The appeal was partly allowed and partly disallowed based on the extent of supporting evidence for the claim of expenses

Income Tax Appellate Tribunal (ITAT), Ahmedabad “C” Bench, recently disallowed expense claims put forward by the appellant noting lack of proper evidence to support claims of cost incurred for improvement of property. The appeals concern the assessment year 2011-12 and relate to the disallowance of certain expenses claimed as cost of improvement for a property sold by the assessee/ appellant, Shri Bhagwanbhai R. Makwana, and co-owner, Late Shri Bhaktiben Bhagwatsinh Chavda. Get a Copy of Income Tax Act Click here During the course of assessment, the Assessing Officer (AO) observed that the assessee had earned short term capital gain on sale of a property along with  several co-owners. The AO, based on his findings, disallowed certain claims of expenses towards cost of improvement of the aforesaid land sold during the year under consideration while computing the capital gain amounting to Rs.1,54,07,417/- In total, 50% of the expenses claimed by the assessee, amounting to Rs. 47,20,489, related to legal fees, land leveling and development, compound wall and boundary construction, bore-well, and security and supervisor salaries was disallowed. The AO further made an addition of Rs. 3,64,566 under section 69 of Income Tax Act 1961 (ITA) for unexplained investment, and levied interest under Section 234A/B/C as well as initiated  penalty under Section 271(1)(c) of ITA. Get a Copy of Income Tax Act Click here Aggrieved, the appellant appealed against the AO’s order before the Commissioner of Income Tax (Appeals) [CIT(A)], who also confirmed the AO’s order. Dissatisfied with this, the appellant moved against the decision before ITAT. Before the tribunal, the assessee argued that the lower authorities failed to appreciate that so far as land leveling and development expenses were concerned, these expenses were incurred by Jashwanthbhai D. Patel on behalf of the assessee, who paid a sum of Rs. 65 lakhs between 2000 to 2005 for the purpose of land leveling.  Get a Copy of Income Tax Act Click here However, this was paid in cash by hand and the only proof for this expenditure is an affidavit which confirms the same. No other bills and receipts are available to prove this matter. In response, the Departmental Representative (DR) submitted that at the time of making payment for a substantial amount of expense of Rs. 65 lakhs, TDS (Tax Deducted at Source)  has not been deducted at the time of incurring such expenses. The DR also highlighted that the assessee has not furnished any supporting evidence in support of genuineness of payments made by him. Get a Copy of Income Tax Act Click here After hearing contentions of both sides, the bench of Mr Siddhartha Nautiyal and Mr Makarand V Mahadeokar noted that the payment  lacked documentary evidence apart from affidavits, which were deemed insufficient. Accordingly, the tribunal upheld the disallowance made by lower authorities. Along with that, the tribunal also allowed certain expenses related to payment for vacating tenants and non-agricultural conversion fees, as the assessee provided sufficient details and evidence to support the same. Get a Copy of Income Tax Act Click here In result, the appeal was partly allowed and partly disallowed based on the extent of supporting evidence for the claim of expenses.