DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-3(4), MUMBAI, MUMBAI vs. MANISHA KAMAL KHETAN, MUMBAI

The assessee submitted that she was not the owner of the said companies and she was only a signing authority. She also submitted that she did not have beneficial interest in the bank accounts and the companies were separate legal entities. The AO, however, did not accept the explanation on the ground that no account opening documents, company resolutions or MOU were furnished and it was not established that the assessee was merely a signatory. The AO concluded that the source of increase in peak balance remained unexplained. Accordingly, the AO added Rs. 7,31,35,963/- under section 68 r.w.s. 115BBE as unexplained cash credits.

The AO further noted that Villa No. K-25, Palm Jumeirah, Dubai was held in the name of M/s Parkland Investments Ltd., and the assessee claimed to have beneficiary interest therein. The assessee contended that the property belonged to M/s Parkland Manisha Kamal Khetan Investments Ltd., a UAE incorporated company and rental income was offered by the company in UAE.

The AO rejected the explanation holding that the assessee had not furnished documentary evidence to establish absence of ownership and in absence of satisfactory evidence, provisions of section 23(1) were applicable. The AO gathered rental data from public sources and estimated the annual value at Rs. 2,16,10,450/- and after allowing deduction under section 24(a) computed income from house property at Rs. 1,51,27,315/-. The same was added to total income.

Accordingly, the AO completed the assessment under section 143(3) making above mentioned additions to determine total income at Rs. 10,25,31,752/-.

Aggrieved, the assessee preferred appeal before the Ld. CIT(A). On the issue of advance rent of Rs. 22,49,854/-, before the Ld. CIT(A), the assessee submitted that the immovable property situated in Dubai was jointly owned by her and her husband and that the same had been let out under valid tenancy agreements. It was explained that two tenancy agreements were executed during the relevant period. Under the second tenancy agreement, a sum of Rs. 22,49,854/- was received in advance towards rent. The assessee contended that such advance rent pertained partly to Assessment Year 2023–24 and partly to Assessment Year 2024–25. It was further submitted that rental income had been offered proportionately in the respective years in accordance with the period to which it related. In support of this Manisha Kamal Khetan contention, the assessee placed on record the return of income for A.Y. 2024–25 evidencing inclusion of the balance portion of rental income relatable to that year. The Ld. CIT(A), after considering the material on record, held that the source of receipt of Rs. 22,49,854/- was clearly identifiable as advance rent received under a valid tenancy agreement and, therefore, the same could not be treated as unexplained cash credit under section 68 of the Act. However, since the rent was admittedly received during the year under consideration, the Ld. CIT(A) held that the same was liable to be taxed on receipt basis as income from house property in A.Y. 2023–24. Accordingly, the addition was sustained as regular house property income and not as unexplained cash credit. At the same time, the Ld. CIT(A) directed that appropriate adjustment be made in A.Y. 2024–25 so as to avoid double taxation of the same income. Thus, this ground was partly allowed.

With regard to the addition of Rs. 7,31,35,963/- under section 68 r.w.s. 115BBE on account of increase in peak balances of foreign bank accounts, the assessee submitted before the Ld. CIT(A) that she was merely a beneficiary of the Khetan Family Trust and not the owner of the entities in whose names the bank accounts were maintained. It was explained that the Trust owned M/s Skyways International Pte. Ltd., and the said company in turn owned M/s Parkland Investments Ltd. The assessee contended that she was only an authorized signatory for operational purposes and had no ownership or beneficial interest Manisha Kamal Khetan in the bank accounts. It was further submitted that in her return of income she had duly disclosed her status in Schedule FA as a beneficiary and not as a beneficial owner. The bank accounts in question did not belong to her and the amounts therein did not represent her income. The Ld. CIT(A), upon appreciation of the factual matrix, recorded that both M/s Skyways International Pte. Ltd. and M/s Parkland Investments Ltd. were separate legal entities in the eyes of law. It was observed that mere signatory authority to a bank account or beneficial interest through a trust would not, by itself, justify lifting the corporate veil. The Ld. CIT(A) further held that no material had been brought on record by the Assessing Officer to demonstrate that the companies were sham, alter ego of the assessee, or created for tax evasion purposes. It was also observed that section 68 contemplates addition in respect of unexplained credits appearing in the books of the assessee, whereas the bank accounts in question did not pertain to the assessee. In view of these findings, the Ld. CIT(A) deleted the addition of Rs. 7,31,35,963/-.

In respect of addition of Rs. 1,51,27,315/- towards notional rent on Villa No. K-25, Palm Jumeirah, the Ld. CIT(A) recorded that the property stood in the name of M/s Parkland Investments Ltd., a separate corporate entity. It was held that the assessee was neither the legal owner nor a deemed owner of the said property within the meaning of section 22 read with section 27 of the Act. The Ld. CIT(A) further observed that no circumstances existed to warrant piercing of the corporate veil and attributing Manisha Kamal Khetan ownership of the company’s asset to the assessee. Since notional rent under the head “Income from House Property” can be assessed only in the hands of the owner or deemed owner, the Ld. CIT(A) held that such addition could not be sustained in the hands of the assessee. Accordingly, the addition of Rs. 1,51,27,315/- was deleted.

