The Bangalore Bench of Income Tax Appellate Tribunal ( ITAT ) upheld the Commissioner of Income Tax(Appeals)[CIT(A)]’s order, dismissing the Revenue’s appeal challenging the fair market value (FMV) assessed based on the occupancy certificate in the absence of contrary evidence.
The Revenue-appellant appealed against the order passed by the CIT(A) for the Assessment Year 2021-22.In this case,Govindappa Jayaram Doddiah (HUF),respondent-assessee,filed a return that included long-term capital gains. The case was selected for scrutiny to review the capital gains and exemption claim under Section 54 of the Act.
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The Assessing Officer(AO) issued notices, and the appellant-assessee responded with the necessary documents. However, the AO disallowed the cost of improvement, stating the expenses were not capital in nature.
The assessee appealed to the CIT(A) against the AO’s order, arguing that the improvement costs were capital expenses and that the area used for determining the fair market value of another property was incorrect, as it exceeded the area in the occupation certificate.The CIT(A) agreed with the capital nature of the improvement costs and accepted the fair market value based on the occupation certificate area.
The revenue appealed against the decision of the CIT(A) before the tribunal and raised several grounds.
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The revenue argued that the cost of improvement allowed as capital by the CIT(A) was incorrect, as it was for maintenance. It also contended that the fair market value should be based on super built-up area, not built-up area.
The two member bench comprising Soundararajan K(Judicial Member) and Waseem Ahmed(Accountant Member) considered the arguments and materials presented and noted that the AO acknowledged the expenses were related to the property but did not classify them as capital expenditure, arguing they were small works requested by tenants or buyers. The tribunal disagreed, stating that these improvements increased the property’s value and should be treated as capital expenditure.
The appellate tribunal also observed that payments were made via cheques, with some by other co-owners. Despite this, the AO disallowed the expenditure, treating it as revenue. It ruled that the expenses were capital in nature and supported the CIT(A)’s conclusion.
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Regarding the fair market value, the assessee calculated it based on the sale value of a second-floor property and the area listed in the occupancy certificate. The AO, however, used the super built-up area, which was larger than the area in the certificate.
The tribunal found no justification for using a larger area than stated in the certificate and agreed with the assessee’s calculation method. It dismissed the revenue’s appeal, agreeing with the CIT(A)’s decision.
In short,the appeal filed by the revenue was dismissed.
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