Deduction towards cost of improvement in respect of construction if no supportive evidence available

Short overview :

 As assessee failed to substantiate his claim of cost of improvement with supportive evidence, therefore, no separate deduction could be given while computing capital gain on sale of building.

Assessee claimed to have incurred cost of improvement by constructing additional tooms and wall fencing including renovation in respect of building sold by him. AO denied deduction of cost of improvement while computing capital gains for want of supportive evidences.

It was held that initial onus lied assessee to substantiate his claim with documentary evidence. One of the parties did not appear in response to notice issued under section 131. Similarly, the other party conceded that he had provided bills to assessee on request owing a very old association with the assessee. Thus it was clear that assessee failed to discharge his onus by documentary evidence in support of his claim and accordingly, no separate deduction on account of cost of improvement could be given in the facts and circumstances.

Decision: Against the assessee.

IN THE ITAT, AHMEDABAD BENCH

RAJPAL YADAV, J.M. & WASEEM AHMED, A.M.

Amit Subhaschandra Acharya v. ITO

ITA No. 1138/AHD/2015

13 December, 2018

Assessee by: S.N. Divatia, Authorised Representative

Revenue by: Jaya Chaudhary, Sr. Departmental Representative

ORDER

Waseem Ahmed, A.M.

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner (Appeals) – 7, (Commissioner (Appeals) in short) vide Appeal No. Commissioner (Appeals)-7/1253/13-14, dt. 27-2-2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) dated 28-2-2014 relevant to assessment year (AY) 2011-2012.

2. The assessee has raised the following grounds of appeal.

”1.1 The order passed under section 250 on 27-2-2015 for assessment year 2011-12 by Commissioner (Appeals)-7, Abad upholding the addition of Rs. 8,48,600 towards capital gains and Rs. 4,40,000 as unexplained cash deposits made by assessing officer is wholly illegal, unlawful and against the principles of natural justice.

1.2 The learned Commissioner (Appeals) has grievously erred in law and or on facts in not allowing sufficient opportunity to the appellant before disposing of the appeal. The details/evidence for the appeal could not be produced for the reasons stated in the statement of facts. Thus there was gross violation off the principles of natural justice.

2.1 The learned Commissioner (Appeals) has grievously erred in law and on facts in confirming the addition of Rs. 8,48, 600 to ward is .capital gain on sale of house property. The learned Commissioner (Appeals) has grievously erred in law and or on facts in upholding that the claim of construction of 2 rooms, compound wall, and fencing to the house property at 64, Vasantkunj, Paldi, Ahmedabad was non-genuine and thereby rejecting the entire claim of cost of improvement made by the appellant while computing capital gain on sale of said property.

2.2 That in the facts and circumstances of the case as well as in law, the learned Commissioner (Appeals) ought riot to have upheld the addition of Rs. 8,48,600 towards capital gain on sale of house property by rejecting the cost of improvement to the house property.

2.3 Without prejudice to the above, the learned Commissioner (Appeals) ought to have allowed a part of the cost of improvement because there could not be any improvement without incurring the cost.

3.1 The learned Commissioner (Appeals) has grievously erred in law and on facts in confirming the addition of Rs. 4,40,000 towards cash deposits in bank a/c.

3.2 Without prejudice above, in case Commissioner (Appeals) believed the cash deposits as cash component of the sale of the house property, the same should-be assessed as capital gain and not income from other sources.

It is therefore, prayed that the additions upheld by the Commissioner (Appeals) may kindly be deleted.

