2017 (7) TMI 424 - AT - Income Tax

Addition on an account of investment in house construction - Held that - When the property in question comes under the state PWD jurisdiction then the state PWD rates has to be applied for the purpose of computing the cost of construction on estimate basis. The DVO s valuation of cost of construction is only an estimated valuation based on CPWD rates. Therefore the AO is directed to apply the state PWD rates for estimating the cost of construction of the house in question. As regards the self supervision charges rebate rates it is noted that the tribunal has taken a view that the rebate on account of self supervision of construction of house should be given at 10 to 15% of the cost of construction. The AO has given 6% rebate on account of self supervision. However, the assessee is demanding 10% rebate on this account. Assessee has relied upon the decision of in the case of DCIT Vs Smt. C.K. Sumathy (2010 (3) TMI 896 - ITAT CHENNAI) wherein 15% deduction was directed to be allowed for self supervision. The Jodhpur bench of the tribunal in the case of ITO Vs Dr. Anand Chhabra (2006 (11) TMI 268 - ITAT JODHPUR) has held that such supervision rebate shall be given ranging from 7% to 10%. Therefore, in view of the various decisions of the tribunal on this issue we direct the AO to allow a rebate of 10% on account of self supervision while computing the rate of cost of construction. Hence this ground of the assessee s appeal is partly allowed. Addition on account of interest on FDR invested in the earlier years - Held that - The assessee categorically stated before the AO that this amount of interest is already offered in the return of income as part of the interest income of ₹ 72,642/- This fact has been duly recorded by the AO in para 5.3. Despite that the AO has not accepted the explanation of the assessee. We note that as per schedule 4 of profit & loss account the assessee has shown the interest from banks at ₹ 72,642/- and further the interest of NSC at ₹ 2,641/-. Therefore, prima facie it appears that the interest received from the bank has been duly reflected as part of the interest income of ₹ 72,642/-. However, since the CIT(A) has not adjudicated this issue therefore, for the limited purpose of verification of this fact we set aside this issue to the record of AO to verify the record and particularly schedule 4 & 5 of financial statement of the assessee and then decide the issue after giving an opportunity of hearing to the assessee. Disallowance being 30% of the administrative expenses relating to the professional income - Held that - The assessee has shown the professional receipts of ₹ 5,72,356/- against which the assessee has claimed administrative expenses of ₹ 83,339/- which is less than 15% of the professional receipts. Once the professional income and gross receipts are not in dispute then it is an impossible proposition that the professional income should be earned without any corresponding expenses. Considering the quantum of the expenses which is less than 15% of the gross receipts we find that the adhoc disallowance of 30% is exorbitant and is an extreme view. Accordingly,when the claim of the assessee is less than 15% of the gross professional receipts we restrict the disallowance for want of supporting evidence to 10% of the expenses instead of 30%. Accordingly, we modify the orders of the authorities below and direct the AO to restrict the disallowance at 10%. Rate of the gold to be applied for computing the unexplained income on account of investment in gold - Held that - The assessee belongs to a Reddy community whether there is a custom of giving the jewellery on the occasion of wedding as well as occasion of birth of children, we are of the considered view that the rate of gold jewellery has to be applied as prevailing at the time of the marriage of the assessee as well as at the time of the birth of the sons of the assessee. Accordingly, we set aside this issue to the record of the AO for applying the rate of gold as prevailing at the time of the wedding as well as births of the children of the assessee by considering the proportionate amount of jewellery on the occasions being wedding and birth. Addition being cash found in the bank locker - Held that - When there is no dispute that the cash was found from the locker it has to be included in the income of the assessee in the absence of any explanation. However, the assessee is entitled for telescopic adjustment of this amount against the addition of income if any in respect of Assessment Year 2011-12 and 2012-13. Appeals of the assessee are partly allowed.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Addition on account of investment in house construction.
3. Addition on account of interest on FDR invested in earlier years.
4. Disallowance of administrative expenses related to professional income.
5. Addition on account of unexplained gold and silver.
6. Addition on account of unexplained cash found in the bank locker.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The assessee filed appeals with a delay of 43 days, supported by an affidavit explaining the delay due to the time taken to obtain certified copies of the orders. The tribunal noted that the delay was not deliberate or willful but due to reasons beyond the control of the assessee. The tribunal found the explanation reasonable and in the interest of justice, condoned the delay.

2. Addition on Account of Investment in House Construction:
The Assessing Officer (AO) made an addition based on the District Valuation Officer (DVO) report, which valued the construction using CPWD rates. The CIT(A) reduced the addition after considering the sources explained by the assessee. The tribunal directed the AO to apply state PWD rates instead of CPWD rates, as the property was under state PWD jurisdiction, and also allowed a 10% rebate for self-supervision, aligning with various tribunal decisions.

3. Addition on Account of Interest on FDR Invested in Earlier Years:
The AO added ?51,347 as interest on FDR, which the assessee claimed was already included in the total interest income of ?72,642 shown in the return. The CIT(A) did not adjudicate this issue. The tribunal set aside this issue to the AO for verification of the financial statements to ensure the interest was correctly reported.

4. Disallowance of Administrative Expenses Related to Professional Income:
The AO made an ad hoc disallowance of 30% of administrative expenses due to lack of documentary evidence. The CIT(A) confirmed this disallowance. The tribunal found the disallowance excessive, considering the expenses were less than 15% of professional receipts, and restricted the disallowance to 10%.

5. Addition on Account of Unexplained Gold and Silver:
During the search, gold and silver articles were found, and the AO made an addition as unexplained investment. The CIT(A) allowed credit for 800 grams of gold and all silver articles per CBDT circular, reducing the addition. The tribunal accepted the assessee's claim that the jewellery was received on occasions like marriage and birth of children, and directed the AO to apply the gold rates prevailing at those times for valuation.

6. Addition on Account of Unexplained Cash Found in the Bank Locker:
The AO added ?10,00,000 found in the bank locker as unexplained income. The tribunal upheld the addition but allowed for telescopic adjustment against income additions for earlier assessment years.

Conclusion:
The tribunal partly allowed the appeals, providing relief on several grounds while directing the AO to make specific verifications and adjustments. The judgments emphasized the importance of reasonable cause, proper valuation methods, and justified disallowances based on the evidence provided.