2021 (11) TMI 566 - AT - Income Tax

Addition u/s 69 - unexplained investment - HELD THAT - Assessee has carried out the construction in two years namely in the years relevant to assessment year 2006-07 2007-08. Assessee has spent aggregate amount of ₹ 14.10 lakhs in two years namely ₹ 10.25 lakhs in assessment year 2006-07 ₹ 3.85 lakhs in assessment year 2007-08. We notice that the Ld. CIT(A) has accepted the claim of salary savings to the extent of ₹ 10.25 lakhs in assessment year 2006-07. Hence, what is required to be explained during the year under consideration is the balance amount of ₹ 3.85 lakhs (₹ 14.10 lakhs (minus) ₹ 10.25 lakhs). It is also an undisputed fact that the assessee has declared salary income of around ₹ 20 lakhs during the year under consideration. Accordingly, we are of the view that there is no reason to disbelieve the claim of the assessee that the above said sum of ₹ 3.85 lakhs was spent out of salary savings. In view of the foregoing discussions, we are of the view that the claim of own funds of ₹ 14.10 lakhs deserves to be accepted. Accordingly, we modify the order passed by Ld. CIT(A) and direct the A.O. to delete the addition of ₹ 14.10 lakhs.

Summary

Issues:
Challenge to addition made under section 69 of the Income-tax Act, 1961 for unexplained investment.

Analysis:
The appellant contested the addition made by the Assessing Officer (A.O.) under section 69 of the Income-tax Act, 1961, concerning an unexplained investment of ?14.10 lakhs. The A.O. observed that the appellant, an employee of a company, had constructed a residential property. The valuation report indicated a property value of ?68.10 lakhs, with a loan of ?30 lakhs availed by the appellant. The A.O. raised concerns regarding the unexplained balance of ?38.10 lakhs and treated it as unexplained investment.

Before the Commissioner of Income Tax Appeals (CIT(A)), the appellant explained the property valuation, detailing the land cost and construction expenses. The CIT(A) upheld the addition of ?14.10 lakhs, citing lack of proof for the source of salary savings. The appellant challenged this decision, arguing that the balance amount of ?14.10 lakhs was covered by salary savings.

The appellant's representative highlighted that the A.O. had previously made additions for the same property in the assessment year 2006-07, which were later deleted by the CIT(A). The CIT(A) accepted the appellant's claim of using own funds for construction, leading to the deletion of earlier additions.

The appellate tribunal acknowledged the appellant's investment of ?14.10 lakhs from salary savings over two assessment years. Considering the appellant's declared salary income and previous CIT(A) decisions, the tribunal ruled in favor of the appellant, directing the A.O. to delete the addition of ?14.10 lakhs. The tribunal found the appellant's explanation satisfactory and allowed the appeal.

In conclusion, the tribunal's decision favored the appellant, emphasizing the consistent use of own funds for property construction and salary savings. The tribunal's analysis highlighted the importance of substantiating sources of funds and previous CIT(A) rulings in determining the legitimacy of investments.