2022 (4) TMI 337 - AT - Income Tax

Addition u/s.68 - cash deposits as cash credits - HELD THAT - None appeared on behalf of the assessee despite notice. We note that in explanation for the cash deposit in the bank account assessee, whose income is only from tuitions fees and job work submitted that she was having huge cash balance. Authorities below have duly analyzed the details and have granted part relief of ₹ 4 lacs and thereafter upheld the addition of balance. In my considered opinion, on the facts and circumstances of the case, assessee has been granted sufficient credit for opening balance in justification of cash deposit. Revenue is not in appeal against the same. Hence, in my considered opinion, there is no need of interference in the orders of the authorities below. Capital gain computation - Cost of improvement claimed by the assessee - HELD THAT - From the details, it is evident that assessee is claiming cost of improvement, which are consumable items on account of furnishing sofa etc. The authorities below are correct that these items cannot be considered as cost of improvement for computation of capital gain. The reliance on case SHRI SACHINDER MOHAN MEHTA 2014 (12) TMI 192 - DELHI HIGH COURT is also germane and applies on the facts of the case. Hence, we uphold the orders of the authorities below. Appeal of the assessee stands dismissed.

Issues Involved:
1. Addition of ?5,09,120/- under Section 68 as cash credits.
2. Disallowance of indexed cost of improvement amounting to ?24,47,045/- while computing capital gain/loss on the sale of house property.
3. Non-allowance of indexed cost of furniture and fixtures as a deduction in the sale consideration of the premises.

Issue-wise Detailed Analysis:

1. Addition of ?5,09,120/- under Section 68 as cash credits:

The Assessing Officer (AO) observed certain cash deposits in the assessee's bank accounts during the scrutiny assessment proceedings. The AO noted the following cash deposits:
- ?2,50,000 on 20.07.2015 (Kotak Mahindra Bank)
- ?2,50,000 on 21.07.2015 (Kotak Mahindra Bank)
- ?2,50,000 on 09.12.2015 (Axis Bank)
- ?2,50,000 on 15.12.2015 (Axis Bank)
- ?2,80,000 on 17.12.2015 (Axis Bank)
- Total: ?12,80,000

The assessee provided a year-wise opening and closing cash balance, claiming an average cash balance over five years at ?7,63,455/-. The AO was not satisfied with this explanation, finding it unrealistic given the assessee's income from tuition and job work amounting to ?1,70,880/-. The AO allowed an opening cash balance of ?4,00,000/- and calculated a net cash shortfall of ?5,09,120/-, which was added to the assessee's income as unexplained cash credit under Section 68.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting discrepancies in the assessee's claims, such as lack of withdrawals in certain years, absence of expenses for motor vehicle maintenance, and unsupported claims of cash received from a third party. The CIT(A) concluded that the cash deposits were not supported by corroborative evidence.

The Income Tax Appellate Tribunal (ITAT) reviewed the case and upheld the decisions of the lower authorities, agreeing that the assessee had been granted sufficient credit for the opening balance and that no further interference was necessary.

2. Disallowance of indexed cost of improvement amounting to ?24,47,045/- while computing capital gain/loss on the sale of house property:

The assessee claimed a cost of improvement of ?19,83,181/- for the property sold, later revising it to ?10,87,891/-. The AO allowed ?3,18,300/- for registration fee and stamp duty and ?74,681/- for tiles, disallowing the remaining ?6,94,910/- due to lack of corroborative evidence.

The CIT(A) noted that most expenses were incurred in cash and related to non-capital items like furniture and fixtures, which do not qualify as capital assets under Section 2(14) of the Income Tax Act. The CIT(A) relied on the Delhi High Court's decision in Sachinder Mohan Mehta vs. ACIT, which held that personal effects excluded from the definition of capital assets cannot be claimed as cost of improvement.

The ITAT agreed with the CIT(A) and AO, noting that the items claimed by the assessee were consumable and not capital assets. The ITAT upheld the disallowance of the cost of improvement.

3. Non-allowance of indexed cost of furniture and fixtures as a deduction in the sale consideration of the premises:

The assessee argued that the sale agreement included furniture and fixtures, and their cost should be deducted. However, the AO and CIT(A) found that the expenses claimed were not supported by proof of delivery or payment through the assessee's bank accounts. The CIT(A) reiterated that these items are not capital assets and cannot be considered for cost of improvement.

The ITAT upheld the lower authorities' decisions, agreeing that the items claimed did not qualify as capital assets and the reliance on the Delhi High Court decision was appropriate.

Conclusion:

The ITAT dismissed the appeal, upholding the decisions of the AO and CIT(A) on all grounds. The addition of ?5,09,120/- under Section 68, disallowance of the indexed cost of improvement, and non-allowance of the indexed cost of furniture and fixtures were all affirmed as per the detailed analysis and legal precedents cited.

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