3. The 1st issue raised by the assessee is that learned Commissioner (Appeals) erred in confirming the order of the assessing officer by making the addition of Rs. 8,48,600 under the head capital gain.
4. The facts of the case are that the assessee is an individual and has shown his main source of income under the head salary. The assessee is an employee of the Oriental insurance company Ltd. The assessee was the owner to the extent of 6.67% in the immovable property registered in the office of the Sub-Registrar Paldi bearing serial No. 5828/2010. The assessee acquired this property by way of inheritance in the year 2009. The assessee during the year along with other co-owners has sold the property for sale consideration of Rs. 2,14,60,000 dated 10-4-2010. The assessee claimed that he had not earned any capital gain income on the sale of such property. Therefore, no capital gain income was offered in the income tax return. The assessee has calculated the capital gain income on the sale of such property at nil in the manner as detailed under :–

Particulars	Amount
Sales consideration in joint property Sales dated 13-4-2010	1430667
Total Rs. 21460000 our share @ 6.67%
Less:
Index cost of acquisition as per valuation report Rs. 1228000 our share 6.67% 81907 Rs. 81907 x 711/100	582358
Less:
Index cost of improvement
Year: 1984-85 Addition to buiding Rs. 1512000 our share @ 6.67% 100850 X 711/125 Year 1988-89 573637 Wall fencing & renovation 995800 our share @ 6.67% 66419 x 711/161=293320	866957
Net Capital Gain(-)	18648
Tax payable :	NIL

5. The assessee in support of the cost incurred for the improvement of the building filed the copies of the duplicate bills amounting to Rs. 15,12,000 and Rs. 9,95,800 for the construction of 2 rooms on the 1st floor, wall fencing and renovation of the building.
6. However, the assessing officer did not believe the claim of the assessee for the improvement of the cost of the building due to the reasons as mentioned below.

(a) Regarding the construction of the 1st floor: Shri Dilip K. Mistry

1. The copy of the original bill raised by the contractor was not furnished.
2. The copy of the income tax return of the contractor was not furnished.
3. The copy of the bank passbook of the contractor was not furnished.
4. The contractor namely Shri Dilip K. Mistry party did not appear in response to the notice issued under section 131 of the Act.

(b) Regarding wall fencing and renovation: Shri Gautam P. Suthar

1. The copy of the original bill was not furnished.
2. The copy of the income tax return was not furnished.
3. The copy of the bank passbook was not furnished.
4. The party in response to the notice issued under section 131 of the

Act has admitted that the bill was issued to the assessee on his request in connection with some income tax matter.

7. All the above-stated facts were brought to the notice of the assessee by the assessing officer, but the assessee remained silent.
8. The assessing officer also observed that the valuation report from the registered valuer dated 18th November 2010 does not speak about the construction of 1st floor and compound wall as claimed by the assessee. Because of the above, the assessing officer disregarded the claim of the cost of improvement of the assessee and worked out the long-term capital gain of Rs. 8,48,600 only. Thus, the assessing officer added the addition for the sum of Rs. 8,48,600 as long-term capital gain to the total income of the assessee.
9. Aggrieved assessee preferred an appeal to learned Commissioner (Appeals), who confirmed the order of the assessing officer.
10. Being aggrieved by the order of learned Commissioner (Appeals) assessee is in appeal before us. The learned Authorised Representative before us filed a paper book running from pages 1 to 113 and submitted that cost was incurred on the construction of 2 rooms on the 1st floor as well as wall fencing & renovation. The learned Authorised Representative in support of his claim also filed the copy of the map filed with the Ahmedabad Municipal Corporation showing the construction of two rooms on the 1st floor of the building.
11. The learned Authorised Representative further submitted that the cost on the construction of 2 rooms on the 1st floor could be estimated on some reasonable basis.
12. On the other hand, the learned Departmental Representative submitted that there has to be some approval from the municipal corporation for the construction of the rooms on the 1st floor. In the absence of such approval, the statement of the assessee cannot rely upon that he has incurred any cost on the construction of such rooms on the 1st floor of the building.
13. The learned Departmental Representative also referred to the valuation report placed on pages 77 to 90 of the paper book and demonstrated that there was no reference in the report for the construction of 2 rooms on the 1st floor of the building as well as wall fencing as claimed by the assessee.

