IT: Assessee could not be denied cost of improvement simply because contractors to whom payments were made did not carry out work

IT: Assessee could not be denied cost of improvement simply because contractors to whom payments were made did not carry out work

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[2013] 37 taxmann.com 260 (Chennai - Trib.)

IN THE ITAT CHENNAI BENCH 'B'

S.P. Balasubramaniyam

v.

Income-tax Officer*

ABRAHAM P. GEORGE, ACCOUNTANT MEMBER 
AND CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER

IT APPEAL NO. 757 (MDS.) OF 2011
[ASSESSMENT YEAR 2007-08]

APRIL  29, 2013 

Section 48 of the Income-tax Act, 1961 - Capital gains - Computation of [Cost of improvement] - Assessment year 2007-08 - Assessee declared short-term capital gain in respect of sale of building - While computing capital gains, assessee claimed cost of improvement of property which was paid to contractors - Whether since assessee had paid amounts to contractors deducting TDS, assessee could not be denied cost of improvement for purpose of computing capital gains simply because contractors to whom payments were made did not carry out work - Held, yes - Whether, therefore, Assessing Officer was to be directed to consider cost of improvement in computing capital gains - Held, yes [Para 5] [In favour of assessee]

K.C. Srinivasan for the Appellant. Guru Bhashyam for the Respondent.

ORDER

 

Challa Nagendra Prasad, Judicial Member - This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-VI, Chennai dated January 4, 2011 for the assessment year 2007-08. The only grievance of the assessee in this appeal is that the Commissioner of Income-tax (Appeals) is not justified in not considering Rs.13,70,000 paid to contractors as cost of improvement to the property while computing the capital gains.

2. The brief facts of the case are that the assessee is a renowned playback singer, actor and proprietor of recording theatres filed return of income showing net taxable income at Rs. 34,80,280. The assessee also declared short-term capital gain of Rs. 35,48,200 in respect of sale of building at Hyderabad. The assessee while computing capital gains claimed cost of improvement of property at Rs. 39,69,500 which was paid to contractors for improvement and construction of the property. It was the submission of the assessee that he has purchased a semi-finished building and made alterations and additions for using it as dubbing and recording theatre. In this process, the assessee made payments to contractor for the works. It was also the submission of the assessee that the assessee has deducted TDS on payments made to these contractors. However, the Assessing Officer while completing the assessment did not accept the submission of the assessee and excluded cost of improvement for the purpose of computing capital gains. On appeal, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the expenditure of Rs.25,74,500 claimed by the assessee in respect of payment made to one Shri P. V. Prasad as the assessee produced bank account wherein the assessee paid the said sum to Mr. P. V. Prasad for construction purposes. In respect of the balance of Rs. 13,17,000, paid to contractors the Commissioner of Income-tax (Appeals) denied the cost of improvement stating that the assessee himself admitted that contract work was not carried out by the above persons. The assessee is in appeal before us.

3. Counsel for the assessee submits that the assessee made payments to various contractors for modification and alteration of the property in order to suit the property as dubbing and recording theatre. Counsel for the assessee submits that the contractors left without carrying out the work due to some differences with the assessee in carrying out the work. The counsel submits that the assessee himself carried out the work later and completed the works. Counsel submits that the assessee had in fact, deducted TDS on payments made to those contractors and remitted the TDS to government account. Therefore, he submits that there is no justification in denying the cost of improvement of Rs. 13,70,000 on the ground that the contractors have not completed the work.

4. The Departmental representative supported the orders of the lower authorities.

5. Heard both sides. Perused the orders of the lower authorities and materials on record. It is a fact that the assessee made payments to sub-contractors which is not in dispute. The assessee also deducted TDS on such payments to contractors is also not in dispute. It is also a fact that the assessee himself carried out the unfinished portion of the building without which he could not have used that property as dubbing and recording theatre. It is a fact that the assessee has sold the property, i.e., dubbing and recording theatre. So it is not the contention of the Assessing Officer that the cost of improvement was not at all met by the assessee. The assessee has paid amounts to contractors deducting TDS. Therefore, in our view, the assessee cannot be denied cost of improvement for the purpose of computing capital gains simply because the contractors to whom the payments were made did not carry out the work. Therefore, we direct the Assessing Officer to consider Rs. 13,70,000 in computing the capital gains as cost of improvement of the asset and recompute the capital gains.

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