ACIT, NCC - 11 (1), CHENNAI V. SHRI SAMBANDAM DORAIRAJ, CHENNAI

ITA 301/CHNY/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4285 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 06-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MEENAKSHISUNDARAM ITP
• Assessee Lawyers: G JOHNSON
• Keywords: Principle of natural justice; Corroborative evidences
• Section: 54

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI , , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./ ITA NO.301/CHNY/2020 /ASSESSMENT YEAR: 2013-14 THE ASST . COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE-11(1), CHENNAI. VS. SHRI SAMBANDAM DORAIRAJ, NO.87, SANJIVIRAYAN KOIL STREET, OLD WASHERMANPET, CHENNAI 600 021. [PAN: AAIPD 5379F] ( /APPELLANT) ( &'( /RESPONDENT) ( / APPELLANT BY : MR. K. MEENAKSHI SUNDARAM, ITP &'( /RESPONDENT BY : MR. G. JOHNSON, ADDL. CIT /DATE OF HEARING : 21.09.2021 / DATE OF PRONOUNCEMENT : 30.09.2021 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-13 , CHENNAI IN I.T.A NO.112/2018-19/CIT(A)-13/AY 2013-14 DATED 29. 11.2019 RELEVANT TO THE ASSESSMENT YEAR 2013-14. I.T.A NO.301/CHNY/2020 :- 2 -: 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WITH R EGARD TO THE COST OF IMPROVEMENT CLAIMED BY THE ASSESSEE U/S. 54 OF THE INCOME TAX ACT, 1961 (HEREINAFTER AS THE ACT). THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS PURCHASED A FLAT AT NO.3, M.R. GARDEN, IDEAL HOMES, NO.25, PARUTHIPATTU VILLAGE AND THE FOLLOWING EXPEN DITURE WAS INCURRED FOR THE PURPOSE OF RENOVATING THE HOUSE, AS UNDER: 3. THE A.O HAS ASKED THE ASSESSEE BILLS AND VOUCHER S FOR THE ABOVE EXPENDITURE INCURRED BY HIM. THE ASSESSEE HAS NOT F ILED BILLS AND VOUCHERS AND SUBMITTED THAT HE HAS PURCHASED AN OLD FLAT AND HE RENOVATED THE HOUSE AND INCURRED THE ABOVE EXPENDIT URE AND SUBMITTED THAT SAME MAY BE ALLOWED. THE A.O HAS DEPUTED THE INSPECTOR OF INCOME TAX TO MAKE AN ENQUIRY ABOUT THE HOUSE WHETH ER THE ASSESSEE HAS CARRIED ANY RENOVATION WORK OR NOT? THE ASSESSE E BEING AN EMPLOYEE AT MUMBAI, HIS BROTHERS SON WAS ASKED TO OPEN THE DOORS OF THE HOUSE FOR THE NECESSARY ENQUIRIES FOR THE PURPO SE OF ASCERTAINING THAT WHETHER THE ASSESSEE CARRIED OUT ANY IMPROVEME NT OR NOT. ACCORDINGLY, HIS BROTHERS SON OPENED THE HOUSE FOR THE ENQUIRY, ACCORDINGLY INSPECTOR HAS VISITED THE HOUSE AND MAD E AN ENQUIRY AND 1. SEPTICTANK AND COMPOUND WALL CONSTRUCTION RS. 4,50,000/- 2. REPLASTING LABOUR WORK RS. 6,75,000/- 