2016 (1) TMI 243 - AT - Income Tax

Tribunal directs reassessment for deduction claim under Section 54, upholds addition of unexplained deposits

The Tribunal partially allowed the appeal, directing the Assessing Officer to re-examine the deduction claim under Section 54 after conducting a site ... Eligibility of deduction u/s. 54 - Held that:- As seen from the so called revised plan placed there is a cellar floor consisting of 26.37 Sq. Mtrs., which is not reported in the valuation report stated above. In order to examine the dimensions, they were stated in Sq. Mts and there is variation in design it self. The ground floor and first floor are of similar dimensions, whereas second floor is lesser than that. The ground and first floor was mentioned as 302.35 Sq. Mtrs., whereas the second floor area was shown at 231.35 Sq. Mtrs. In the valuation report the ground floor is different from first and second which are of same dimensions. Thus, there is variation in the building structure itself from the valuation report to the so called plan placed on record. Not only that, the plot area on which building was constructed as per the original sale deed is triangular in nature, whereas the present area is almost like a rectangle. From where the additional area has come in the revised plans placed on record was not explained when questioned. Therefore, as requested by assessee, only site inspection can confirm whether assessee has indeed constructed altogether a new house or only made extension to the old bulding. The variations noted above also require deeper examination physically. Therefore, AO is directed to give an opportunity to assessee, take the technical people like Valuation Officers of the department and examine whether the structure as claimed by assessee is old or new, so as to consider the eligibility of deduction u/s. 54. Undisclosed cash deposited into bank account - Unexplained investment - Held that:- There is no nexus established with reference to the sale transaction being contended by assessee. In view of this, we are unable to accept assessee’s contentions that assessee has received any consideration in cash over and above the amount, which was originally returned by assessee in the return of income. As rightly noticed by the AO, assessee in fact has filed return on 20-03-2012 belatedly when the return was due in September, 2010. The belated return itself indicate that sufficient time was taken by assessee to decide the matters. This do indicate that there is no nexus with the cash deposits in the bank a/c to that of sale consideration received by assessee which was originally disclosed in the computation of income. Since assessee has not furnished any correlation with reference to sale of property, the cash deposits made into the bank a/c are rightly considered as ‘Unexplained investment’ by the AO. Since assessee is sufficiently aged and has a grown up son practicing as a doctor and also assessee receives money from assessee’s husband who is working in Saudi and also owns properties, the facts in the case of Smt. P.K. Noorjehan (1997 (1) TMI 6 - SUPREME Court), does not apply to the fact situation in assessee’s case. It is for assessee to establish the source of funds and since there is failure on the part of assessee to explain sources of deposits, the provisions of the Act are automatically invoked. We do not see any reason to interfere with the orders of AO and CIT(A) - Decided against assessee Issues Involved:1. Deduction under Section 54 of the Income Tax Act.2. Addition of Rs. 41,25,000 as unexplained deposit.Issue-wise Detailed Analysis:1. Deduction under Section 54 of the Income Tax Act:The assessee claimed deduction under Section 54 of the Income Tax Act for constructing a new residential house after selling a property in Bangalore. The Assessing Officer (AO) disallowed the claim, arguing that the investment was made prior to the sale of the property and was on an existing house, not a new one. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, leading to the present appeal.The core dispute is whether the construction qualifies as a new residential house. The assessee purchased a plot with an existing house in 2005 and claimed to have constructed additional floors using the sale proceeds from the Bangalore property. The AO noted that the property already had a substantial built-up area and that the additional construction did not constitute a new residential unit. The AO's reasons included:- The existing property was a fully habitable residential house.- The additional floors were connected internally and did not form independent residential units.- The construction was completed before the sale of the Bangalore property.- The investment was not verifiable as most bills were in the name of the assessee's son and were dated before the sale.The CIT(A) agreed with the AO, emphasizing the lack of municipal approval for the new construction and the absence of evidence supporting the claim of a new residential house. The CIT(A) cited several judicial decisions, including those from the Madras and Kerala High Courts, which held that extensions or modifications to an existing house do not qualify for exemption under Section 54.Before the Tribunal, the assessee requested a site inspection to verify the extent of construction. The Tribunal noted discrepancies in the plans and valuation reports submitted by the assessee and directed the AO to conduct a site inspection with technical experts to determine whether the construction qualifies as a new residential house. The Tribunal also instructed the AO to verify the actual investment made and its timing to determine the eligible amount for deduction.2. Addition of Rs. 41,25,000 as Unexplained Deposit:The AO added Rs. 41,25,000 to the assessee's income as unexplained cash deposits in her bank account. The assessee claimed that this amount was part of the sale consideration for the Bangalore property. However, the buyer denied making any such payment, and the AO found no evidence to support the assessee's claim.The CIT(A) upheld the AO's decision, noting the lack of correlation between the cash deposits and the sale transaction. The Tribunal also found no merit in the assessee's claim, emphasizing the absence of any agreement or evidence linking the cash deposits to the sale consideration. The Tribunal rejected the assessee's reliance on the Supreme Court decision in Smt. P.K. Noorjehan, as the facts of the case were different.The Tribunal concluded that the cash deposits were rightly considered as unexplained investments by the AO, and there was no reason to interfere with the orders of the AO and CIT(A).Conclusion:The Tribunal allowed the appeal partly for statistical purposes, directing the AO to re-examine the claim for deduction under Section 54 after a site inspection and verification of investments. The addition of Rs. 41,25,000 as unexplained deposits was upheld.