2017 (3) TMI 134 - AT - Income Tax

Addition on unexplained bank deposits - Held that - As noticed from the assessment order itself that the assessee withdrew a sum of ₹ 74 lac from her savings bank account in the second half of the calendar year 2010. A sum of ₹ 36 lac was re-deposited in the month of March, 2011 and the assessee s claim is that the remaining amount was re-deposited in the next financial year. The AO has made an addition of ₹ 36 lac by treating the amount of deposits in the bank as unexplained. It is strange that when the assessee categorically submitted details of cash withdrawals from the same bank account which was redeposited, the AO did not get convinced and made addition on extraneous issues, being, the non-submission of details of property which was sought to be purchased, but, finally not purchased. The assessee has specifically contended that the amount was withdrawn from the bank for the purpose of purchase of some property, which transaction did not materialize. The AO has not shown that the cash so withdrawn was used elsewhere and was not available for re-deposit. Thus the presumption has to be that the amount withdrawn a few months before its re-deposit is out of earlier withdrawals, which does not call for any addition. Therefore, order to delete the addition - Decided in favour of assessee. Computation of capital gain - Held that - Sum incurred for sanitary fittings etc., done by the assessee as a fresh exercise to renovate the premises and POP ceiling is, again, not in the nature of repairs and maintenance and has to be treated as cost of improvement. Expenditure on door and window is also a case of replacement of the earlier window and door and not its repair. As the assessee was intending to sell the property, she considered it expedient to improve the property before sale, so that a handsome price could be received. Since these three amounts are in the nature of cost of improvement and do not fall in the realm of repair and maintenance, thus hold that the computation of capital gain should be done treating these three amounts as Cost of improvement . Computation of capital gain determination of Full value of consideration - Held that - The assessee sold this property for a sum of ₹ 1,75,000/-, which was taken as a full value of consideration. Circle rate for stamp duty purpose was mentioned at ₹ 2,66,049/- in the sale deed itself. The AO adopted this figure for computing capital gain, which came to be affirmed in the first appeal. The assessee is aggrieved against adoption of such amount as full value of consideration. Thus no reason to disturb the adoption of this amount as full value of consideration in terms of section 50C of the Act. This action is approved. The AO is directed to recompute the amount of capital gain on transfer of this property in the terms indicated above. Addition on Income from house property - Held that - The contention of the assessee about the receipt of house rent of ₹ 1,08,000/- is unsubstantiated inasmuch as neither any rent agreement was placed on record nor the rent payment was received through cheque. It is seen that the AO has adopted annual value of the property at ₹ 2,25,996/- which has been disputed by the assessee as not in accordance with the Rules of House Tax Department. Under these circumstances, set aside the impugned order and remit the matter to the file of the AO for deciding this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Addition of ?36 lac
2. Computation of capital gain
3. Addition of ?83,436 under 'Income from house property'

Issue 1: Addition of ?36 lac
The assessee deposited ?40 lac in her savings bank account through four transactions, explaining it as withdrawn cash for a property purchase that did not materialize. The AO added ?36 lac as unexplained bank deposits in March 2011, alleging lack of property details. The CIT(A) upheld the addition. However, the tribunal found the AO's reasoning flawed as the withdrawn cash was redeposited, indicating the source. The tribunal ruled in favor of the assessee, deleting the ?36 lac addition.

Issue 2: Computation of capital gain
The assessee sold a property in 2011, declaring long-term capital gain. The AO made adjustments, adding ?1,49,060 due to discrepancies in cost calculations. The tribunal noted the disagreement on the cost of acquisition. The AO rejected ?4,800 as part of the cost, which the tribunal upheld due to lack of evidence. However, the tribunal allowed ?50,000 as cost of improvement for specific expenses incurred, differing from repairs and maintenance. The full value of consideration was upheld based on section 50C of the Act.

Issue 3: Addition of ?83,436 under 'Income from house property'
The AO added ?83,436 to the declared income from house property due to unsubstantiated rental income claims and disputed annual property value. The tribunal found the rental income claim unsupported by evidence and disagreed with the annual property value calculation. The matter was remitted to the AO for reconsideration in accordance with the law.

In conclusion, the tribunal partially allowed both appeals, ruling in favor of the assessee on the addition of ?36 lac and providing specific guidance on the computation of capital gain and 'Income from house property' issues for further assessment by the AO.