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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE, JM:
The appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals) - 6 Mumbai, passed u/s. 143(3) and 250 of the Income Tax Act, 1961. The assessee has raised the fallowing grounds of appeal:
“1(i). The Learned CIT(Appeals) has erred in upholding the addition u/s 68 of I T Act, of Rs. 12,01,648/. 1(ii) Without prejudice to the above Ground, the Learned CIT(Appeals) has erred in upholding the addition u/s 68 of I T Act, of Rs.12,01,648/- which (figure) was arrived at by the learned AO merely on the basis of erroneous arithmetical M/s. Silverline Investment Co. Pvt ltd.,, Mumbai figure work. 1(iii)The Learned CIT(Appeals) has erred in upholding the addition u/s 68 of I T Act, of Rs. 12,01,648/- without touching the basic issues involved viz, the particular concerns in whose names the cash credits stood, amount of cash credit involved in each case and capacity of each concern to advance money etc which are conspicuously absent in the assessment order appealed against. 1(iv). The Learned CIT(Appeals) has erred in upholding the cash credits appearing in case of seven loan creditors out of whom particularly four loan creditors, admittedly, continued to exist so from preceding years, and the assessments for those years were completed in the appellant's case u/s 143(3) of the Act. 1(V) The Learned CIT(Appeals) has erred in upholding the addition u/s 68 of I T Act, of Rs.12,01,648/- although the assessment order appealed against did not contain party- wise discussion specifically as to Notices u/s 133(6) sent/served on the parties and compliance if any, received thereto. 1(vi). Without prejudice to the above Grounds, the Learned CIT(Appeals) has erred in upholding the addition u/s 68 of I T Act, of Rs.12,01,648/- without any comments on the closely connected issue of interest-expenses debited to P & L a/c and pertaining to that very cash credit amount, which was allowed by the learned AO, as claimed. 2(i). The Learned CIT(Appeals) has erred in upholding disallowance of Repairs & Maintenance expenditure of Rs.18,34,622/- made by the learned AO. 2(ii) The Learned CIT(Appeals) has erred in upholding disallowance of Repairs & Maintenance expenditure of Rs.18,34,622/- without considering the details of the expenditure with supporting as called for and submitted by the Appellant. 2(iii). The Learned CIT(Appeals) has erred in upholding disallowance of 'Repairs and Maintenance' expenditure of M/s. Silverline Investment Co. Pvt ltd.,, Mumbai Rs.18,34,622/- debited in the P & L Account under the head, 'operating expenses' towards school functioning, materials and other expenses without appreciating the fact that this related to only and only running Nursery and Primary schools at Kolkata, receipts wherefrom are shown separately and offered for taxation as business income. 2(iv). The Learned CIT(Appeals) has erred in upholding disallowance of Repairs & Maintenance expenditure of Rs.18,34,6221- by holding it as relatable to rental receipts for which a deduction u/s 24 of the Act is allowed separately in computing income from house property.
The Appellant craves leave to alter, amend and/or delete any ground of appeal or add a new ground of appeal during hearing of the Appeal.
