Addition can be done by AO when Cash is deposited in Bank without supporting documents

The extract of Order is given below:

The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) 7, [CIT(A) in short] vide appeal no.CIT(A)-7/1253/13-14 dated 27/02/2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”) dated 28/02/2014 relevant to Assessment Year (AY) 2011-2012.

2. The assessee has raised the following grounds of appeal.

1.1 The order passed u/s.250 on 27-2-2015 for A.Y…2011-12 by CIT(A)-7, Abad upholding the addition of Rs.8,48,600/- towards capital gains and Rs. 4,40,000/-as unexplained cash deposits made by AO is wholly illegal, unlawful and against the principles of natural justice.

1.2 The Lcl. CIT(A) has grievously erred in law and or on facts in not allowing sufficient opportunity to the appellant before disposing of the appeal. The details/evidence for the appeal could not be produced for the reasons stated in the statement of facts. Thus there was gross violation off the principles of natural justice.

2.1 The Ld. CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.8,48, 600/- to ward is capital gain on sale of house property. The Ld. CIT(A) has grievously erred in law and or on facts in upholding that the claim of construction of 2 rooms, compound wall, and fencing to the house property at 64, Vasantkunj, Paldi, Ahmedabad was non-genuine and thereby rejecting the entire claim of cost of improvement made by the appellant while computing capital gain on sale of said property.

2.2 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought riot to have upheld the addition of Rs. 8,48,600/-towards capital gain on sale of house property by rejecting the cost of improvement to the house property.

2.3 Without prejudice to the above, the Ld CIT(A) ought to have allowed a part of the cost of improvement because there could not be any improvement without incurring the cost.

3.1 The Ld. CIT(A) has grievously erred in law and on facts in confirming the addition of Rs. 4,40,000/- towards cash deposits in bank a/c.

3.2 Without prejudice above, in case CIT(A) believed the cash deposits as cash component of the sale of the house property, the same should-be assessed as capital gain and not income from other sources. It is therefore, prayed that the additions upheld by the CIT(A) may kindly be deleted.

3. The 1st issue raised by the assessee is that learned CIT-A erred in confirming the order of the AO by making the addition of 8,48,600/- under the head capital gain.

4. The facts of the case are that the assessee is an individual and has shown his main source of income under the head salary. The assessee is an employee of the Oriental insurance company Ltd. The assessee was the owner to the extent of 6.67% in the immovable property registered in the office of the Sub-Registrar Paldi bearing serial No. 5828/2010. The assessee acquired this property by way of inheritance in the year 2009. The assessee during the year along with other co-owners has sold the property for sale consideration of Rs. 2,14,60,000/- dated 10th April 2010. The assessee claimed that he had not earned any capital gain income on the sale of such property. Therefore, no capital gain income was offered in the income tax return. The assessee has calculated the capital gain income on the sale of such property at nil in the manner as detailed under:

5. The assessee in support of the cost incurred for the improvement of the building filed the copies of the duplicate bills amounting to 15,12,000/- and 9,95,800/- for the construction of 2 rooms on the 1st floor, wall fencing and renovation of the building.

6. However, the AO did not believe the claim of the assessee for the improvement of the cost of the building due to the reasons as mentioned below.

7. All the above-stated facts were brought to the notice of the assessee by the AO, but the assessee remained silent.

8. The AO also observed that the valuation report from the registered valuer dated 18th November 2010 does not speak about the construction of 1st floor and compound wall as claimed by the assessee. Because of the above, the AO disregarded the claim of the cost of improvement of the assessee and worked out the long-term capital gain of 8,48,600/- only. Thus, the AO added the addition for the sum of 8,48,600/- as long-term capital gain to the total income of the assessee.

9. Aggrieved assessee preferred an appeal to learned CIT(A), who confirmed the order of the AO. 10. Being aggrieved by the order of learned CIT-A assessee is in appeal before us. The learned AR before us filed a paper book running from pages 1 to 113 and submitted that cost was incurred on the construction of 2 rooms on the 1st floor as well as wall fencing & renovation. The learned AR in support of his claim also filed the copy of the map filed with the Ahmedabad Municipal Corporation showing the construction of two rooms on the 1st floor of the building.

11. The learned AR further submitted that the cost on the construction of 2 rooms on the 1st floor could be estimated on some reasonable basis.

12. On the other hand, the learned DR submitted that there has to be some approval from the municipal corporation for the construction of the rooms on the 1st floor. In the absence of such approval, the statement of the assessee cannot rely upon that he has incurred any cost on the construction of such rooms on the 1st floor of the building.

13. The learned DR also referred to the valuation report placed on pages 77 to 90 of the paper book and demonstrated that there was no reference in the report for the construction of 2 rooms on the 1st floor of the building as well as wall fencing as claimed by the assessee.

13.1 The learned DR also drew our attention on page 80 of the paper book containing the valuation report and demonstrated that the entire built area of the building had been considered to determine the value as on 1.4.1981. Thus the additional 2 rooms claimed by the assessee have also been considered in the valuation report furnished by the registered valuer depicting the value of the building as on 1st April 1981. The learned DR vehemently supported the order of authorities below.

14. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to whether the assessee has incurred the cost of improvement as discussed above on the building partly owned by him. The assessee claimed to have incurred the cost of improvement by constructing additional rooms on the building and wall fencing including renovation. However, the AO did not agree with the supporting evidence filed by the assessee in connection with the cost of the improvement. Accordingly, the AO did not give any benefit to the assessee on the cost of improvement claimed by him. The learned CIT-A subsequently confirmed the view taken by the AO.

14.1 Now the controversy before us arises for our adjudication to whether the assessee has incurred any cost of the improvement in the given facts and circumstances. In this regard, we note that the initial onus lies on the assessee to substantiate his claim from documentary evidence. The assessee before the AO filed the duplicate copies of the bills issued by 2 parties justifying the cost of improvement incurred by him. The details of the same stand as under:

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