The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) allowed 50% of the claimed indexed construction costs as a reasonable estimate due to lack of sufficient evidence.
Meena Gupta,appellant-assessee,filed her income tax return declaring ₹23,74,730, but her income was assessed at ₹1,45,44,630 under Section 153C read with Section 144 of the Act. A search on February 28, 2014, targeting the Rama and Param Group uncovered incriminating documents linked to her for the relevant year. Based on these documents, the assessment included key additions such as ₹71,86,571 under Section 69A and ₹48,48,524 for construction/renovation expenses, among others, totaling ₹1,45,44,634.
The assessee sold a property in Shahdara, Delhi, for ₹71,50,000 and reported capital gains of ₹20,84,508 after claiming indexation of ₹50,65,492, including ₹31,98,704 for construction expenses. While ₹1,80,968 for land cost was allowed, the AO disallowed ₹48,84,524 due to the lack of evidence for the claimed construction expenses, adding it to the income.
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The CIT(A) agreed with the AO that the claimed expenses were frivolous and unverifiable due to bogus bills. Only ₹3,94,860, related to payments to municipal authorities in 2009-10, was allowed. The remaining ₹31,98,704 was disallowed for lack of credible evidence, and the AO was instructed to recompute the long-term capital gains.
During the hearing, the AR provided invoices for ₹28,03,844, but both the AO and CIT(A) rejected them as unreliable. The AR asked for an estimate of renovation costs, as the property was sold and capital gains of ₹20,84,508 were reported. The AR also mentioned that the AO confirmed ₹3,94,860 in government fees for 2009-10, which was accepted by both the AO and CIT(A).
The tribunal reviewed the case and found that while the assessee did not provide sufficient evidence for the full construction cost, it was clear that the building was sold, and capital gains were reported.
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The appellate tribunal agreed that denying all the construction expenses was unjustified. It noted that the AO confirmed ₹3,94,860 in government fees, showing that construction expenses were incurred.
The two member bench comprising Mahavir Singh(Vice President) and Brajesh Kumar Singh(Accountant Member) directed the AO to allow 50% of the claimed indexation, totaling ₹24,42,262, and clarified that no additional indexation would be granted for the ₹3,94,860, as it was already included in the allowed amount. The remaining disallowed amount of ₹24,42,262 was confirmed.
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