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Facts
The Revenue appealed against the CIT(A)'s order deleting disallowances made by the Assessing Officer (AO). The key issues involved disallowance of interest expenses, depreciation on a rented flat, and addition on account of cash deposits.
Held
The Tribunal affirmed the CIT(A)'s decision to delete the disallowance of interest expenses, citing a coordinate bench's ruling on similar facts. Regarding depreciation on a rented flat, the Tribunal agreed that it should be assessed as income from business if it's part of a composite rent arrangement, but disallowed depreciation if it's purely rental income assessable under 'Income from House Property'. The issue of cash deposits was remitted back to the AO for fresh adjudication.
Key Issues
Whether interest expenses claimed on a loan taken by a guarantor for another entity are allowable. Whether depreciation on a rental property can be claimed as business income. Whether cash deposits in a bank account are genuine and their source is proven.
Sections Cited
36(1)(iii), 23, 68, 46A, 22, 24(a)
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Income Tax Appellate Tribunal, “E” BENCH, DELHI
Before: MS. MADHUMITA ROY & SHRI NAVEEN CHANDRA
The instant appeal filed by the Revenue is directed against the order passed by the Ld. CIT(A)-6, Delhi, dated 25.08.2017 arising out of the Assessment Order passed by the ITO, Ward 16(3), New Delhi, dated 20.12.2016 under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for Assessment Year 2014-15. The issue relates to deletion of disallowance of Rs.16,16,297/- under Section 36(1)(iii) of the Act. The revenue has raised the following grounds before us:
“1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 16,16,297/- u/s 36(1) (iii) of the Income Tax Act, 1961(the Act) even when the assessee had not discharged its onus to prove that it had taken any short term or long term loan from Punjab & Sind Bank or from any entity ?
2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 16,16,297/- u/s 36(1)(iii) of the Income Tax Act, 1961(the Act) even when the assessee bad failed to prove the test of commercial expediency with regard to interest paid during the year under consideration?
3. Whether on facts and in circumstances of the case, the Ld. CIT(A) iS legally justified in deleting disallowance of Rs. 8,78,750/- on account of depreciation claimed on residential flat given on rent by ignoring the findings of the Assessing Officer that the assessee failed to prove that there was any composite rent agreement with the tenant and any kind of service was provided to the tenant during the year?
Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting the addition of Rs. 3,15,000/- on account 'Income from House Property' u/s 23 of the Act in respect of residential flat [Pent House, Leela Homes, Plot No. 23, Sector-IV, Vaishali, Ghaziabad) given on rent without considering ratio decidendi as upheld by the Delhi High Court in case of CIT Vs Ansal Housing & Finance & Leasing Co. Pvt Limited |2012]?
5. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting addition of Rs. 2,66,95,000/- u/s 68 of the Act on account of cash deposits in bank account by admitting new claim under Rule 46A of the Income Tax Rules ,1962 [the Rules] despite specific denial of the AO in his detailed remand report and even when the assessee had failed to discharge its initial onus to prove the genuineness of source of amount deposited in the bank during the course of assessment proceedings even after providing sufficient opportunities to the assessee?
6. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting addition of Rs. 2,66,95,000/ - u/s 68 of the Act on account of cash deposits during the year by ignoring the findings of the AO during assessment proceedings and remand proceedings as well that the assessee failed to prove the three basic conditions i.e. identity, creditworthiness of creditors and genuineness of transactions in this regard?
Whether on facts and in circumstances of the case, the Ld. CIT(A) is justified in allowing appeal by admitting new claim under Rule 46A of the Rules even when the case of assessee did not fall in clause (a) to (d) of Rule 46A of the Rules?
8. That the appellant craves leave to add, amend, alter or forgo any ground/(s) of the appeal either before or at the time of hearing of the appeal.”
The At the time of hearing of the matter, Ld. Senior Counsel appearing for the assessee submitted before us that the issue is squarely covered in assessee’s group case in for AY: 2014- 15 by the judgment passed by the Coordinate Bench a copy whereof has also been handed over to us. The relevant observation whereof is as follows:
“3. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the AO during the course of assessment proceedings, noticed that the assessee has claimed deduction of interest expenses u/s 16,16,297/-. The AO perused the balance sheet and noted that the assessee did not have any long term or short term borrowings. On specific query, the assessee informed that it is debiting interest on account of loan taken by Boulder Realcom Pvt. Limited from Punjab & Sind Bank. The assessee filed a letter from Boulder Realcom Pvt. Ltd. Clarifying that the interest of Rs.16,16,297/- is being debited to the amount of the assessee company as it was provided this loan taken from Punjab and Sind Bank and further clarified that interest has been paid by the assessee company. According to AO the bank has not advanced any money or loan to the assessee company. But it was clarified that assessee was only a guarantor of loan provided to Boulder Relacon Pvt. Ltd. of 9.50 crores and the property bearing no. 403, 419, 325 in the name of Mauve Star Realtors Pvt. Ltd was kept as guarantee. The AO finally noted that the assessee’s claim of interest expenses to Boulder Realcon Pvt. Ltd. or Punjab & Sind Bank is not proved due to the following reasons:-
1) If the contention of the assessee is considered that it had taken a loan from PSB and advance the same to M/s Boulder Realcon P. Ltd. that contention was also not proved. The transaction with regard to M/s Boulder Realcom P. Ltd. were examined. The assessee vide its letter dated 14/12/2016 submitted the copy of account of M/s. Mauve Star Realtors Pvt. Ltd. as annexure "B", which reveals that the Opening Balance was Rs. 14,74,476/, Debits during the year were Rs. 14,99,476/- and credits were Rs. 16,44,684/-, leaving the closing balance of Rs. 19,684/ No details of debits and credits were provided by the assessee company. But the limited information provided by the assessee company is sufficient to nail the lies put forth by the assessee company.
2) As per bank book submitted by the assessee vide letter dated 7.6.2016 it was observed that the assessee has received Rs. 25,000/- from M/s Boulder Realcon P. Ltd. on 29.04.2013 and paid Rs.14,99,476/ on 1.10.2013. But no entry of receipt of loan or advancement of loan is appearing in the bank statement of the assessee. This clearly indicates that the assessee has cooked up a story for justifying the interest expenses.”
Accordingly, the AO disallowed this amount of Rs.16,16,297/-. Aggrieved assessee preferred appeal before CIT(A).
4. The CIT(A) after considering the submissions of assessee deleted the disallowance by observing in para 3.2.3 are as under:-
“3.2.3. The facts of the case and the submissions of the appellant have been carefully considered. The AO has made addition prima facie on the ground that Appellant has not taken loan as well fail to submit Loan documents etc. Whereas Appellant submitted that The Loan was under the Scheme of "Rent Serutization "where the assessee company also a party to it. The Loan was disbursed to one M/s Bolduer Realcon Pvt. Limited and M/s Boulder Realcon Pvt Limited debited the Interest portion of Appellant. The fact is on file. Appellant further stated that on various opportunity apprises the AO that the company had been sanctioned a loan from Punjab & Sindh Bank and on same, the assessee company has paid interest, and the loan agreement has been already submitted. The same loan has been used by the appellant company for business purpose hence, in view of future prospective view of business, interest expenses of Rs.16,16,297/- should be allowed.”
Aggrieved, now Revenue is in appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the loan was taken by Bolduer Realcon Pvt. Limited from Punjab & Sind Bank under the scheme of “Rent Securitization” and to this “Rent Securitization”, assessee was also a party to it. Admittedly, Bolduer Realcon Pvt. Limited was sanctioned loan and assessee became a security holder for the same and ultimately the money was transferred to assessee i.e. the loan amount. Before us assessee filed copy of certificate regarding interest receipt by Bolduer Realcon Pvt. Limited from assessee for a sum of Rs.16,16,297/-. We noted that the assessee filed loan agreement with Punjab & Sind Bank, which was taken by Bolduer Realcon Pvt. Limited as representative of the whole of the consortium. Admittedly, the assessee filed copy of ledger account along with confirmation of Boulder Realcon Pvt. Limited forming receipt of sum of Rs.16,16,297/- and which was included in the income of assessee of Bolduer Realcon Pvt. Ltd. We noted that the assessee has incurred this expenditure as it has paid this interest on loan of Punjab and Sind Bank through Bolduer Realcon Pvt. Limited. In view of the above, we find no infirmity in the order of CIT(A). Accordingly, we affirm the order of CIT)A) on this issue and Revenue appeal is dismissed.”
Having regard to the order passed by the Coordinate Bench on identical issue, we do not find any reason to deviate from the same and applying the same ratio, we dismiss this ground of appeal preferred by the revenue.
4. Ground No. 3 & 4 is also covered by the order passed by Coordinate Bench in in Revenue’s appeal as contended by the Ld. AR which has not been able to be controverted by the Ld. DR.
5. We find that while dismissing these grounds raised by the Revenue allowing particularly this ground of appeal raised by Revenue the Coordinate Bench has been pleased to observe as follows:
“7. The brief facts relating to this interconnected issues are that the assessee has declared returned income on account of renting of flat at Risikesh rented out to Moat Infracon Pvt. Ltd. Rs.2.20,000/- per month. He aggregates the rental income earned by assessee during the relevant financial year 2013-14 relevant to this assessment year 2014-15 at Rs.26.40 lacs. The assessee has declared these flats as fixed asset and from all the flats declared at a value of Rs.1.85 Cr. in this balance sheet. This balance flats were given on 19 years lease to Moat Infracon Pvt. Ltd. from July, 2012. The assessee claimed deprecation on the above flats amounting to Rs.8,78,750/- and also claimed repair and maintenance at Rs.7.92 lacs. The Assessing Officer disallowed both and aggrieved assessee preferred appeal before Ld. CIT(A).
8. The CIT(A) deleting the disallowance of depreciation by holding that the assessee has disclosed rent received by assessee company under the head income from business, and, therefore, he allowed deprecation by observing in para. 3.3.3 as under:-
“3.3.3 The facts of the case and the submission of Appellant have been carefully considered. The Appellant has arental Income which the Company has declared under the head "Income from Business". The AO hascontended that the income received by the assessee is rental income. The concept ofcompositerent does not exist in the case of assessee as the facts narratedby the assessee clearly point out that the income is purely a rental income which has to be assessed as income from House Property. However, Appellant has relied upon various judgment and on guideline of Income Tax Department that in case of Composite Rent the income may be assessed under the head “Income From Business.’ Hon'ble Apex Court ruled in case of Chennai Properties & Investments Ltd. v. Commissioner of Income-tax, Central -III, Tamil Nadu that where the Company has main business of dealing in property, it may be treated as “Income From Business”.
I find merit in the argument of Appellant that Income was disclosed as per law and well covered under various judicial pronouncements mentioned by AR. The Income from property must be treated as Composite Rent on facts and be assessed under the head Income from Business. I therefore allow the Deprecation of Rs. 8,78,750/-. This ground of appeal is allowed on merit.”
Similarly, the CIT(A) also allowed repair and maintenance expenses by observing in 3.4.3 as under: “3.4.3The facts of the case and the submission of Appellant have been carefully considered. The Appellant has purchased a residential flat - Pent House No-6, on 12th floor in Leela Homes, Plot No-23, Sec-IV, Vaishali Ghaziabad on 21.06.2013 for Rs. 2,14,78,100/- and declared the same as its inventory. AO has contended that as per provision of section 23 the annual value of any property shall be deemed to be- meaning by that the Act has introduced the concept of fictional income, whether arises on accrued to the assessee or not. The Appellant relied upon Hon'ble Apex Court judgment in case of Ansal Housing & Construction Ltd.v.Commissioner of Income-tax-1, where it was held that Section 22 of the Income-tax Act, 1961 - Income from house property - Chargeable as (Income from unsold flats) - Assessment year 1994-95 - Assessee was engaged in business of construction of house property - Many flats were lying unsold - High Court by impugned order held that provisions of sections 22 and 23 would be applicable and assessee would be liable to pay tax on annual letting value of unsold flats as income from house propertyWhether Special LeavePetition filed against impugned order was to be granted - Held, yes . AR also contended that flat was not fit for letting out. AR further stated that In Union Budget-2017 has also incorporated provision that if any house property is held as stock in trade and such property is not let during the whole or part of the year, deemed annual value would be NIL for the period ofup to one' year from the end of financial year in which certificate of completion of construction or property obtained from the competent authority, hence assessing officer should not be allowed to charge deemed "annual value as rental income for such unsold stock for at least one year i.e. in case of Appellant till June 2015.
In view of the above discussion, I find the argument of Appellant that Income was disclosed as per law acceptable and also well covered under various judgements mentioned by AR. The deemed Income from house property of Rs.3,15,000/- is, therefore, deleted. This ground of appeal is, therefore, allowed.
Aggrieved against both, Revenue came in appeal before us.
We have heard the rival contentions and gone through the facts of the case. We noted that the assessee has received cash through flats rented out to Moat Infracon Pvt. Ltd. amounting to Rs.26,40,000/- per annum. Admittedly this income from house property and it is a rental income, once it is income from house property deprecation cannot be allowed because income from house property has to be assessed under head income from house property under the provisions of section 22 to 27 of the Act. Hence, in our view the depreciation cannot be allowed.
10. Coming to this issue of maintenance and repair expenses, we are of the view that the assessee is entitled for claim of deduction of 30% of rent and, accordingly, the Assessing Officer will allow standard deduction in term of section 24(a) of the Act. The AO will re-compute the income, accordingly, will re-determine these incomes. Hence, this issue of the Revenue’s appeal is partly allowed in view of the above directions.
Having regard to the order passed by the Coordinate Bench, we thus, remit the issue to the file of the Ld. AO to re-compute the income and accordingly re-determined this income, these grounds of appeal preferred by the Revenue are partly allowed.
7. Ground Nos. 5 to 7 are covered in assessee’s own group case in passed by the Coordinate bench.
On the other hand, the Ld. DR relied upon the order passed by the authorities below.
We have heard the rival submission made by the respective parties and we have also considered the order passed by the Coordinate Bench as referred by the Ld. AR. The Ld. DR prayed for setting aside the issue to the file of the Ld. AO in view of the fresh documents produced first time before the Ld. CIT(A) and no opportunity was given to the AO for admission of these new evidences which was similarly to that of the argument raised by the Ld. DR in and in that view of the matter taking into consideration the entire aspect of the matter the Coordinate Bench has been pleased to set aside the issue to the file of the Ld. AO with the following observation:
“14. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the assessee filed additional evidences like copy of accounts, bank statements and try to prove that the credits are done through banking channel and also repaid them (back through banking channel), as there is findings of CIT(A) above in para 13 qua this, we noted that the AO deputed the Inspector for verification of the parties namely Emtex Fabtrade Pvt. Ltd. and Aerens State Pvt. Ltd. but as per the report of Inspector these parties do not exists.
Now Revenue’s contention is that these documents are fresh documents and produced for the first time before the CIT(A) and no opportunity was provided to the AO before admitting the new evidences. Revenue’s contention is that there is clear cut violation of Rule 46A of the Income Tax Rules, hence, it was requested that the documents filed by assessee in its paper book from pages 141 to 225 and from page 293 to 534 can be remitted back to the file of the AO, who will verify all the documents and will ascertaining the creditworthiness and genuineness of these parties. Needless to say that onus is assessee to provide all these details to the AO and he will discharge his initial onus by providing the correct details i.e. correct address, identity of the party and creditworthiness of the party and genuineness of transaction. AO will re-decide accordingly. In term of the above, this issue is remitted back to the file of the AO.”
9. Having regard to the identical facts and circumstances of the matter as already narrated hereinbefore in our considered opinion this issue is also required to be adjudicated by the Ld. AO afresh upon considering these evidences placed before the Ld. CIT(A). Thus, for the ends of justice this issue is set aside to the file of the Ld. AO for consideration afresh upon granting an opportunity of being heard to the assessee and upon considering the evidences on record or any other evidence which the assessee may choose to file at the time of hearing of the matter.
The appeal of the Revenue is partly allowed for statistical purposes.