D.DEVADOSS,CHENNAI vs. ITO NON CORPORATE WARD 21(1), CHENNAI

The learned Commissioner of Income tax (Appeals) erred in sustaining an addition of Rs.29,34,600 for the reason that the assessee was not sure of constructing his own house and hence a sum of Rs.29,34,600 would not have been available for investment in the construction of the new house.

This is second round of appeal before us since the matter in first round was subject matter of adjudication before this Tribunal vide dated 07.04.2016. A copy of the same is on record. The facts as noted in the order are that the that the assessee made cash deposits of Rs.80.36 Lacs in Tamil Nadu Mercantile Bank Ltd. between 06.12.2010 to 19.03.2011 and demand draft of Rs.39 Lacs was also credited. The aggregate deposits worked out to be 3 - Rs.119.35 Lacs. The deposits were stated to be sourced out of sale of certain agricultural land inherited by the assessee from his father. The land was sold for Rs.534.10 Lacs including share of other co-owners. The assessee purchased residential plot admeasuring 2380 square feet at Mangadu and constructed house with plinth area of 4000 square feet in the name of his unmarried daughter out of net sale consideration and claimed exemption u/s 54F. The assessee submitted that after settling the share of sister and mother, the sale amount from land was shared equally between five brothers. Out of net sale consideration of Rs.97.82 Lacs as received by the assessee, the land was stated to be purchased for Rs.19.33 Lacs and amount of Rs.79.49 Lacs was stated to be spent on construction of building. However, Ld. AO rejected claim u/s 54F and treated the differential of Rs.119.35 Lacs and Rs.97.82 Lacs as unexplained income which came to Rs.21.53 Lacs. The amount of Rs.97.82 Lacs was also added to the income of the assessee as unexplained investment. The Ld. CIT(A) upheld the action of Ld. AO. Before Tribunal, the assessee submitted that the deposit of Rs.119.35 Lacs include share of mother and sister which were settled by the assessee. The bench, in para-8, held that exemption u/s 54F could be claimed only in case the property was purchased by the assessee in his own name and therefore, this ground was dismissed. Regarding addition of Rs.97.82 Lacs, it was noted that the money was withdrawn and utilized for the purchase of land on 21.01.2011 and the construction was commenced. Therefore, the conclusion of Ld. AO was without any basis or evidence. It was also noted that the cheques were also issued, however, there was no clarity whether the said sum was utilized for construction of building. Accordingly, Ld. AO was directed to verify the said facts. Regarding addition of Rs.21.53 Lacs, the matter was set aside to Ld. AO for limited purpose to verify that the excess amount deposited by the assessee pertained to mother and sister. The adjudication of the Tribunal was as under: - 8. We heard the rival submissions and perused the material on record and judicial decisions cited. On the issue of claim of exemption u/sec. 54F of the Act, the ld. Authorised Representative argued grounds and filed written submissions explaining that the assessee has purchased the land in the name of unmarried daughter who was dependent and before due date of filing of return of income u/s.139(1) of the Act. Therefore, the assessee has not made investment under Capital Gains Accounts Scheme. The ld. Counsel drew attention to the paper book and explained the construction of residential property. We perused the provisions of Sec. 54F of the Act which are beneficial provisions but exemption u/s.54F has to be claimed only by purchasing constructing new residential property in assessee own name and not on his unmarried daughter. This exemption is exclusive to be claimed by the assessee which cannot be clubbed or applied to the blood relation or family members and also rely on the decision of Prakash vs. ITO 173 Taxmann 311 (Bom) 2008 were the lordship have considered that the exemption should be allowed only in the name of the assessee confirm of the order of the Commissioner of Income Tax (Appeals) on this ground and dismiss the ground of the assessee.

The ld. Assessing Officer has made an addition of Rs.97,82,000/- to the returned income without considering the facts that the assessee has received net consideration for his share Rs.97,82,000/- and the Department has not disbelieved and accepted. The assessee withdraw the amount from Tamilnadu Mercantile Bank Ltd and used for registration of land and the construction of residential property under self supervision and with the support of family members. The ld. Authorised Representative drew our attention to Tamilnadu Mercantile Bank account at page 55 of paper book explaining the credits of sale proceeds deposited from 6th December, 2010 to 15th December, 2010 and the assessee has withdrawn the total consideration during the period from 21st December 2010 to 4th January, 2011. It is clearly evident from action of the assessee that money was withdrawn and utilized for purchase of land in the name of daughter on 21.01.2011 before the end of the previous year and commenced construction of residential flats. The findings of the Assessing Officer based on suspicion without considering the construction expenditure incurred towards labour, materials on day to day basis being highly unorganized sector. The observations of the Assessing Officer that the money has been used for some other purpose and investment are made in the construction of the residential property is from undisclosed source which are different from Tamilnadu Mercantile Bank Ltd are without any basis or evidence. But on perusal of Bank account produced in hearing proceedings, we found that cheques were also issued in the name of the persons, and there is no clarity on issue whether the said sum was utilized for the construction of residential building. Therefore, we are of the opinion that the matter has to be re-examined by the Assessing Officer in the above context. Considering the apparent facts and circumstances, we set aside the order of Commissioner of Income Tax (Appeals) and remit the issue to the file of Assessing Officer for verification.

