Disallowance of Cost of Improvement Claim of Rs.18 lakh: ITAT Grants One more Opportunity to Substantiate Claim with Documentary Evidence [Read Order]

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has remanded with one more opportunity in a case involving the disallowance of claim towards the cost of improvement in computing Long Term Capital Gains for fresh adjudication to substantiate with documentary evidence. 

Vasagar, (assessee) an individual filed a return of income for the Assessment Year (AY) 2018-19, declaring a total income of Rs.5,71,430. In the return, the assessee reported a consideration of Rs.23 lakh from the sale of a property.

The assessee claimed a deduction of Rs.18,20,472 as the cost of improvement while computing Long Term Capital Gains.

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The Assessing Officer (AO), in an ex-parte assessment order disallowed the claimed cost of improvement and added Rs.18,20,472 to the Long Term Capital Gain. The AO’s decision was based on the absence of documentary evidence to support the claim.

Aggrieved by the AO’s order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal ex-parte, observing that the assessee failed to submit any documentary evidence to substantiate the claimed cost of improvement. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.

The two-member bench comprising S.S. Viswanethra Ravi (Judicial Member) and Jagadish (Accountant Member) observed that both the AO and CIT(A) had passed ex-parte orders disallowing the cost of improvement claim due to the lack of supporting evidence.

The tribunal opined that the assessee should be granted another opportunity to substantiate the claim before the AO in the interest of justice.

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The tribunal set aside the orders of the AO and CIT(A) and remanded the matter to the AO for fresh adjudication. The tribunal directed the AO to decide the issue de novo after providing the assessee a fair opportunity to be heard and submit documentary evidence.

The tribunal also directed the assessee to appear before the AO on the scheduled hearing date without fail. The appeal of the assessee was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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