2. The Brief facts of the case are that the assessee company is engaged in the business of running nursery and primary schools at Kolkata, wind power mill generation business and derives rental income from let out property. The assessee has filed the return of income for the A.Y 2014-15 on 28.11.2014 with a total income of Rs.27,57,280/- the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act was issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the details. The A.O on perusal of the financial statements found that the assessee has obtained unsecured loans of Rs.21,58,449/- and verified the opening balance and closing balance as on 31.03.2014 and confirmations were M/s. Silverline Investment Co. Pvt ltd.,, Mumbai called for in respect of unsecured loans. The assessee by letter dated 11.08.2016 submitted group summary of unsecured loans and advances received. The A.O found that there is a increase of amount of Rs. 12,01,648/- in unsecured loans in the said financial year. To verify the genuineness of unsecured loans, notice u/s 133(6) of the Act were issued and most of the notices were return back un served. On verification, the parties does not have creditworthiness and genuineness of the transactions was doubted. Since the assessee has not furnished the complete details of unsecured loans. The identity, creditworthiness and genuineness of the transactions of the parties remain unexplained. (i) The A.O considering the differential amount in the opening and closing balance has applied the provisions of Sec. 68 of the Act and made an addition of Rs. 12,01,648/-(ii).Similarly the A.O made addition u/s 40(A)(2)(b) in respect of non reconciliation in difference in expenses treated as unexplained expenditure u/s 69C of the Act Rs. 18,50,908/-.(iii) The A.O found as per the Tax Audit report the assessee has paid interest to its directors with out TDS and claimed interest on unsecured loans in the profit and loss account and the A.O. applying the provisions of Sec. 40(a)(ia) of the Act disallowed Rs. 10,58,541/.- (iv) The A.O. on verification of profit and M/s. Silverline Investment Co. Pvt ltd.,, Mumbai loss account find that the assessee has debited the repairs and maintenance and the A.O. has called for the segment wise profit and loss pertaining to revenue generated from sale of electricity, receipts from school and derives house property and interest income. Since the assessee has not filed the details and claimed the entire business activities expenses. The A.O found that the assessee company has claimed 30% statutory deduction u/s24 of the Act in the income from house property and hence made an addition of Rs. 18,34,622/- as non allowable expenses and assessed the total income of Rs. 87,03,000/- and passed order u/s 143(3) of the Act dated 02.11.2016.
3. Aggrieved by the order, the assessee has filed an appeal before the CIT(A).The CIT(A) considered the grounds of appeal
of the assessee, findings of the A.O and submissions of the assessee. Whereas, in respect of two disputed issues i.e.u/s 68 of the Act and repairs and maintenance expenses, the CIT(A) has confirmed the addition and where as in the other grounds of appeal, the CIT(A) has granted relief and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Honble Tribunal. M/s. Silverline Investment Co. Pvt ltd.,, Mumbai
4. At the time of hearing, the Ld.AR submitted that the CIT(A) has erred in confirming the addition made in respect of unsecured loans as the A.O has only made addition of difference between opening balance and closing balance of unsecured loans at the year end without identifying any particular loan transcation. The Ld.AR relied on the paper book and substantiated his arguments relying on the audited report and the information in the audited financial statements and prayed for allowing the claim. Similarly in respect of claim of repairs and maintenance expense, the A.O. observed that the assessee has claimed deduction under provisions of Sec.24 of the Act. The Ld.AR emphasized that the assessee derives rental income from school but has incurred specific maintenance expenses and it does not qualify for the claim u/s 24 of the Act. The Ld. AR referred to the account statement and nature of repairs and maintenance and explained that these are the factual needs to be mandatorily incurred for maintainence of building. Further in the subsequent Assessement years, the revenue has accepted the claim and allowed the deduction and prayed for allowing the assessee appeal. Contra, the Ld.DR relied on the order of the CIT(A).
5. We heard the rival submissions and perused the material on record. The first disputed issue is with regard M/s. Silverline Investment Co. Pvt ltd.,, Mumbai to addition of unsecured loans. We find that the provisions of Sec.68 of the Act will come into effect where there is a credit in the books of accounts. The A.O has considered the opening and closing balance of the unsecured loans and treated the difference as a unexplained credits u/s 68 of the Act. Though the A.O issued has notice U/Sec133(6) of the Act, were the part information has been received and some notices are returned back unserved. The A.O cannot make adhoc addition of unsecured loans without specifying the particular unsecured loan. The Ld.AR referred to the paper book page 34, where the assessee in compliance to notice u/s 142(1) of the Act has submitted the various details including the confirmation of unsecured loans at sno 7 which cannot be disputed. Further, at page 36 of the paper book, we find the assessee has submitted a group summary of unsecured loans. The A.O without identifying any particular unsecured loan of Mumbai or Kolkata in the group summary has made addition of difference in opening and closing balance of unsecured loans. We find that the methodology adopted by the A.O cannot be accepted, we on perusal of the group summary found that in the opening balance there are 7 unsecured loan creditors of Mumbai and 6 unsecured loan creditors of Kolkata and some of the loan creditors have been M/s. Silverline Investment Co. Pvt ltd.,, Mumbai squared off during the year. Whereas, in few cases, additional loans have been accepted and the same is reflected as the closing balances in the ledger account of the group summary provided. The A.O could have made enquiry in respect of any particular unsecured loan creditor and some of the loan creditors have been repaid which was accepted. Considering the overall facts and evidences, we find the submissions of the Ld.AR are realistic and duly supported by the material and the confirmations on record.