13.1 The learned Departmental Representative also drew our attention on page 80 of the paper book containing the valuation report and demonstrated that the entire built area of the building had been considered to determine the value as on 1-4-1981. Thus the additional 2 rooms claimed by the assessee have also been considered in the valuation report furnished by the registered valuer depicting the value of the building as on 1st April 1981. The learned Departmental Representative vehemently supported the order of authorities below.

14. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to whether the assessee has incurred the cost of improvement as discussed above on the building partly owned by him. The assessee claimed to have incurred the cost of improvement by constructing additional rooms on the building and wall fencing including renovation. However, the assessing officer did not agree with the supporting evidence filed by the assessee in connection with the cost of the improvement. Accordingly, the assessing officer did not give any benefit to the assessee on the cost of improvement claimed by him. The learned Commissioner (Appeals) subsequently confirmed the view taken by the assessing officer.

14.1 Now the controversy before us arises for our adjudication to whether the assessee has incurred any cost of the improvement in the given facts and circumstances. In this regard, we note that the initial onus lies on the assessee to substantiate his claim from documentary evidence. The assessee before the assessing officer filed the duplicate copies of the bills issued by 2 parties justifying the cost of improvement incurred by him. The details of the same stand as under :–

1.	Dilip K. Mistry Construction of two new rooms	Rs. 15,12,000.00
2.	Riddi Siddi Furniture Wall fencing and renovation	Rs. 9,95,800.00

14.2 However, we note that the above claim of the assessee was not substantiated before the authorities below by supporting evidence. Moreover, one of the party namely Dilip K. Mistry did not appear in response to the notice issued under section 131 of the Act. Similarly, the other party namely Gautam P. Suthar Prop of Riddi Siddi Furniture conceded that he had provided the bills to the assessee on request owing a very old association with the assessee. From the above, it is clear that the assessee failed to discharge his onus by documentary evidence in support of his claim.

14.3 We also note that the map filed by the assessee showing the construction of 2 rooms on the 1st floor on the building was the proposed layout. In our considered view the proposed layout does not prove that the assessee has constructed two rooms on the 1st floor of the building. There was no other document filed by the assessee evidencing that the assessee has constructed two rooms on the 1st floor of the building.

14.4 We further note that there is no mentioned in the valuation report of the registered valuer about the two rooms on the 1st floor of the building viz a viz wall fencing. The registered valuer has valued the property taking the entire land and the building constructed thereon for the entire built-up area of the building as on 1st April 1981. As such the valuer has not reduced the built up area in respect to the impugned two rooms to determine actual built up area of the property as on 1-4-1981. Accordingly, no separate deduction on account of the cost of improvement for constructing two rooms and wall fencing can be given to the assessee in the given facts and circumstances.

14.5 In view of the above, we do not find any merit on the submissions filed by the assessee. Hence, the ground of appeal of the assessee is dismissed.

15. The next issue raised by the assessee is that the learned Commissioner (Appeals) erred in confirming the addition of Rs. 4,40,000 on account of unexplained cash credit.

15.1 The assessee in the year under consideration has deposited cash of Rs. 4,40,000 in his saving bank account. The assessee claimed that such deposits were made out of past saving as well as the income earned by his wife.

16. However, the assessing officer found certain defects in the submission of the assessee as detailed under :–

(i) There was no document evidencing that the wife of the assessee was engaged in any commercial activity such as beauty parlor or tuition.

(ii) The bank account of the assessee was a joint bank account including the wife. Thus there was no reason for the wife of the assessee to keep such huge cash in hand.

(iii) The cash was deposited in the bank account between the period beginning from 15-4-2010 to 28-4-2010. After that there was no cash deposited by the assessee in the bank.

(iv) The cash was deposited immediately after the sale of the immovable property on 13-4-2010.

16.1 Because of the above, the assessing officer treated the sum of cash deposited by the assessee in his bank account as unexplained cash credit under section 68 of the Act. Accordingly, the assessing officer added the sum of Rs. 4.40 lacs to the total income of the assessee.