3. TILES REMOVING AND RELAYING RS. 3,50,000/- 4. PLUMBING AND ELECTRICAL WORK RS. 2,50,000/- 5. PAINTING WORK RS. 3,75,000/- 6. MAIN DOOR CHANGE AND CARPENTRY WORK RS. 2,00,000 /- TOTAL RS.23,00,000/ - I.T.A NO.301/CHNY/2020 :- 3 -: TAKEN PHOTOGRAPHS AND ALSO HE MADE ENQUIRY WITH THE NEIGHBOURS, NEIGHBOURS SAID THAT THEY WERE NOT AWARE OF THE IMP ROVEMENTS DONE BY THE ASSESSEE. ON THE BASIS OF THE REPORTS SUBMITTED BY THE INSPECTOR, THE A.O CAME TO THE CONCLUSION THAT THE ASSESSEE HA S NOT CARRIED OUT ANY IMPROVEMENT AT THE HOUSE PURCHASED BY THE ASSES SEE AND ACCORDINGLY, HE DISALLOWED THE ENTIRE AMOUNT. 4. ON APPEAL, THE LD. CIT(A) HAS DISALLOWED AN AMOU NT OF RS. 5,00,000/- AND DIRECTED THE A.O TO ALLOW THE IMPROV EMENT COST TO THE EXTENT OF RS. 18,00,000/-. FOR THE SAKE OF CONVENI ENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: 6. NOW, I HAVE CAREFULLY GONE THROUGH THE UNDISPUTED / UNCONTROVERTED FACTS MARSHALLED AND PRESENTED BY THE AO/AR, AS REFLECTED, E SSENTIALLY, IN THE EXCERPTS FROM THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE AR QUOTED SUPRA AS ALSO THE DISCUSSION AFORESAID BOLSTERED BY SUPPORTING EVIDENCE RELIED ON BY THE RIVAL PARTIES BUT ON A RELATIVE AND COMPARATIVE CONSIDERATION OF THE SAME, I AM PERSUADED BY THE MORE SUBSTANTIVE AND MERITORIOUS REASON ING / SUBSTANTIATION ADDUCED BY THE AR ON THE ISSUE AT HAND. 7. FIRSTLY, THE AO APPEARS TO HAVE NOT APPRECIATED THE FACT THAT ANY NEW BUYER OF AN UNDISPUTEDLY OLD HOUSE WILL CARRY OUT IMPROVEMENTS T O MAKE THE HOUSE HABITABLE TO HIS CONVENIENCE AND HE SHOULD HAVE TAKEN INTO ACCOUNT THIS HUMAN NATURE WHILE APPRECIATING THE FACTS TO VERIFY FOR WHICH HE SHOULD HAVE ALSO BEEN BETTER SERVED TO HAVE REFERRED THE CASE TO THE DEPARTM ENTAL VALUER FOR A MORE SCIENTIFIC VALUATION OF THE IMPROVEMENT THAN DRAWING A N ADVERSE INFERENCE ON THE BASIS OF AN INSPECTOR'S REPORT WHO WAS OBVIOUSLY NOT AN EXP ERT IN VALUATION MATTERS. THE AO ALSO APPEARS TO HAVE COME TO AN ARBITR ARY CONCLUSION BY TAKING PICTURES OF A NEIGHBORS HOUSE AND BY COMPARING THE SAME W ITH THE HOUSE OF THE ASSESSEE AND THEN HOLDING THAT SINCE BOTH THE HOUSES L OOKED ALIKE THERE HAD BEEN NO IMPROVEMENT AT ALL EXCEPT THE SHIFTING OF A SEPTIC TANK FROM THE BACKYARD TO THE FRONT AND THAT SINCE ALL THE DOORS, HANDLES ETC RESEMBLE D THAT OF THE NEIGHBORS HOUSE THE BUILDING HAD BEEN CONSTRUCTED BY THE SAME BUIL DER AND THE SAME REMAINED AS SUCH WITHOUT ANY IMPROVEMENT WHICH INFERENC E THEREFORE CAN ONLY BE SAID TO BE BASED ON ASSUMPTIONS AND CONJECTURES BESIDES BEI NG ARBITRARY AND WHIMSICAL AND NOT BASED ON ANY WORTHWHILE EVIDENCE. 