SHANKAR MAHAL CO OP HSG SOCIETY LTD,MUMBAI vs. ITO 16(1)(3), MUMBAI

1. This appeal has been filed by the assessee against order dated 14/01/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-30, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’).

Brief facts of the case is that the assessee a co-operative Housing Society heaving income from other sources mainly from interest income such as interest received from cooperative bank and non-cooperative banks transfer fees received etc., filed its return of income for the assessment year under consideration declaring the total income of Rs. 3,25,930/-. The case was selected for scrutiny and accordingly notices under section 143 (2) and 142(1)

The assessee challenged the assessment order and contended that the AO has wrongly added the amount of refundable deposit taken as security for future damage as could possibly be caused by the tenant (Vodafone) having no revenue implication. Without prejudice to above, merely because Vodafone inadvertently deducted tax at source revenue recognition cannot be presumed automatically in the hands of the appellant. The Ld CIT(A) after hearing the assessee confirmed the addition made by the AO.

Aggrieved by the order of Ld. CIT (Appeals), the assessee has preferred this appeal before the Tribunal on the following effective ground:-

Addition on account of alleged refundable security deposit accepted against future damage – No revenue implication – No addition – Rs/ 4,41,000/-.

This case was fixed for hearing for 11.10.17. When the case was called for hearing neither the assessee nor the authorized representative appeared. We noticed that on the earlier dates of hearing either the assessee did not appear or adjournments were sought on behalf of the assessee. So, we are convinced that the assessee is not interested in pursuing its appeal. Hence, we decided to dispose of this appeal on the basis of material on record after hearing the departmental representative (DR). Accordingly, we allowed the Ld. DR to advance arguments on behalf of the revenue.

Before us, the Ld. departmental representative (DR) relying on the order of the learned CIT(A) submitted that since the assessee had claimed TDS of Rs. 1,16,100/-the assessee was asked as to why the difference of Rs. 4,41,000/- should not be added to the total income and since the assessee could not explain the same, the learned CIT(A) has rightly upheld the addition made by the AO.

We have heard the Ld. DR and perused the entire material on record. The only grievance of the assessee is that the learned CIT(A) has wrongly confirmed the addition made by the AO. We notice that the assessee has contended before the authorities Ld. CIT(A) that it had entered into an agreement with Vodafone for extending certain space facility for which the company agreed to pay rent of Rs. 60,000/-per 4 Assessment Year: 2011-12 month and besides that deposit for security purpose. Out of the total receipt of Rs 11,61,000/-total revenue was RS 7,20,000/-which has been offered to tax. Due to some dispute the said amount was not returned and deposited in the bank. Since, Vodafone had deducted an amount of Rs 1,16,000/-as TDS, it claimed the credit balance of Rs 4,41,000/-. The Ld. CIT(A) has affirmed the addition made by the AO holding as under as under: “ 9.3 Perused the rival contentions on the issue under appeal. The AO added the amount of Rs. 4,41,000/-which is the difference of amount received from Vodafone of Rs. 11,61,000/– (minus) Rs.7,20,000/- for the reason that the amount is not offered to tax though the TDS is deducted on the entire amount. Whereas the appellant says that balance amount is for the purpose of deposit for security purpose and is a balance sheet item and cannot be added as revenue receipt. The appellant tries to reconcile the balance in the liabilities and says that an amount of Rs. 15,896/– only remains unsubstantiated from the balance sheet items. However he could not reconcile the same properly. In the submissions it is stated that an amount of Rs 3,00,104 under three different heads in the balance sheet as mentioned in para 8.2. Again after that the appellant discussed the amount of Rs 4,41,000/– and the TDS amount of 10% on such amount and net figure is arrived at Rs 3,96,000/-. Whereas an amount of Rs 1, 16,000/– is directed as TDS on the total amount of Rs 11,61,000/–. At that point the appellant says that an amount of Rs 96,796/– is not in a position to explain. But later it is brought down to Rs 15, 896/–. With all these things it is clear that the appellant tries to reconcile the balance with the liability shown in the B/S which he has miserably failed to do so. On verification of the balance sheet furnished for the year ending March, 2011 it is noticed that the balances in the liabilities, claim to have been of the deposits from the amounts received from Vodafone are brought forward balances from the earlier year. Apart from that, as per the agreement there is no mention of amount of Rs 1,75,000/– which is shown under the head liabilities. In view of the all these discrepancies and also the appellant could not able to reconcile the 5 Assessment Year: 2011-12 balance amount of Rs 4, 41,000/– which was not offered to tax, the contentions of the appellant is not found to be in order and for this reason it is held that the AO is right in considering the entire amount for taxation and accordingly the total amount received from Vodafone Ltd of Rs 11,61,000/– is treated as revenue receipt of the current year and is to be assessed. The ground number 4 is dismissed and appellant fails on this ground.”

From the observations of the Ld. CIT(A) these facts emerge that the assessee entered into an agreement with Vodafone for extending certain space facility and the said company agreed to pay the rent of Rs. 60,000/- per month besides security deposit. According to the assessee out of Rs. 11,61,000/- received from Vodafone, Rs. 7,20,000/- was received towards rent which was offered to tax and the remaining amount was received towards security. The authorities below have treated the remaining amount as revenue receipt for the reason that the assessee had claimed TDS of Rs. 1,16,100/- in computation of income. As per the AO the authorized representative of the assessee failed to explain as to why the company Vodafone deducted the tax at source on the entire payment if the part of it was towards security. On the other hand the Ld. CIT(A) affirmed the action of AO holding that the assessee has failed to reconcile the balance with the liability shown in the balance sheet to substantiate its plea. So, in our considered view before making addition of the amount in question, AO should have verified the facts to establish that the entire amount was revenue receipt. Under these circumstances we are of the considered view that further verification of the facts by the AO in the light of the contention of the assessee is necessary. Hence, we set aside the findings of the Ld. CIT(A) and restore the issue back to the file of AO to decide the same afresh after taking into consideration the plea of the assessee. Needless to say that AO shall afford a reasonable opportunity of being heard to the assessee.