17. Aggrieved assessee preferred an appeal to learned Commissioner (Appeals). The assessee before the learned Commissioner (Appeals) contended that the cash was deposited out of past savings and salary income. There was also income in the hands of his wife which she earned from her source of tuition and beauty parlor work.
18. However, the learned Commissioner (Appeals) rejected the submission of the assessee and concurred with the view of the assessing officer.
19. Aggrieved by the order of learned Commissioner (Appeals) assessee is in appeal before us. The learned Authorised Representative before us submitted that the cash deposited in the bank account is representing the sale proceeds of the immovable property. Therefore the same should be considered as part of the sale consideration and accordingly the same should be subject to tax under the head long-term capital gain.
20. On the contrary, the learned Departmental Representative submitted that there was no evidence filed by the assessee suggesting that the impugned cash deposit is representing the sale consideration of the property.
21. The learned Departmental Representative also submitted that the learned Commissioner (Appeals) had expressed his apprehension that cash deposit may be out of the sale proceeds of the property. But such reference by the learned Commissioner (Appeals) in his order cannot be construed as his finding on the issue of deposit of cash. Thus no inference can be drawn on the observation made by the learned Commissioner (Appeals) in his order. The learned Departmental Representative vehemently supported the order of authorities below.
22. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the cash deposited by the assessee amounting to Rs. 4,40,000 in his saving bank account. The assessee claimed that the cash was deposited out of his past savings, salary income and out of the income of his wife. But the assessee failed to substantiate his arguments by documentary evidence. Therefore, the assessing officer treated the cash deposit as unexplained cash credit under section 68 of the Act. The view taken by the assessing officer was subsequently confirmed by the learned Commissioner (Appeals).

22.1 Now the controversy arises whether the cash deposited by the assessee represents the unexplained cash credit under section 68 of the Act. The provisions of section 68 of the Act fasten the liability on the assessee to explain the source of the sum credited in the books of accounts.

22.2 The assessee in the present case has just explained the source of the cash deposited in the bank but failed to substantiate the same by documentary evidence. The onus lies on the assessee to explain the source of the cash deposited in the bank from documentary evidence which assessee failed.

22.3 Similarly, we note that there was no dispute regarding the sale consideration of the immovable property. The assessee has also not challenged the sale consideration of the property either before the assessing officer or the learned Commissioner (Appeals). The assessee 1st time before us has taken a plea that the cash deposited represents the part of the sale proceeds of the immovable property.

23.4 Thus we note that there is a contradictory statement of the assessee before the authorities below and before us. Therefore, we conclude that there is no merit in the argument raised by the learned counsel for the assessee.

23.5 In this regard we find support & guidance from the judgment of Hon’ble Calcutta High Court in the case of Eastern Commercial Enterprise (1994) 210 ITR 103 (Cal-HC) : 1994 TaxPub(DT) 899 (Cal-HC) at page 111 :–

“It was true that ‘R’ had proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the assessing officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement could at the worst show that ‘R’ was not a trustworthy witness and little value could be attached to what he stated either in his affidavits or in his examination by the assessing officer. His conduct neutralized his value as a witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage-and no court can decide on which occasion he was truthful.”

23.6 In view of the above we reject the plea of the assessee and accordingly find no reason to interfere with the finding of the lower authorities.

24. The assessee in his support relied on this tribunal order in case of Dineshbhai Laljibhai Naikin ITA No. 2187/Ahd/2016. However, the facts of the case on hand are different from the case cited by the assessee. In the present case, there was a contradiction in the plea of the assessee whereas in the case cited by assessee there was no such contradiction. In the case cited by the assessee, there was filed the affidavit of the vendee, agreements and the passbook of the vendee showing the withdrawal of the cash from the bank. However, in the case before us, there was no such document filed by the assessee in support of his contention. Therefore we are reluctant to rely on the order of the tribunal cited by the assessee. Thus the ground of appeal of the assessee is dismissed.
25. In the result, the appeal filed by the assessee is dismissed.