7.1 THE FURTHER FACTS ARE ALSO NOT IN DISPUTE THAT WH EN THE AO CAUSED THE SAID LOCAL ENQUIRIES THROUGH THE INSPECTOR TO FIND OUT THE EXTENT OF IMPROVEMENT EXPENSES, THE ASSESSEE WAS UNDISPUTEDLY IN BOMBAY AND TH E RELATIVE OF THE ASSESSEE SHOWED THE HOUSE TO THE INSPECTOR, WHO TOOK PHOTOGRAPHS OF THE HOUSE FROM DIFFERENT DIRECTIONS / ANGLES AS STATED EARLIER AND THE SAME WERE COPIED IN THE ORDER THOUGH NO DETAILS WERE STATED AS TO WHY THIS EXERCI SE WAS DONE I.E. TO POINT I.T.A NO.301/CHNY/2020 :- 4 -: OUT THAT NO IMPROVEMENT WAS CARRIED OUT BY THE ASSESS EE AND SINCE THE HOUSE WAS ONE OF HOUSES BUILT BY A BUILDER IN THE SAME FASHI ON, THE CONSTRUCTION WAS UNIFORM IN MANY RESPECTS WHICH LED THE AO TO COME TO THE CONCLUSION UNILATERALLY AND IN AN ARBITRARY MANNER WITHOUT ANY DETAILED INVEST IGATION AND ENQUIRY AND WITHOUT ANY CROSS VERIFICATION WITH THE ASSESSEE / BUILDE R AS CONTENDED EARLIER THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE TO O AND RESULTING IN THE ADDITION OF RS.23,00,000/- TO THE TOTAL INCOME BY STATING IN THE A SSESSMENT ORDER THAT 'THE ENQUIRY MADE WITH THE TENANTS AND NEIGHBOURS AND PH OTOS OF MAIN DOOR, SEPTIC TANK, COMPOUND WALL, TILES ETC OF THE ASSESSEE'S HOUSE AN D THAT OF THE NEIGHBOUR'S HOUSE INDICATE THEY ARE IDENTICAL /BECAUSE THE HOUSES ON THIS STREET WERE DEVELOPED BY A BUILDER] EVEN THE HANDLE OF THE MAIN, DOOR OF THE ASSESSEE'S HOUSE AND THE ONE OF THE NEIGHBOUR'S HOUSE SEEM TO BE IDENTICAL. THE ELECTRICAL SWITCHES ARE ALSO IDENTICAL. AS THE ASSESSEE FAILED TO SUBSTANTIATE HIS CLAIM OF IMPROVEMENT COST OF HOUSE PROPERTY, THE EXEMPTION CLAIM ED U/S 54 AMOUNTING TO RS.23,00,000/-, THE SAME IS DISALLOWED AS NOT PROVED.' 7.2 IT IS COMMON PRACTICE THAT AN OLD HOUSE UNDISPUTED LY PURCHASED IN THE INSTANT CASE WOULD HAVE MANY DEFECTS / DISADVANTAGES WHICH NORMALLY DOES NEED TO BE RECTIFIED FOR DWELLING PURPOSES AND THE EXPENSES CL AIMED WOULD THEREFORE BE TOWARDS RENOVATION OF THE SAME AND DOES NOT APPEAR TO BE EXCESSIVE OR UNREASONABLE FOR A RESIDENTIAL CLASS II TYPE II UPPE R MIDDLE CLASS CONSTRUCTION IN A RELATIVELY UPPER MIDDLE CLASS AREA IN AVADI, CHENNAI. 