Asking details of land improvement cost incurred 25 years ago uncalled for. ITAT allows ad-hoc deduction

Asking details of land improvement cost incurred 25 years ago uncalled for. ITAT allows ad-hoc deduction of 25% of cost of improvement claimed.

ABCAUS Case Law Citation:
ABCAUS 2509 (2018) 09 ITAT

This appeal was filed by the assessee against the order of CIT(A) confirming disallowance towards cost of improvement in land sold.

The assessee was a Government employee who claimed long term capital gain on sale of land. The assessee had purchased land more than 28 years ago. The assessee claimed that during the period he held tha land, improvements on the land were carried out by him. However, the full cost of improvement incurred and claimed by the assessee was doubted by the AO.

The assessee claimed that he has received gifts from friends and relatives in various years. Hiwever, the assessee could not produced all the donors. Besides, out of the donors produced, few denied to have given gifts to the assessee. Others, though confirmed the gift made contradictory statement.

Accordingly, the claim of the assessee was not accepted by the AO. The AO was of the view that the assessee being a Government employee, did not have adequate sources to substantiate his claim The AO took into account the salary earned by the assessee during these years and 50% of the salary was allowed as expenditure incurred towards cost of improvement of the land.

On appeal the First Appellate Authority confirmed the same., Aggrieved the assessee was in appeal before the Tribunal.

The Tribunal opined that the said expenditure was claimed to have been incurred by him more than 25 years ago. Now, to ask the assessee to substantiate the source of income earned by him in these years for meeting his claim of having incurred expenditure for improvement of land and to adjudicate the same, was uncalled for.

The Tribunal opined that the better way would have been to examine as to whether the assessee had actually incurred the expenditure as claimed. If the assessee cannot produce the evidence of having incurred such expenditure, on the ground that it was very old, then a valuation report can be taken from a valuer in support of the claim. Allowing 50% of the salary income as expenditure incurred was not correct.

The Tribunal further opined that in view of the irrational manner in which the source of the assessee 25 years ago is sought to be examined and also in view of the unsubstantiated explanations sought to be brought on record by the assessee, the interest of justice would be met if the claim of the assessee was considered on adhoc manner as the AO had accepted part claim of the assessee.

The Tribunal directed that the expenditure incurred on cost of improvement may be allowed at 25% of that which is claimed by the assessee in each of the years and the long term capital gain computed accordingly.

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