2012 (4) TMI 297 - HC - Income Tax

Dis-allowance u/s 36(1)(viii) - assessee claimed deduction on the ground that it had given loans and advances to various persons for construction of residential units - dis-allowance made on ground of insufficient evidences - Held that - It is undisputed that assessee did not submit full details of the borrowers and their construction or acquisition of houses from the borrowed funds. It is not a case where large number of notices were issued and only three out of such noticees came forward suggesting that the fund was not utilized for such purpose. It was a case wherein on three random notices being issued, all the three borrowers declined to have used the funds either for construction or for purchase of the house. Tribunal rightly held that assessee was not able to discharge the onus cast upon it. No substantial question of law arises - Appeal dismissed.

Summary

Issues:
Deduction under section 36(1)(viii) of the Income Tax Act, 1961 disallowed by the Assessing Officer.

Analysis:
The case involved appeals against a Tribunal's judgment regarding the disallowance of a deduction claimed under section 36(1)(viii) of the Income Tax Act, 1961. The assessee had given loans and advances for construction of residential units but failed to provide full details to establish the end-use of the funds. The Assessing Officer disallowed the claim as necessary conditions were not satisfied. The CIT (Appeals) upheld this decision, stating that the assessee did not verify if the funds were used for the intended purpose. The Tribunal also dismissed the appeal, emphasizing that the onus was on the assessee to prove the conditions for the deduction. The Tribunal noted that the assessee did not provide sufficient evidence that the funds were used for construction or purchase of residential houses, leading to the denial of the deduction.

The Tribunal highlighted that the purpose of amending section 36(1)(viii) was to restrict deductions for special reserves not exceeding 40% of profits from providing long-term finance for construction or purchase of houses. The assessee failed to furnish details and evidence of property purchases or constructions funded by the advances. Despite the assessee's claims, the Tribunal found no substantial evidence supporting the proper utilization of the funds for residential purposes. The Tribunal concluded that the assessee did not meet the conditions stipulated under section 36(1)(viii) and therefore, the deduction was not permissible.

The assessee argued that all necessary conditions were met and relevant documents were submitted. However, the authorities found that the assessee did not provide comprehensive details of borrowers and their use of the borrowed funds. While the assessee contended that only three borrowers disputed the fund utilization, the Tribunal maintained that the burden of proof rested with the assessee. The Tribunal affirmed that the assessee failed to establish the fulfillment of the deduction conditions, leading to the dismissal of the appeals.

The High Court concurred with the lower authorities, emphasizing that the issue was fact-specific. It noted that the assessee did not adequately prove the funds' utilization for the intended purpose. As all three authorities had unanimously found the conditions were not met, the High Court concluded that no legal question arose. Consequently, both Tax Appeals were dismissed based on the factual findings and the failure to substantiate the claim for deduction under section 36(1)(viii) of the Income Tax Act, 1961.