On the last ground, the ld. Assessing Officer made an addition of Rs.21,53,000/- being not satisfied with the submissions on the internal family arrangement between the family members of the assessee. The mother and sister co-operated in the execution of sale deed of land and Rs.35,00,000/- was allotted towards sister share and Rs.10,00,000/- to the mother. Since the sister was not available at the time of transaction, installment amount of share of sister and mother share Rs.10,00,000/- as mother was living with the assessee was deposited in assessee’s bank account. The ld. Authorised Representative emphasized without the help and co-operation of the mother and sister the land deal could not have been completed. The Assessing Officer on suspicion treated difference of Rs.21,53,000/- as unexplained income without any evidence or statement recorded from assessee’s mother or sister. The ld. Assessing Officer has relied on the sworn statement of assessee and daughter and made elaborate findings in his order on addition. The Assessing Officer’s observation of unexplained income is on imagination overlooking the fact that the life interest is created for assessee’s mother and sister by will of late Dharmaraj Nadar (father) in the year 2001. The ld. Assessing Officer hastily based on assumption made an addition without considering the basic realities of blood relations and their influence in completing the sale transaction. Therefore, considering the apparent facts and circumstances, we are of the opinion that matter need to be reexamined as ld. Assessing Officer has not recorded any statement or made inquiry on this aspects. We set aside the order of Commissioner of Income Tax (Appeals) on this issue and remit the entire issue to the file of the Assessing Officer for limited purpose only to verify the excess amount in bank amount pertains to mother and sister of the assessee. The assessee should be provided adequate opportunity of hearing heard before passing an order. This ground of the assessee is partly allowed for statistical purpose.

Pursuant to the aforesaid directions, an assessment has been re-framed on 28.12.2016 wherein both the additions of Rs.97.82 Lacs as well as for Rs.21.53 Lacs has again been repeated. In support of construction cost of Rs.97.82 Lacs, the assessee submitted that owing to ill health, he could not go to the construction site and supervise the construction. Hence, he distributed the amounts to close relatives viz. son, daughter, son-in-law etc. who, in turn, utilized the money and constructed the house property. The confirmation from these persons was also filed. However, it was noted that the confirmations were 6 - without any supporting evidences that the money was actually utilized by them for construction of the house. Various discrepancies were also found in the confirmation. Accordingly, summons was issued to all these persons to appear, however, none expressed willingness to appear before Ld. AO. Only one person i.e., Shri S. Muthu Saravanan appeared and stated that he was not aware of the confirmation letter as filed by the assessee and the confirmation was not given by him. Therefore, the letter was held to be fabricated. It was also noted that the tiles were purchased even before the purchase of land on which the house was going to be constructed. Therefore, the confirmations letters were held to the fabricated and the amount of Rs.97.82 Lacs as stated to be invested in the construction of the house was held to be unexplained investments.

Regarding addition of Rs.21.53 Lacs, the assessee submitted that Rs.11.53 Lacs belonged to sister and the balance Rs.10 Lacs belonged to his mother. However, in the absence of any material evidence forthcoming from the assessee, the said amount was added to the income of the assessee as unexplained income. However, this addition has been deleted by Ld. CIT(A) and the same is not the subject matter of dispute before us. 5. Upon further appeal, Ld. CIT(A) noted that the construction of house involves cash purchases from many people most of whom are in unorganized sector and would not like to appear before authorities. Though various discrepancies were noted by Ld. AO, however, considering the fact that the assessee was an old age person and had surplus cash, it may not be too far fetched to imagine that the assessee would have made payment for purchase of building 7 - material. Considering the factual matrix, only 30% of Rs.97.82 Lacs was to be considered as unexplained. Still aggrieved, the assessee is in further appeal before us.

We find that the bench, in its earlier order, had noted that there was no clarity whether the withdrawals were utilized for construction of building and accordingly, Ld. AO was directed to verify the said facts. Pursuant to these directions, the assessee filed confirmation letters wherein it transpired that the money was paid only to close relatives. The Ld. AO issued summons to the payees, however, none appeared except one who denied having issued any such confirmation. In one case, tiles were found to be purchased even before purchase of land on which the building was to be constructed. Various other discrepancies were also noted in the confirmations. Finally, it was concluded by Ld. AO that the confirmations were fabricated and not supported by any material evidences. The Ld. CIT(A), in our considered opinion, clinched the issue in correct perspective and held that the construction of house involves cash purchases from many people most of whom are in organized sector and would not like to appear before authorities. However, the disallowance of 30%, in our opinion, is on the higher side. Considering the given factual matrix, wee direct Ld. AO to restrict the same to the extent of 10% instead of 30% as estimated by Ld. CIT(A).

The appeal stands partly allowed. Order pronounced on 18th May, 2022. Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा23 /VICE PRESIDENT लेखा सद; / ACCOUNTANT MEMBER चे,ई / Chennai; िदनांक / Dated : 18-05-2022 EDN/- आदेश की Wितिलिप अ8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु� (अपील)/CIT(A) 4. आयकर आयु�/CIT 5. िवभागीय �ितिनिध/DR 6. गाड� फाईल/GF