AO can’t disallow cost of improvement merely relying on enquiries made with assessee’s neighbour: ITAT

  • News|Blog|Income Tax|
  • 2 Min Read
  • By Taxmann
  • |
  • Last Updated on 13 December, 2021

capital gains - Profit on sale of property used for residential house (Cost of improvement)

Case Details: ACIT v. Sambandam Dorairaj - [2021] 133 40 (Chennai - Trib.)

Judiciary and Counsel Details

    • V. Durga Rao, Judicial Member and G. Manjunatha, Accountant Member
    • K. Meenakshi Sundaram, ITP for the Appellant. 
    • G. Johnson, Addl. CIT for the Respondent.

Facts of the Case

Assessee had purchased a flat and incurred expenditure of Rs. 23 lakhs for the purpose of renovating the house. He claimed the cost of improvement as deduction under section 54. The Assessing Officer (AO) asked the assessee for bills and vouchers for the above expenditure incurred by him. The assessee did not file bills and vouchers and submitted that he had purchased an old flat and incurred expenditure on renovation of the house.
AO deputed an Inspector to make an inquiry about the house and to find out if the assessee had carried any renovation work or not. The inspector visited the house, took photographs, and made inquiries with neighbours who said that they were not aware of improvements done by the assessee. On the basis of reports submitted by the Inspector, AO concluded that the assessee had not carried out any improvement, and accordingly, he disallowed the entire amount.

On appeal, CIT(A) directed AO to allow improvement cost to the assessee. Aggrieved by order, AO filed an appeal before the Tribunal.


The Chennai Tribunal held that the assessee resided at Mumbai and had purchased an old house at Chennai. He subsequently carried repairs in the house. The repairs carried by the assessee long back, five years ago; therefore, he could not produce evidence before the AO. Further, the entire repair works/improvements carried out by his relatives, and he could not collect the bills and vouchers since he is residing in Mumbai.

It was found from the Assessment Order that the inspector had enquired with the neighbours, and the neighbours had stated before him that they were not aware of the improvements carried out by the assessee. Mainly, based on the enquires made with the neighbours, AO concluded that the assessee had not carried out any improvement work and disallowed the entire expenditure claimed by the assessee

If AO wanted to know exactly about the assessee’s improvement works, he should have been enquired through a builder who constructed the building in spite of neighbour.
Therefore, the CIT(A) was justifying in deleting disallowance and directing AO to allow the cost of improvement to the assessee.

Income Tax Returns 2021-22

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied