2022 (5) TMI 1007 - AT - Income Tax

Tribunal adjusts construction costs disallowance, emphasizes substantiated evidence for fair assessment

Shri D. Devadoss Versus ITO Non-Corporate Ward-21 (4), Chennai.

Shri D. Devadoss Versus ITO Non-Corporate Ward-21 (4), Chennai. - TMI Issues involved:1. Disallowance of cost of construction for Rs.29.34 Lacs.Detailed Analysis:1. The appeal pertains to the disallowance of the cost of construction amounting to Rs.29.34 Lacs for the Assessment Year 2011-12. The matter originated from the order of the Commissioner of Income Tax (Appeals) dated 20.04.2018, based on the assessment framed by the Assessing Officer under relevant sections of the Income Tax Act. The appellant raised various grounds challenging the disallowance, emphasizing the intent to construct a house for availing exemption under section 54F. The appellant contended that the entire sum was invested in the new construction without any diversion for other purposes. The crux of the issue revolved around the Commissioner's decision to sustain the addition based on the uncertainty regarding the availability of funds for construction due to lack of clarity in the appellant's intentions.2. In the previous round of appeal, the Tribunal had adjudicated on the matter, highlighting discrepancies in the deposits made by the appellant in the bank and the subsequent utilization for land purchase and construction. The Tribunal directed the Assessing Officer to verify the facts related to the utilization of funds, especially concerning the construction expenditure. In the recent assessment, the Assessing Officer repeated the additions of Rs.97.82 Lacs and Rs.21.53 Lacs. The appellant explained the distribution of construction funds to close relatives due to health reasons, but the confirmations provided lacked supporting evidence of actual utilization for construction. The Tribunal observed discrepancies in the confirmations and found one confirmation to be fabricated, leading to the conclusion that the claimed investment in construction was unexplained.3. The Tribunal further addressed the addition of Rs.21.53 Lacs, which the Assessing Officer treated as unexplained income related to internal family arrangements. The appellant asserted that the amount belonged to family members, but without substantial evidence, the Assessing Officer added it to the appellant's income. The Tribunal remitted this issue to the Assessing Officer for proper verification, emphasizing the need for a thorough examination considering the family dynamics and the lack of recorded statements or inquiries. The Tribunal's decision aimed to ensure a fair assessment based on concrete evidence rather than assumptions or suspicions.4. Upon considering the factual complexities and the challenges in verifying cash transactions in the unorganized sector, the Tribunal acknowledged the difficulties faced by the appellant in proving the utilization of funds for construction. While upholding the essence of the Commissioner's decision, the Tribunal deemed a 30% disallowance of the construction cost as excessive and reduced it to 10% to align with the factual matrix. The Tribunal's decision aimed to strike a balance between acknowledging the challenges faced by the appellant and ensuring a fair assessment based on credible evidence.5. In conclusion, the Tribunal partly allowed the appeal, emphasizing the importance of substantiated evidence in assessing construction costs and internal family arrangements. The decision sought to provide a balanced resolution by considering the complexities of the case and ensuring a thorough verification process to uphold the principles of fair taxation.