7.3 THE AO WOULD THEREFORE HAVE DONE BETTER TO CONDU CT BASIC ENQUIRIES WITH THE BUILDER AS TO DETAILS OF THE COST OF IMPROVEMENTS A S CLAIMED IN THE MATTER RATHER THAN ASCERTAIN THE SAME FROM NEIGHBOURS / TENA NTS WHO WOULD HAVE BEEN HARDLY AWARE OF ANY SUCH DEVELOPMENT, MUCH LESS THE INT RICATE DETAILS OF THE SAID IMPROVEMENT. 7.4 IN THE ABSENCE OF ANY SUCH EXERCISE CARRIED OUT BY THE AO, THE DETAILS RECORDED BY THE INSPECTOR WHO VISITED THE NEW HOUSE ARE ONLY THE FACTS HE HAD SEEN ON THE SPOT AND NOT CORROBORATIVE EVIDENCES TO BUTT RESS HIS OBSERVATIONS AND DISPROVE THE EVIDENCES PRESENTED BY WAY OF BILLS AND IN VOICES. THEREFORE THE INFERENCE DRAWN BY THE ASSESSING OFFICER THAT THE FEATUR ES THAT HAD BEEN NOTICED BY THE INSPECTOR WERE ALL DONE -ALREADY BY THE BUILDER A ND NOT BY THE ASSESSEE APPEARS TO BE BASED ON ONLY SURMISES, CONJECTURES, AND PRE SUMPTIONS ON THE BASIS OF WHICH ASSESSMENT CANNOT BE MADE WITHOUT PROPER EV IDENCES COLLECTED AND ALSO DISPROVING THE CONTENTION OF THE APPELLANT AN D NOT THE ASSESSING OFFICER'S OWN IMAGINATION WHICH HE APPEARS TO HAVE DONE IN THE INSTANT CASE. 7.5 IT IS ALSO NOT IN DISPUTE THAT THE IMPROVEMENT EXPEN SES INCURRED FOR MAKING THE HOUSE HABITABLE ALSO QUALIFY FOR DEDUCTION UNDER SECTION 54. THE FOLLOWING CASE LAW SUPPORTS THIS VIEW WHICH FACT HAS NOT BEEN CALLED INTO QUESTION BY THE AO EITHER. NIRUPAMA K. SHAH VS ITO (2013) 52 (II) ITCL 63 (MUM B' TRIB) 8. DETAILS OF IMPROVEMENTS MADE AT PLOT NO. 3, M.R. G ARDEN, IDEAL HOMES, NO.25, PARUTHIPATTU IS SEEN TO BE THE FOLLOWING UNDER THE V ARIOUS HEADS: I. SEPTIC TANK AND COMPOUND WALL CONSTRUCTION - RS.4,50,000/- II. REPLASTING LABOUR WORK - RS.6,75,000/- III. TILES REMOVING AND RELAYING - RS.3,50,000/- IV. PLUMBING AND ELECTRICAL WORK - RS.2,50,000/- V. PAINTING WORK - RS.3,75,000/- VI. MAIN DOOR CHANGE AND CARPENTRY WORK - RS.2,00,0 007/- TOTAL - RS.23,00.000/- 8.1 DURING THE COURSE OF APPELLATE PROCEEDINGS, THE A PPELLANT WAS CALLED TO FURNISH THE DOCUMENTATION RELATING TO THE EXPENSES O N THE AFORESAID WORKS AND ON I.T.A NO.301/CHNY/2020 :- 5 -: A RANDOM TEST CHECK OF THE SAME IT IS SEEN THAT THE AS SESSEE WAS NOT IN A POSITION TO PRODUCE SATISFACTORY EVIDENCE RELATING TO TILE REMOVI NG AND RELAYING AND PAINTING WORKS AMOUNTING APPROXIMATELY TO 4.95 LAKHS. THEREFOR E THE ABOVE ROUNDED OFF TO RS.5 LAKHS IS BEING HELD TO BE NOT PROPERLY EXPLAINED A ND THEREFORE DISALLOWED. 9. FURTHER IN THIS CONNECTION IT IS PERTINENT TO MENT ION THAT IN LAW THERE IS A PRINCIPLE CALLED APPRECIATION OF FACTS ON THE BASIS OF PREPONDERANCE OF PROBABILITY WHICH WOULD BE APPLICABLE IN THE INSTANT CASE. INCOME TAX LAW BEING A SPECIAL LAW AND UNDER THIS LAW EVIDENCE FOR ANYTHING AND EVERYTHI NG IS NOT IMPERATIVE AND INCOME TAX OFFICERS ARE NOT EQUATED WITH THE JUDICI AL OFFICERS OF THE CIVIL COURT WHO FOLLOW INDIAN EVIDENCE ACT AND DECIDES ANY ISSUE O NLY ON THE BASIS OF STRICT EVIDENCES PRODUCED BY BOTH PARTIES. THE FOLLOWING CASE LAWS SUPPORT THE PROPOSITION THAT STRICT PROOF IS NOT NECESSARY FOR REACHING A DECISION IN INCOME TAX MATTERS; (I) CIT VS. SMT. VIMALABEN BHAGAVANDHAS PATE L (1979) 118 ITR 134 (GUJ) (II) ANRAJ NARAIN DASS VS CIT (1951) 20 ITR 56 2 (PUNJ) (III) LAXMIN CO VS CIT (1959) 37 ITR 461 (ALL) (IV) DEVI DASS MADHAV PRASAD VS CIT (1967) 63 ITR 356 (ALL) 9.1 THE INCOME TAX OFFICER HAS DISCRETION TO TAKE INT O ACCOUNT THE PRINCIPLE OF PREPONDERANCE OF PROBABILITIES AND THE FACTS OF A CAS E HAS TO BE APPRECIATED IN THE LIGHT OF THE ABOVE LEGAL PRINCIPLES AND THE FACTS OBTA INED IN AN IMPUGNED CASE. 9.2 THE ASSESSEE IN THE INSTANT CASE WAS AND IS NOW WORKING IN MUMBAI AND WANTED TO HAVE A HOUSE FOR HIS PERMANENT RESIDENCE WH ENEVER HE VISITS CHENNAI ON VACATION AND OTHER OCCASIONS AND BEING A NATIVE OF T AMILNADU HE NEEDED A HOUSE FOR HIS RESIDENCE AFTER RETIREMENT FROM SERVICE A ND KEEPING THESE CONSIDERATIONS IN MIND THE ASSESSEE PURCHASED AN OLD HOUS E AT PARUTHIPATTU WHICH WAS RENOVATED AT A COST OF RS.23,00,000/-, AND T HE INSPECTOR WHO VISITED THE RENOVATED HOUSE THEREFORE FORMED AN OPINION ON HIS OWN WITHOUT ANY EXPERT ADVICE THAT THE HOUSE WAS NOT RENOVATED AT ALL BUT ONL Y A NEW HOUSE IN THE PRESENT FORM HAD BEEN PURCHASED, WHICH DOES APPEAR TO REFLECT T HE GROUND REALITY AND WAS ARRIVED AT WITHOUT MUCH BASIS HENCE DOES NOT HAVE M UCH EVIDENTIARY VALUE. 9.3 IN VIEW OF THE ABOVE DISCUSSION INCLUDING THE FACTS AND ATTENDANT CIRCUMSTANCES OF THE CASE AND THE RELEVANT CASE LAWS REL IED ON BY THE RIVAL PARTIES AND THE MATERIAL ON RECORD, AS DISCUSSED IN THE FOREGOING PARAS, AN AMOUNT OF RS.5 LAKHS OUT OF THE IMPUGNED RS.23 LAKHS I S DISALLOWED AND ADDED BACK TO BE SUSTAINED ALLOWING THE BALANCE OF RS.18 LAKHS IN FAVOUR OF THE APPELLANT. THEREFORE THIS GROUND IS PARTLY ALLOWED. 5. ON BEING AGGRIEVED, THE REVENUE CARRIED THE MATT ER BEFORE THE TRIBUNAL. 6. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE ORDER PASSED BY THE A.O AND SUBMITTED THAT THE ASSE SSEE HAS NOT FILED I.T.A NO.301/CHNY/2020 :- 6 -: ANY EVIDENCE TO SUPPORT HIS CASE AND ALSO FURTHER S UBMITTED THE LD. CIT(A) ORDER MAY BE REVERSED. 