We are of the substantive opinion that the A.O cannot make the addition of unsecured loans u/s68 of the Act considering only the opening and closing balance of the unsecured loans in group summary. The unsecured loans may increase or decrease and accrued interest is credited and the actual interest payment by the assessee. Further each unsecured loan account has to be independently dealt and if the loan account does not satisfy the three ingredients of identity, creditworthiness and genuineness of the transaction, the provisions of Sec.68 of the Act are applicable. But in the present case, the assessment order clearly indicates that the A.O has only considered the opening and closing balance of the unsecured creditors without referring to any particular loan creditor. Accordingly, we set aside the order of the CIT(A) on this M/s. Silverline Investment Co. Pvt ltd.,, Mumbai ground of appeal as discussed in the above paragraphs and direct the A.O to delete the addition.
7. On the second disputed issue with respect to repairs and maintenance expenses of Rs. 18,34,622/- claimed in profit and loss account. The Ld. AR submitted that these are the repairs and maintenance expenditure incurred by the assessee to maintain the building in good condition and is an allowable claim. The Ld.AR demonstrated page 13 of the paper book, which discloses that the assessee is running a school and offered the receipts from schools at Sno.18 and was accepted. Further the operating expenses in respect of school and other expenses are referred at page 14 schedule 20 of the paper book, where the assessee has claimed the repairs and maintenance charges. Further on perusal, we found in financial year 2012-13 also the assessee has claimed repairs and maintenance and was accepted by the revenue. The contentions of the Ld.AR that the assessee has disclosed the school receipts separately and therefore the claim cannot be denied. The assessee is having different properties and the school property is one of them. The Ld.AR referred to the nature of repairs and maintenance charges-school at page 19 of the paper book being part of the annual report of F.Y.2013-14 which are variable expenses pertaining to repair charges, fire fighting AMC, M/s. Silverline Investment Co. Pvt ltd.,, Mumbai carpentry Charges, sewages and painting works and civil works and renovation expenses etc and similar expenses were claimed in earlier years.
We on perusal of these facts find that the assessee is clearly maintaining the claims of expenditure in the books of accounts which are Audited under the Companies Act and Tax Audit U/sec44AB of the Act. The A.O has accepted the fact of incurring of these expenses and not doubted the genuineness of nature of expenditure. The A.O’s only contention was that the assessee is running the school and the rental income is received and the assessee is allowed 30% of Net Rent as statutory deduction u/s 24 of the Act and therefore any other expenses incurred is not eligible for deduction. But the fact remains that the type/ nature of expenditure explained above does not qualify for deduction u/s 24 of the Act and they are necessarily incurred for maintaining the school building in usable and good condition for the safety, health and protection of school children. We are of the substantive opinion that the claim of expenses cannot be denied. Further the Ld.AR has explained that there are 3 properties and are let out and referred in the income tax return filed online with the income tax website and there is no connectivity in the properties and the school building is a independent . The M/s. Silverline Investment Co. Pvt ltd.,, Mumbai Ld.AR submits that no such disallowance was made in the subsequent assessment years by the revenue. We considering the overall facts, circumstances, provisions of the law, findings and the submissions of the Ld.AR are of the opinion that assessee has various business activities including the running of the schools and the A.O has not doubted the genuineness of the expenses. Accordingly, we set aside the order of the CIT(A) on this ground of appeal and direct the Assessing officer to delete the addition and allow the ground of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.