SRI KORAMANGALA MUNIREDDY CHANDRA ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-4(3)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER

ITA. No. 1274/Bang/2017 Assessment Year : 2012-13

Shri Koramangala Munireddy Chandra, No. 18, 27th Main Road, The Deputy Commissioner of 1st Sector, HSR Layout, Income-tax, Vs. Bangalore – 560 034. Circle – 4 [3] [1], Bangalore. PAN: ABOPC 5215A APPELLANT RESPONDENT

ITA. No. 1275/Bang/2017 Assessment Year : 2012-13

Shri Koramangala Munireddy Muniswamy Reddy, No. 85/2/4, 17th Cross, The Deputy Commissioner of 24th Main, 1st Sector, Income-tax, Vs. HSR Layout, Vanganahalli, Circle – 4 [3] [1], Bangalore – 560 034. Bangalore. PAN: ACOPR 3893E APPELLANT RESPONDENT

Assessee by : Shri A. Shankar, Advocate Revenue by : Shri Balakrishnan. N, Addl. CIT (DR)

Date of hearing : 05.09.2017 Date of Pronouncement : 28.09.2017 O R D E R Per Shri A.K. Garodia, Accountant Member Both these appeals are filed by two different but connected assesses for the same Assessment Year 2012-13 and these are directed against two separate orders of CIT(A)-IV, Bangalore both dated 17.02.2017. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. The grounds raised by the assessee in ITA No. 1274/Bang/2017 are as under. “1. The order of the learned Commissioner of Income-tax [Appeals] passed under Section 250 of the Act in so far as it is against the

ITA Nos. 1274 & 1275/Bang/2017 Page 2 of 10 Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant’s case. 2. The appellant denies himself liable to be taxed over and above the income returned by the appellant of Rs. 28,43,330/-, under the facts and circumstances of the case. 3. The learned Commissioner of Income-tax [Appeals] is not justified in sustaining a portion of the addition made by the learned assessing officer on account of expenditure disallowed amounting to Rs. 3,28,060/- being the expenditure incurred by the appellant towards clearance of garbage, maintenance expenses, diesel and salaries without appreciating that the said expenditure are all allowable expenditure as per the statue and are all genuine and allowable expenditure under the facts and circumstances of the case. 4 Grounds on addition of Rs.36,30,000/- as notional rent on the facts and circumstances of the case. a. The learned Commissioner of Income-tax [Appeals] was not justified in confirming the addition made by the learned assessing officer of Rs. 36,30,000/- as notional rent on the basis of the rents received by the Appellant during the previous years on the facts and circumstances of the case. b. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the Annual Lettable Value of the impugned property is Nil as per the provisions of Section 23[1][c] of the Act on the facts and circumstances of the case. c. The learned Commissioner of Income-tax [Appeals] was not justified in confirming the ad-hoc computation of Rs.36,30,000/- on the facts and circumstances of the case. d. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the house property was let out for a period of 13 years and subsequently remained vacant for the whole assessment year despite efforts from the owner to subsequently let the same on the facts and circumstances of the case. 5. The learned Commissioner of Income-tax [Appeals] is not justified in confirming the addition to the extent of Rs. 50% amounting to Rs. 1,86,000/- being the addition made by the learned assessing officer of Rs. 3,72,000/- in the order of assessment, the said addition is based on mere suspicion, surmises and arbitrary on the facts and circumstances of the case. The learned Commissioner of Income-tax [Appeals] failed to appreciate that the said cast deposits were made by the appellant out of the excess surplus available with the apartment on the facts and circumstances of the case.

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ITA Nos. 1274 & 1275/Bang/2017 Page 4 of 10 credits under section 68 of the Act on the facts and circumstances of the case. a. The learned Commissioner of Income-tax [Appeals] erred in confirming the addition made by the learned assessing officer of Rs.1,56,37,876/- as unexplained cash credit under section 68 of the Act on the facts and circumstances of the case. b. The learned authorities below failed to appreciate that the credits are transactions between the co-owners of a property inherited vide partition deed dated 02/04/1997 for the repayments of the loan acquired for the renovation, repair of the property and the payments are all received through banking channels and transactions between the parties are genuine and consequently there is no application of provisions of section 68 of the Act under the facts and circumstances of the case. c. The learned authorities below failed to appreciate that the credits shown as gifts to the Appellant are all taxed amounts in the hands of the respective family members being their share of the rent received from the joint property and the source of such receipts have all been explained and the onus carted upon the appellant under section 68 of the Act has been complied with and consequently no addition could have been made under the provisions of section 68 of the Act under the facts and circumstances of the case. d. The learned authorities below failed to appreciate that there are no conditions in the statute that gifts have to be given only on occasions such as birthday, marriage, anniversary etc., under the facts and circumstances of the case. e. The learned authorities below failed to appreciate that the Appellant had discharged his primary onus as regards to the nature and source of the credit on the facts and circumstances of the case. f. The learned Commissioner of Income-tax [Appeals] erred in confirming the addition made by the learned assessing officer under section 68 of the Act on the premise that he same relates to the business income of the Appellant, which is contrary to the facts since there is no business income derived by the appellant under the facts and circumstances of the case. g. The learned authorities below failed to appreciate that the transactions are between the Appellant and his family members who have all filed their return of income and applicable taxes have been paid on the income and the same cannot be taxed u/s. 68 as unexplained cash credits.

ITA Nos. 1274 & 1275/Bang/2017 Page 5 of 10 5. The learned Assessing Officer is not justified in law in charging the interest under section 234B, 234C of the Act and further the calculation of interest under section 234B, 234C of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernable from the order of assessment on the facts and circumstance of the case. 6. The Appellant craves leave to add, alter, substitute and delete any or all of the grounds of appeal urged above. 7. For the above and other grounds to be urged during the hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.” 4. It was submitted by ld. AR of assessee that in both these appeals, one issue is common i.e. an addition made by the AO of Rs. 36.30 lakhs in each case as notional rent which is raised as per ground no. 4 in ITA No. 1274/Bang/2017 and as per ground no. 3 in ITA No. 1275/Bang/2017.Regarding this issue, he submitted that he drawn our attention to Para no. 7.3 of order of CIT(A) where it is noted by CIT(A) that the property has remained vacant since 2011 after the previous tenant has vacated the premises. He submitted that from these facts, it is clear that the property in question in both the cases is a let out property. He drawn our attention to the provisions of section 23(1)(c) of the I.T. Act, 1961 and submitted that as per this section, if the property is let out and was vacant during the whole or any part of the previous year and owing to such vacancy, actual rent received or receivable is less than the same referred to clause a of section 23(1) of the I.T. Act, 1961 then the amount so received / receivable is taxable. He submitted under these facts, the addition made by the AO and upheld by the CIT(A) should be deleted. Learned DR of the revenue supported the orders of lower authorities. 5. We have considered the rival submissions. In view of the facts of the present case as per which it is admitted position that the property in question is a let out property and in view of the provisions of section 23(1)(c) of the I.T. Act, 1961, we hold that since the rent received is nil because of vacancy, the addition made by the A. O. is not justified and hence deleted. 6. Regarding ground no. 3 in ITA No. 1274/Bang/2017, he submitted that page no. 8 of the order of CIT (A) is relevant in respect of this issue. He submitted that this is a basis of disallowance that the expenses incurred by the assessee on