Aggrieved by the order of CIT(A), the revenue is in appeal before us raising following grounds of appeal:

The appellant craves to leave, to add, to amend and / or to alter any of the ground of appeal

The learned Authorised Representative (AR), at the outset, supported the impugned order of the learned CIT(A). The learned AR drew our attention to the relevant portions of the order of the learned CIT(A) wherein it has been recorded that complete details Manisha Kamal Khetan in respect of tenancy agreements, trust structure and ownership of overseas properties were furnished before the Assessing Officer. It was submitted that the learned CIT(A) has specifically noted that the Assessing Officer has not brought any adverse material on record to rebut the documentary evidences filed by the assessee. The learned AR submitted that the tenancy contract dated 13.02.2023 entered into with Phoenix Universal General Trading L.L.C. is placed at page 16 of the paper book. The said contract clearly records the names of the lessors as Shri Kamal Shrigopal Khetan and Smt. Manisha Kamal Khetan and specifies the contract period from 15.02.2023 to 14.02.2024 with annual rent of AED 230,000/- payable in one instalment. He further submitted that the computation of income and working of rental income for the year under consideration are placed at pages 5 to 8 of the paper book, evidencing that the rental income pertaining to the relevant period was duly offered to tax. The return of income for the subsequent assessment year, wherein the balance rent was offered, is placed at pages 9 to 12 of the paper book. The learned AR pointed out that the bank book of Bank of Singapore Account No. 681966 reflecting the receipt of rent are placed at pages 6 of the paper book and the summary of peak balance is also placed therein. It was submitted that all these documents were filed before the Assessing Officer during assessment proceedings and the learned CIT(A) has recorded a categorical finding to that effect.

With regard to the addition on account of alleged notional rent in respect of Villa No. K-25, Palm Jumeirah, the learned AR submitted that the learned CIT(A) has examined the tenancy contract dated 15.10.2021 placed at page 18-19 of the paper book. The said contract clearly records Parkland Investments Limited as the owner/lessor of the property and the tenants. The annual rent of AED 400,000/- is specifically mentioned therein. It was submitted that the said document conclusively establishes that the property is owned by the company and not by the assessee. The learned CIT(A) has recorded a finding that the Manisha Kamal Khetan Assessing Officer has not brought any evidence to demonstrate that the assessee was the legal or deemed owner of the property.

In response to the request of the learned DR for remand, the learned AR submitted that all the above documents, including tenancy contracts were filed before the Assessing Officer during assessment proceedings. It was submitted that the Ld. CIT(A) has passed a reasoned order after appreciating the documentary evidence and no fresh material is being produced before the Tribunal. Accordingly, it was prayed that the order of the Ld. CIT(A) be upheld and the grounds raised

We now proceed to examine the issues on merits. Issue relating to advance rent of Rs. 22,49,854/- 21. The undisputed factual position is that the assessee along with her husband was co-owner of an office premises situated at Lake Tower, Business Bay, Dubai. The tenancy contract dated 13.02.2023 evidencing lease of the premises for the period 15.02.2023 to 14.02.2024 at an annual rent of AED 230,000/- is placed in the paper book. The bank statements reflecting receipt of rent are also on record.

The assessee’s consistent explanation before the Assessing Officer and the learned CIT(A) was that part of the rent received during the year represented advance pertaining to the subsequent assessment year and that the income had been offered proportionately in the respective years. The learned CIT(A), after examining the material, held that the receipt was identifiable as rent and not an unexplained credit and therefore could not be assessed under section 68.

We have perused the relevant documents placed in the paper book. The bank accounts in question are admittedly not in the personal name of the assessee. No material has been brought on record by the Assessing Officer to demonstrate that the corporate entities were sham or mere conduits of the assessee. The addition is premised solely on the fact of signatory authority and alleged beneficiary status. Such a presumption, in absence of evidence establishing ownership or control of funds as alter ego, cannot sustain an addition under section 68.The learned DR has not pointed out any specific material to contradict the factual findings recorded by the learned CIT(A). In absence of evidence to lift the corporate veil or to establish that the monies represented undisclosed income of the assessee, the deletion of addition by the learned CIT(A) is legally sustainable. Accordingly, we uphold the order of the learned CIT(A) deleting the addition of Rs. 7,31,35,963/-. Issue relating to addition of Rs. 1,51,27,315/- towards notional rent 26. The Assessing Officer assessed notional rent in respect of Villa No. K-25, Palm Jumeirah on the premise that the assessee had beneficial interest in the property. The tenancy contract dated 15.10.2021, placed on record, clearly records Parkland Investments Limited as the owner/lessor of the property. The Manisha Kamal Khetan assessee is not shown as owner in the said document. The learned CIT(A) has recorded a clear finding that the property stood in the name of a corporate entity and that the assessee was neither the legal owner nor deemed owner within the meaning of section 22 read with section 27 of the Act. In absence of ownership, income from house property cannot be assessed in the hands of the assessee. The Assessing Officer has not brought any material to demonstrate that the corporate entity was a mere façade or that the property was held benami for the assessee. The learned DR has reiterated that the learned CIT(A) erred in deleting the addition without adequate evidence. However, we find that the tenancy contract and related documents were part of the assessment record and were examined by the learned CIT(A). No contrary evidence has been placed before us to dislodge the finding that the property is owned by Parkland Investments Limited. In these circumstances, we concur with the learned CIT(A) that notional rent cannot be assessed in the hands of a person who is neither the legal nor deemed owner.

Upon consideration of the entire material, we find that the learned CIT(A) has passed a reasoned and speaking order dealing with each addition separately and on the basis of documentary evidences already forming part of the assessment record. The learned DR has not been able to demonstrate any perversity in the findings or any fresh material warranting interference or remand.