in the Valuation Report. Ld. CIT(A) re-affirmed the observations made by the AO.

From the entirety of the facts, it is observed that assessee has been able to justify the cost of improvement incurred with the help of valuation report and the bills and vouchers of the respective parties. However, the AO has pointed out certain defects in the bills filed by the assessee and the assessee has not been able to properly answer the same. At the same time, it is observed that assessee has filed Valuation Report taken from the approved valuer which further establish the claim of the assessee of incurring cost construction work. Therefore, we are not inclined to accept the contention of the AO that no construction work was carried out at the subject property and therefore, deduction towards cost of improvement should be allowed.

Looking to the entirety of the facts and circumstances of the case and further considering that certain deficiencies pointed out by the AO still remained unanswered by the assessee, in the larger interest, we are of the considered opinion that out of the total cost of improvement claimed at INR 63,70,082/-[INR 15,12,270/- in FY 2009-10 + INR 5.00 Lakhs in FY 2015-16 + INR 43,57,512/- in FY 2016-17], total cost of improvement at INR 51.00 Lakhs incurred by the assessee in various AYs is allowed. Accordingly, we direct the AO to re-compute the indexed cost of improvement by proportionately apportioned the cost of improvement of INR 51.00 Lakhs allowed by us and re-compute the amount of LTCG. With these directions, Ground of appeal No.5 raised by the assessee is partly allowed.

In the result, the appeal of the assessee is partly allowed.