ITAT Grants Partial Relief on Cash Deposit and Indexed Cost of Construction Claims

The case involves two issues: Cash Deposit of Rs. 46.75 lakh and Claim of Indexed Cost of Construction for an amount of Rs 1,09,54,020.

In the first issue, the assessee made a cash deposit of Rs 46.75 Lakh in his Bank account during the demonetisation period. The AO noted that the assessee had deposited this cash three to four times. Out of Rs. 46.75 lakh, Rs 11 lakh was deposited during the period 07.04.2016 to 09.06.2016, and the remaining balance was deposited during the period 10.11.2016 to 31.12.2016.

When asked about the sources of these cash deposits, the assessee submitted that the amount of Rs 11 lakh was withdrawn earlier from the same account and was later re-deposited. For the remaining Rs. 35.75 lakhs, the assessee claimed the amounts were withdrawn on several dates, and he also filed a compilation of withdrawals and re-deposited the amount during the demonetisation. The AO rejected the explanation made by the assessee, claiming that he cannot keep this much cash for a long period. This resulted in an addition of Rs 56.75 lakh as unexplained income under section 68 of the Act.

The second issue was regarding the Indexed Cost of Construction. The assessee claimed a cost of construction or acquisition of Rs 1,53,43,003 for capital gains computation. However, this claim was disallowed by the AO, holding that the assessee could not provide the details of the claim. When the assessee was asked to substantiate this claim before the CIT(A), he filed a valuation report from one valuer. The assessee claimed that this report shows that the assessee has constructed the boundary wall and carried out improvements on the land and has spent Rs 1,53,43,003 for the same. However, the CIT(A) confirmed the second addition made by the AO as the assessee could not answer whether he had any other evidence, like bills or vouchers for the purchase of material or expenses.

Both matters were sent to the Income Tax Appellate Tribunal (ITAT), Delhi.

For the first addition of Rs 46.75 lakh, the Tribunal found that the assessee’s explanation for the first Rs 11 lakh deposit was supported by the bank statement, showing the withdrawals during the period, and there was no proof that this money was used. Based on this, the addition was deleted by the Tribunal. For the balance of Rs 35.75 lakh, the ITAT observed that even though the assessee had submitted the bank statement and cash flow statement for the previous year, it was not clear whether these withdrawals were kept for such a long period. Therefore, to check the genuineness of the claim, the issue was sent to the AO for re-deciding the same after giving a proper opportunity for hearing.

For the second issue, the ITAT noted that even though the assessee could not fully substantiate the expenses, it was unfair to reject the claim. Therefore, the tribunal decided to estimate the cost of acquisition agreed upon by both parties. The ITAT decided to make a fair estimate of the expenditure incurred for the landfilling and boundary wall construction. The estimate was made at 50%, reducing the indexed cost from Rs. 1,09,54,020 to Rs. 55 Lakh. The AO was directed to allow the indexation and recalculate the capital gain accordingly.