7. ON THE OTHER HAND, THE LD. AUTHORIZED REPRESENTA TIVE STRONGLY SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 8. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERI ALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE CASE OF THE ASSESSEE IS THAT HE IS RESIDIN G AT MUMBAI AND HE HAS PURCHASED AN OLD HOUSE AT CHENNAI AND SUBSEQUEN TLY, REPAIRS ARE CARRIED IN THE HOUSE. THE COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE REPAIRS CARRIED BY THE ASSESSEE LONG BACK, FIVE YEARS AGO AND THEREFORE, HE IS NOT ABLE TO PRODUCE EVIDEN CE BEFORE THE A.O. HE FURTHER SUBMITTED THAT THE ENTIRE REPAIR WORKS/I MPROVEMENTS CARRIED OUT BY HIS RELATIVES AND HE IS NOT ABLE TO COLLECT THE BILLS AND VOUCHERS SINCE HE IS RESIDING AT MUMBAI. WE HAVE GONE THROU GH THE ASSESSMENT ORDER AND THE REPORT OF THE INSPECTOR. WE FIND THA T THE INSPECTOR HAS ENQUIRED WITH THE NEIGHBOURS AND THE NEIGHBOURS HAS STATED BEFORE HIM THAT THEY ARE NOT AWARE OF THE IMPROVEMENTS CARRIED OUT BY THE ASSESSEE. MAINLY, BASED ON THE ENQUIRES MADE WITH THE NEIGHBOURS, HE CAME TO THE CONCLUSION THAT THE ASSESSEE HAS NOT CARRIED OUT ANY IMPROVEMENT WORK AND DISALLOWED THE ENTIRE EXPENDIT URE CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A) IS OF THE OPINION THAT IF THE I.T.A NO.301/CHNY/2020 :- 7 -: A.O WANTED TO KNOW EXACTLY ABOUT THE IMPROVEMENT WORKS CARRIED OUT BY THE ASSESSEE, HE SHOULD HAVE BEEN ENQUIRED THROU GH A BUILDER WHO CONSTRUCTED THE BUILDING INSPITE OF NEIGHBOURS. FU RTHER, THE LD. CIT(A) KEEPING IN VIEW THE ABOVE AND ALSO BY CONSIDERING A LL OTHER FACTORS AND ALSO TAKE INTO CONSIDERATION THAT THE ASSESSEE IS N OT RESIDING AT CHENNAI HE IS ONLY RESIDING AT MUMBAI, HE DISALLOWE D AN AMOUNT OF RS. 5,00,000/- FOR LACK OF EVIDENCE AND DIRECTED THE A. O TO ALLOW THE BENEFIT U/S. 54 OF THE ACT TO THE EXTENT OF RS. 18,00,000/- . WE HAVE GONE THROUGH THE ENTIRE ORDER OF THE LD. CIT(A), WE FIND THAT THE DISALLOWANCE MADE BY THE LD. CIT(A) TO THE EXTENT OF RS. 5,00,00 0/- IS FAIR AND REASONABLE AND WE FIND THAT NO INTERFERENCE IS CALL ED FOR. IN VIEW OF THE ABOVE, THE APPEAL FILED BY THE REVENUE IS DISMISSED . 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON 30 TH SEPTEMBER, 2021 IN CHENNAI. SD/ - SD/ - ( ) (G. MANJUNATHA) /ACCOUNTANT MEMBER ( ) (V. DURGA RAO) /JUDICIAL MEMBER /CHENNAI, /DATED: 30 TH SEPTEMBER, 2021 . EDN/- /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF