Disallowance of construction cost: Tribunal deletes ad hoc addition where contractor confirmations and statutory notice reply corroborated claim.

Whether the Assessing Officer could disallow half of the indexed cost of improvement was decided on the evidence of contractor confirmation, a reply to a statutory notice and corroborative documents showing structural changes; the AO's ad hoc 50% disallowance rested on disbelief of the contractor without specific defects in the proofs. Applying the principle that unexplained disbelief cannot substitute for positive defect in supporting documents, ITAT Delhi - AT found the disallowance unsustainable and deleted the addition, allowing the assessee's challenge.

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Issues: (i) Whether the Assessing Officer was justified in disallowing 50% of the indexed cost of improvement (cost of construction) claimed by the assessee and adding Rs. 38,58,354 to income.

Analysis: The claim for cost of construction was supported by a confirmation and breakup furnished by the contractor and a response to notice under Section 133(6) of the Income-tax Act, 1961 in which the contractor confirmed undertaking the work and provided identity documents and income-tax return details. The Assessing Officer relied on disbelief of the contractor's capacity and made a 50% ad-hoc disallowance despite the contractor's confirmation and the verification responses. The authorities below treated a handwritten breakup and the contractor's confirmations as unsatisfactory without identifying specific defects in those documents. The evidence on record included the contractor's confirmation, the Section 133(6) reply, and corroborative documentary material showing structural changes between purchase and sale of the property.

Conclusion: The disallowance of 50% of the claimed cost of construction is not sustainable and is deleted; the assessee's ground challenging that disallowance is allowed (in favour of the assessee).

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