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account of salary and wages cannot be allowed because the assessee could not produce the relevant documents. He drawn our attention to page no. 25 of the paper book and submitted that as per the lease deed executed between the assessee and M/s. Network Solutions Pvt. Ltd. available on pages 14 to 38 of paper book, it is specified that the lessor i.e. assessee has to arrange 100% power back-up through diesel generator/s and the lessee shall be liable to bear the fuel consumption charges as per the site usage along with labour and transport cost. At this juncture, it was observed by the bench that when the lessee has to bear the fuel consumption charges along with labour and transport cost, then how the expenses can be allowed in the hands of the assessee. In reply, the ld. AR of assessee had nothing to say. In this view of the matter, we find no infirmity in the order of CIT (A) on this issue. Accordingly ground no. 3 of the assessee’s this appeal is rejected. 7. Regarding ground no. 5 in ITA No. 1274/Bang/2017, he submitted that this was the claim of the assessee before the AO and CIT (A) that cash deposit in bank is out of earlier withdrawals. He drawn our attention to page 21 of order of CIT (A) and submitted that CIT (A) had accepted 50% of cash deposit on adhoc basis without any reasoning and therefore, the entire cash deposit of Rs. 3.72 lakhs should be accepted as explained. At this juncture, the bench asked the ld. AR of assessee to bring the details of date-wise cash deposit and cash withdrawal and in reply, the ld. AR of assessee submitted that during the course of day, he will file the relevant portion of the cash book and he filed the copy of cash book from 01.04.2011 to 31.03.2012. The ld. DR of revenue supported the orders of CIT(A). 8. We have considered the rival submissions. We find that out of total cash deposit of Rs. 3.72 lakhs, on 26.04.2011 Rs. 2 lakhs, on 03.06.2011Rs. 50,000, on 07.07.2011 Rs. 50,000 and on 13.10.2011 Rs. 72,000, CIT(A) accepted that 50% of such cash deposit as explained cash deposits. From the copy of cash book filed by ld. AR of assessee, we find that opening balance as on 01.04.2011 was Rs. 5,79,384/- and closing cash balance as on 31.03.2012 is Rs. 2,90,184/-. As per the copy of balance sheet as on 31.03.2012 available on page no. 4 of the paper book, the cash in hand as on 31.03.2012 is shown to be Rs. 2,90,184/- tallying with the cash book copy filed before us. As per the

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cash book in the month of April 2011, there is cash withdrawal of Rs. 3.50 lakhs on 13.04.2011 and thereafter, there is cash deposit of Rs. 2 lakhs on 26.04.2011. Hence, it is seen that the source of this cash deposits of Rs. 2 lakhs is properly explained. The second cash deposit is Rs. 50,000/- on 03.06.2011. It is seen that an amount of Rs. 40,000 was withdrawn from bank on 31.05.2011 and there is cash deposit of Rs. 50,000 on 03.06.2011. The opening cash in hand as on 01.06.2011 was Rs. 5,67,384/-. Hence this cash deposit is also properly explained. Regarding the remaining cash deposit of Rs. 50,000/- on 07.07.2011 and Rs. 72,000/- on 13.10.2011 also, it is seen that even after all the cash deposits, there is a cash in hand as per the cash book and balance sheet of Rs. 2,90,184/- as on 31.03.2012 and there is no dispute regarding this closing cash in hand of Rs. 2,90,184/-. We find no merit in the order of CIT (A) as per which, he says that only 50% cash is explained and remaining 50% is not explained and therefore, we delete the addition of Rs. 1,86,000/- upheld by CIT(A). Accordingly, ground no. 5 is allowed. 9. In ITA No. 1275/Bang/2017, the remaining issue is regarding addition of Rs. 1,56,37,876/- made by the AO and upheld by the CIT(A) u/s. 68 of the I.T. Act, 1961. It was submitted by ld. AR of assessee that this is noted by CIT(A) on pages 16 and 17 of his order that this amount of Rs. 1,56,37,876/- is on account of receipt of Rs. 70,96,834/- from Mrs. Sabitha, Rs. 45,01,042/- from Master Hitesh and Rs. 40,40,000 from Ms. Yashaswini and these are duly entered in the books of accounts and only objection raised by the CIT(A) is this that the assessee could not establish that these amounts were subjected to tax in the individual hands of these persons. In this regard, our attention was drawn to pages 83 to 87 of paper book containing income tax acknowledgment, statement of total income and form 26AS of Mrs. Sabitha, wife of assessee for the Assessment Year 2012-13 and it was pointed out that gross income of Mrs. Sabitha was Rs. 63,78,153/- and the net taxable income was Rs. 42,21,576/- under the head income from house property and Rs. 5,94,868/- under the head income from other sources. He further submitted that similarly, the income tax return acknowledgment and statement of total income along with form no. 26AS of Shri Hitesh K M, son of the assessee for the same Assessment Year is available on pages 88 to 90 of paper book and it is seen that his taxable

