2009 (3) TMI 36 - HC - Income Tax

Addition u/s 69C - construction of house - assessee failed to establish source of expenditure - whether such expenditure be deemed to be the income of assessee explanation by the appellant was repayment of loans since there was nothing to suggest receipt of loans and utilization thereof for construction, they cannot be accepted as withdrawn for construction of house - claim that calendar year 1991 had two financial years and as such the deemed income should be bifurcated, is not acceptable

Issues:
1. Interpretation of Section 260 A of the Income Tax Act, 1961.
2. Source of funds for construction of a house property.
3. Dispute regarding payments made to finance companies and individuals.
4. Application of Section 69C of the Act in explaining the source of expenditure.
5. Adverse inference due to failure to produce evidence of material purchases.
6. Discretion in deeming unexplained amounts as income.
7. Requirement of notice before adding amounts as income.
8. Obligation to explain the source of expenditure under Section 69C.
9. Bifurcation of deemed income based on construction year.

Analysis:

1. The appellant filed an appeal under Section 260 A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal regarding the construction of a house property in 1991. The appellant had not filed income tax returns for previous years and claimed the construction cost was financed by compensation received by his mother. The Valuation Cell reported the construction cost at Rs. 17.00 lacs.

2. The appellant failed to account for the source of Rs. 5,75,000 in construction expenses. Payments made to finance companies and individuals were disputed. The appellant contended payments were for loans and materials, but evidence was lacking. The payments were not accepted as construction expenses.

3. The dispute centered on payments made to finance companies and individuals. Lack of evidence regarding loans received or material purchases led to non-acceptance of these payments as construction expenses. The appellant's contentions were not supported by concrete proof.

4. Section 69C of the Act required the appellant to explain the source of the Rs. 17.00 lacs expenditure for construction. The appellant claimed repayment of loans and purchase of materials as sources, but lacked evidence to support these claims. Non-acceptance of assertions was deemed reasonable.

5. Failure to produce evidence of material purchases led to adverse inference. Lack of proof regarding loans received or materials purchased from individuals resulted in non-acceptance of these payments as construction expenses.

6. The appellant cited a Supreme Court judgment to argue against suspicion or conjecture in the Tribunal's decision. However, lack of concrete evidence to support loan repayments and material purchases weakened the appellant's case.

7. The appellant contended that the discretion under Section 69C should be used judiciously. However, lack of evidence regarding income sources and material purchases did not support the appellant's claims.

8. The appellant failed to meet the obligation of explaining the source of expenditure satisfactorily. Lack of evidence regarding loans and material purchases led to non-acceptance of these payments as construction expenses.

9. The appellant argued for bifurcation of deemed income based on the construction year. However, lack of evidence regarding the commencement of construction weakened this argument.

In conclusion, the court dismissed the appeal due to the lack of concrete evidence supporting the appellant's claims regarding the source of funds for construction and payments made to finance companies and individuals. The non-acceptance of these payments as construction expenses was deemed reasonable based on the absence of corroborating evidence.

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