2008 (12) TMI 292 - AT - Income Tax

ITAT upholds CIT(A) decisions on construction expenses, unexplained deposits, and gifts.

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income-tax (Appeals) [CIT(A)]'s decisions in a case involving disallowance of ... Civil Construction Business Issues Involved:1. Disallowance of construction expenses.2. Deletion of addition under section 68 for unexplained deposits.3. Deletion of addition under section 68 for unexplained gifts.Detailed Analysis:Disallowance of Construction Expenses:The first issue pertains to the disallowance of Rs. 6,92,760 made on account of unverifiable construction expenses. The Assessing Officer (AO) disallowed 50% of the construction cost claimed by the assessee due to the lack of supporting evidence such as vouchers and proper books of account. The assessee argued that a profit rate of 12% on sales had been accepted in the previous year, and the same rate should be applied. The Commissioner of Income-tax (Appeals) [CIT(A)] found the profit rate of 12% reasonable and deleted the disallowance. The Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, noting that the construction was not complete and the profit rate of 12% had been accepted in the preceding year. The ITAT emphasized that the AO did not provide justifiable reasons to deviate from the accepted position and that the cost of construction could be established upon completion with expert opinion.Deletion of Addition Under Section 68 for Unexplained Deposits:The second issue involves the deletion of an addition of Rs. 11,00,000 made under section 68 for unexplained deposits. The AO doubted the genuineness of the credits as the assessee did not produce the bank statement of the creditor, Shri Radhey Lal Maheshwari, nor the creditor himself. The CIT(A) sought a remand report, and the AO reported that the creditor could not satisfactorily explain certain cash deposits. However, the CIT(A) found that the loan was given out of the sale proceeds of a property, and the cash deposits in the creditor's bank account were irrelevant to the loan given to the assessee. The ITAT upheld the CIT(A)'s decision, stating that the genuineness of the transaction was established, and the cash deposits in the creditor's account did not relate to the loan given to the assessee.Deletion of Addition Under Section 68 for Unexplained Gifts:The third issue concerns the deletion of an addition of Rs. 6,65,000 made under section 68 for unexplained gifts received from the assessee's brother, Shri Ved Prakash Kapoor. The AO questioned the genuineness of the gift as the donor had never given any gifts to his immediate family and there was no occasion for such a gift. The CIT(A) found that the gift was genuine, given out of natural love and affection, and the donor had sufficient creditworthiness. The ITAT upheld the CIT(A)'s decision, noting that the donor was assessed to tax, had sufficient income, and the transaction was through banking channels.Conclusion:The ITAT dismissed both the appeals of the revenue and the assessee, upholding the CIT(A)'s decisions on all three issues. The ITAT emphasized the reasonableness of the profit rate for construction expenses, the genuineness of the loan transaction under section 68, and the validity of the gift received from a close relative.