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income was also substantial i.e. Rs. 41,38,300/-. Regarding Ms. Yashaswini, it was submitted that on pages 94 to 101 of paper book is the copy of ledger extract of gifts paid to Ms. Yashaswini by the assessee during the Assessment Year 2009-10 to Assessment Year 2012-13 and the same is Rs. 9.95 lakhs in Assessment Year 2009-10, Rs. 5.45 lakhs in Assessment Year 2010-11, Rs. 5.40 lakhs in Assessment Year 2011-12 and Rs. 3.60 lakhs in Assessment Year 2012-13 and total of Rs. 44 lakhs is advance tax paid on 31.03.2012 of including this Rs. 40.40 lakhs. He further submitted that on pages 114 to 115 of paper book is statement of cash as on 31.03.2012 of Mrs. Sabitha and Shri Hitesh K M and as per the same, the gift paid by Mrs. Sabitha to the assessee is shown to be Rs. 70,96,834/- and gift paid by Shri Hitesh K M to the assessee is shown to be Rs. 45,01,042/-. All these three amounts are tallying and therefore, the addition made by the AO and upheld by the CIT(A) should be deleted. The ld. DR of revenue supported the orders of authorities below. 10. We have considered the rival submissions. We find that the only objection of the CIT(A) is this as to whether these amounts were taxed in the hands of the individuals i.e. wife, son and daughter of the assessee. As per the copy of the return filed by the wife and son of the assessee, the income shown by them is substantial i.e. Rs. 47,16,444/- by the wife of the assessee Ms. Sabitha and Rs. 41,38,300/- by Shri Hitesh K M, son of the assessee as against the amount of gifts shown by them of Rs. 70,96,834/- and Rs. 45,01,042/- respectively. When the income in one year itself shows substantial income and these two persons are regular income tax assesses and in view of this finding of CIT(A) that these credits in itself are not unexplained in the sense that these are available in the books and the only objection of the CIT(A) is this that these credits remains unsubstantiated because the assessee did not establish that these are subjected to tax in the individual hands of these persons. In view of this factual position that substantial income has been shown by these two persons in the Income Tax returns, this objection of CIT(A) do not survive. 11. Regarding receipt of Rs. 40.40 lakhs from the daughter Ms. Yashaswini, we find that substantial amount was given by the assessee to his daughter in earlier years i.e. Assessment Year 2009-10, 2010-11 and 2011-12 and in the present year also. The assessee has received Rs. 44 lakhs from his daughter

ITA Nos. 1274 & 1275/Bang/2017 Page 9 of 10 Ms. Yashaswini by cheque on 21.11.2011. Copy of the bank statement of Ms. Yashaswini with Karnataka Bank Ltd. is available on page 92 of paper book and it is seen that an amount of Rs. 41,48,099/- is credited in her bank account on 21.11.2011 on account of closure proceeds. Another amount is credited in bank account on the same date of Rs. 3,27,044/- being closure proceeds and against these two credits of about Rs. 44.75 lakhs, this cheque of Rs. 44 lakhs given by her to the present assessee has been cleared. Regarding this receipt from Ms. Yashaswini daughter of the assessee, it is to be looked into whether she is a minor and if she is a minor, her interest income on account of various deposits has to be taxed in the hands of the present assessee i.e. the father of Ms. Yashaswini. Hence for this purpose, we restore back the matter to the file of AO for fresh decision after examining this aspect as to how much is the interest potion included in two credits of Rs. 41,48,099/- and Rs. 3,27,044/- and whether these intertest income is taxable in the hands of the present assessee or not after finding out whether Ms. Yashaswini the daughter of the assessee is minor or not. If it is found that she is a minor, then the interest income included in these two credits should be taxed in the hands of the present assessee. If it is found that she is not a minor, the said income cannot be taxed in the hands of the present assessee but it should be looked into as to whether she is filing her income tax returns and paying tax on the income or not and appropriate action as per law may be taken in her hands. This ground is partly allowed subject to these observations. 12. In the combined result, the appeal filed by the assessee in ITA No. 1274/Bang/2017 is partly allowed whereas the appeal filed by the assessee in ITA No. 1275/Bang/2017 is allowed in the terms indicated above.

Order pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (VIJAL PAL RAO) (ARUN KUMAR GARODIA) Judicial Member Accountant Member Bangalore, Dated, the 28th September, 2017. /MS/

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Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Senior Private Secretary, Income Tax Appellate Tribunal, Bangalore.