[Opinion] Shopkeeper Wins Tax Battle Over Bridge Costs

Meenakshi Subramaniam – [2024] 163 taxmann.com 58 (Article)

A man asked:

“Do you have a boat ?”

His friend said:

“No.”

The man asked:

“Do you know how to swim ?”

The friend said:

“No.”

The man asked:

“Do you know how to fly ?”

The friend said:

“No.”

The man said:

“How, then will you come to my shop, beyond the river ?”

Joginder Singh, an assessee who had built a shop found that a rivulet was turning away customers. He got a small concrete bridge constructed but could not get rightful claim for it, from income tax department. The Amritsar Tribunal, in the interesting case, came to his rescue.

[2024] 159 taxmann.com 425/205 ITD 600 (Amritsar Tribunal)
Joginder Singh
v.
ACIT/Deputy Commissioner of Income-tax

Order

The assessee incurred Rs. 195000/- in the FY 2009-10 [AY 2010-11] for construction of a concrete bridge on the rivulet in front of the shop which provided more accessibility to the shop from the road.

When he put up shop for sale, the appellant was able to fetch better price only due to reason that there was proper approach to the shop as otherwise no prudent person would have made the deal.

The captioned appeal was filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-5, Ludhiana dated 21.01.2023 in respect of Assessment Year: 2019-20.

At the outset, the Ld. Counsel for the appellant submitted that the assessment was completed under section 153A r.w.s 144 of the Income Tax Act, 1961 (‘the Act’) vide order dated 26.09.2021making an addition of Rs. 368918/- by not allowing the benefit of Rs. 195000/- [Indexed cost Rs. 368918/-] incurred on construction of rivulet in the year 2009-10 by alleging that since the appellant had been conducting business since 2005-06, as such, the construction got completed in FY 2005-06 ).

Grounds of Appeal

The assessee raised the following points in appeal:

• The CIT(A) has erred in confirming the addition of Rs. 368918/- on account of re-computation of long term capital gain ignoring the cost of improvement of Rs. 195000/- incurred in the FY 2009-10 [AY 2010-11] for construction of a concrete bridge on the rivulet in front of the shop.
• The Ld. CIT(A) has erred in confirming the addition of Rs. 368918/- on the ground that the said cost of Rs. 195000/- was not incurred from the assessee’s own sources and was incurred out of funds to the tune of Rs. 200000/- given by his friend Govind Lai. That the Ld. CIT(A) has erred in not appreciating that the said amount of Rs. 200000/- was obtained by way of loan from Sh. Govind Lai and same has duly been confirmed by the lender Sh Govind Lal.
• The CIT(A) has erred in not appreciating that the amount spent for construction of the bridge is a capital expenditure and was essential to provide access to the shop from the road and as such, provide improved accessibility to the shop to facilitate greater footfall.
• The Ld. CIT appeal has failed to consider the layout plan provided by the assessee during the course of assessment proceedings along with the photograph evidencing that there was no approach road to the shop of the assessee.
• The CIT(A) has erred in confirming the order passed by the AO on the ground that said cost of Rs. 195000/- was used for construction of bridge on rivulet in front of the shop and not for any improvement of the shop.
• The Ld. CIT has erred in confirming the addition made by the A.O. ignoring the hard core fact that the amount spent on road is part of building and assessee has rightly considered the same as cost of improvement while computing capital gains.
• The Ld. CIT(A) has erred in dismissing the appeal by passing order u/s 250(6) and sustaining the addition made by the AO.

The order passed u/s 250(6) of the Income Tax Act, is bad in law as the same has been disposed off without examining the merits of the case.

The grounds of appeals are inter-connected to each other wherein the appellant challenged the common issue of confirming the addition of Rs. 368918/- on account of re-computation of long term capital gain ignoring the cost of improvement of Rs. 195000/- incurred in the FY 2009- 10 [AY 2010-11] for construction of a concrete bridge on the rivulet in front of the shop for the purpose of providing more accessibility to the shop from the road. Therefore, all the grounds are adjudicated together for brevity.

The counsel for Assessee said that the Hon’ble CIT(A) confirmed the addition made by the Ld. AO, without appreciating the merits of the case. The Ld. Counsel contended that the appellant in order to increase business turnover constructed a concrete bridge on the culvert in front of the shop so that the customers can have direct access to the shop. The total amount incurred on improvement for the approach road/bridge was to the tune of Rs195000/- in the financial year 2009 -10. Furthermore, as regard the source of construction, it was duly explained that the construction expense was incurred out of money borrowed amounting to Rs.2,00,000/- from his friend Sh. Govind Lal and the said fact has duly been confirmed by Sh. Govind Lal in the sworn affidavit filed before the AO and also before the Ld. CIT(A).

The Ld. AR argued that that the Ld. CIT(A) passed the order u/s 250(6) ignoring the fact that the said cost of Rs. 195000/- was used for construction of bridge on rivulet in front of the shop for further improvement in the shop and that the CIT(A) ignored to appreciate the fact that the amount spent for construction of the bridge was a capital expenditure and was essential to provide access to the shop from the road and to provide improved accessibility to the shop to facilitate greater footfall in turn. The AR further submitted that the appellant had duly explained during the course of assessment proceeding that the appellant had sold his land & building (Shop) together with all the assets for a total consideration of Rs.16,80,000/- Furthermore, the appellant had duly disclosed the capital gain on sale of such land and building while filing the return of Income.

The AR further submitted that the Ld CIT(A) has not doubted the expenses incurred on construction of the bridge/rivulet in front of the shop but has only stated the amount expended is not for any improvement of the shop itself without appreciating the fact, that there was no direct access to the shop. Even otherwise the appellant was able to fetch better price only due to reason that there was proper approach to the shop otherwise no prudent person would have made the deal. The counsel further argued that it is a matter of record that the AO has not brought on record any evidence or finding to prove that the cost of improvement of Rs. 1,95,000/- incurred in 2009-10 has never been incurred. The cost of construction of Rs. 190000/- has been disallowed by the AO by merely relying upon the fact and presumption that the appellant had been running the business in the shop and therefore, there cannot be improvement in the building in the running business ignoring the fact that the expense was not incurred for the improvement of the shop itself but was in fact incurred to improve accessibility to the shop to enhance the business of the appellant. In this regard the appellant had duly furnished the site plan and the photograph of the shop to prove the contention. In support, he placed reliance on various judicial precedent placed on record. He prayed that, it is ‘very humbly’ submitted to delete the addition as confirmed by CIT(A).

Per contra, the Ld. CIT(A) stands by the impugned order. However, he failed to rebut the contentions of the counsel.

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