ITO, WD-30(4), KOLKATA, KOLKATA vs. M/S S. L. D. CORPORATION, KOLKATA

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA Before: Shri P. M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member I.T.A No.1220/Kol/2014 (Assessment Year: 2009-10) ITO, Wd-30(4), Kolkata Appellant Vs M/s. S. L. D Corporation Respondent [PAN: AAUFS 1818 E] For the Appellant : Shri P. B. Pramanik, Addl. CIT For the Respondent : Shri S.K. Tulsiyan, Advocate Date of hearing : 28.08.2017 Date of pronouncement : 08.11.2017 ORDER Shri S.S.Viswanethra Ravi, JM: This appeal filed by the Revenue against the order dated 28.02.2014 passed by the Commissioner of Income Tax (Appeals)- XIV, Kolkata for the assessment year 2009-10. 2. The brief facts of the case are that the assessee is a firm derived income from business and other sources. Accordingly, the assessee filed its return of income declaring total income of Rs.6,40,274/-. Notices under Sections 143(2) and 115WE(2) of the Act were issued. In response, the A/R representing the assessee filed details in support of his contention. The AO determined the income of the assessee at Rs.90,75,170 vide its order dated 29.12.2011 u/s 143(3) of the Act and made additions on account of income from house property, income from sale of flat, Fixed Deposit and remuneration. Page | 1

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 3. Ground No.1 is relating to addition made on account of unsecured loan. 4. During the course of scrutiny proceedings, the AO directed the assessee to produce details of creditors name, address and PAN. In response to that, the A/R representing the assessee stated that the said unsecured loan was taken from the Estate of Lekha Dutta, a deceased partner to the extent of Rs.45,62,944/- and from Mohin Dutta for Rs.18,520/-. By examination of the details as produced by the assessee, the AO opined that the said unsecured loan taken from the estate of deceased person, Lekha Dutta and for not providing any evidence showing, the loan no longer a liability of the assessee firm. Accordingly, the AO has considered the said amount as unexplained loan and added to the total income of the assessee. 5. Before the ld. CIT(A), the assessee contended that the said amount was outstanding balance in the capital account of Smt. Lekha Dutta on the date of her death and submitted that Section 68 is not maintainable for the reason that there was no new credit during the year under consideration. The CIT(A) sought Remand Report from the AO for which the CIT(A) observed that the AO did not make any comments. Therefore, the CIT(A) considering the assessment order and submissions of the assessee deleted the impugned amount by observing that the said amount is outstanding to the account of deceased Smt. Lekha Dutta. 6. Before us, the ld. DR argued that the CIT(A) has accepted the new evidence by the assessee and given relief without affording an opportunity to the AO. The A/R submits that all the details were submitted before the AO during the scrutiny proceedings and given reference to Para No.4 of the AO. In spite of having every material, the AO added the said amount high-handedly. The ld. AR further submits that the same details were produced before the CIT(A) after Page | 2

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 examining the same, the CIT(A) sought remand report and AO did not give any comments on the said details. The CIT(A) by considering the material evidence on record deleted the addition. 7. We have heard both and perused the materials available on record. The ground raised is only challenging the order of CIT(A) for violation of Rule 46A but however we find all the details in response to the statutory notices, the assessee produced every detail before the AO as can be seen in his order. In the first appellate proceedings also, the CIT(A) sought remand report only on the basis of examination of capital account of deceased Smt. Lekha Dutta for which the AO did not afford to give any report or comments whatsoever. The appellant failed to give on record that the assessee produced new evidence and AO has no opportunity to verify the same. Therefore, we find that no evidence was produced before the CIT(A) and in our opinion no interference is required in the impugned order. Accordingly, Ground No.1 raised by the revenue is dismissed. 8. Ground No.2 is relating to addition made on account of income from house property. During the course of assessment proceedings, the AO found that the assessee received an amount of Rs. 3,50,000/- under the head of rent from a property in Mumbai. The assessee claimed TDS against such income. The AO asked for details of TDS certificate and found that TDS was deducted by the tenant as per provision of Section 194I of the I.T. Act. Therefore, the AO denied the claim towards business income and the AO considered the said amount as income from house property. Accordingly, he added the said amount to the total income of the assessee. 9. Before the ld. CIT(A), the assessee contended that the AO arbitrarily treated the said amount as income from house property but the said property in Mumbai used for the purpose of commercial exploitation as the assessee is in the business of letting out Page | 3

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 properties. The CIT(A) sought remand report and no comments are received from the AO. The assessee further contented that the expenses claimed have no relation with the letting off a flat and those were statutory expenses incurred for the maintenance of the said flat in Mumbai. The assessee further explained the said expenses were claimed in the nature of salary, bonus as it was required for the running of the Mumbai Flat. The CIT(A) considering the balance sheet found that the said flat in Mumbai were shown as stock in trade and accordingly, the said income has been assessed under the head business income. The CIT(A) also examined the assessment in respect of A.Y 2005-06 wherein the Revenue accepted the said income as income from business. Accordingly, he directed the AO to treat the said amount as business income. 10. The ld. DR submits that no opportunity was given to the AO and without giving the said opportunity by accepting the new evidence, the CIT(A) deleted the said addition which is not maintainable. The ld. A/R submits that the property was considered as stock-in-trade and accordingly, Department has accepted the income earned from flat in Mumbai as business income for A.Y 2005-06. 11. We have considered the rival submissions and perused the materials available on record. It is observed that the property in question is a residential flat owned by assessee and income in the form of rent from the said flat is received by the assessee in his capacity as an owner. It is thus, a case of the receipt of rental income simplicitor by the assessee as the owner of the house property. In these facts and circumstances of the case, we are of the view that rental income received by the assessee is assessable to tax under the head “income from house property” notwithstanding the nature of property being stock in trade or the object of the assessee firm to exploit the property commercially as held recently by the Hon’ble Supreme Court in the case of Raj Dadarkar & Associates. Therefore, Page | 4

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 we set aside the impugned order of CIT(A) on this issue and restore the order of AO. 12. Ground No.3 is relating to questioning the action of CIT(A) for violation of Rule 46A in deleting the addition on account of sale of flat in Kolkata. 13. The AO found that the sale of flat for a consideration of Rs.35,00,000/- which was considered as closing stock as on 31.03.2008 and 31.03.2009. The AO for not submitting the relevant evidence of expenses added an amount of Rs.27,46,045/- taking into consideration the difference of sale price and cost price i.e (Rs.35,00,000 – Rs.7,53,955) = Rs.27,46,045/-. The CIT(A) sought remand report considering the fact that the bills and vouchers were not produced before the AO but however, no report was submitted by the AO. Taking into consideration and by examining the Profit and Loss A/c of the assessee and by observing net profit of the assessee was included in the computation of income and there is no need to compute the income arising from sale of flat. The CIT(A) deleted the said addition. 14. Before us, the ld. DR submits that the assessee did not produce any evidence in support of claiming expenditure. However, the AO considering the value of said flat basing on closing stock as on 31.03.2008 & 31.03.2009 added to the total income of the assessee. The CIT(A) accepted the new evidence and without giving an opportunity to the AO deleted the said addition. The ld. DR supported the order of AO. The AR submits that no new evidence was produced before the CIT(A). The CIT(A) only considered the Profit & Loss A/c and by examining the same observed that no separate computation is required whereas the said net profit element was considered and included in the computation of net profit of the assessee. The ld. AR prayed to dismiss the ground. Page | 5

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 15. We heard both and perused material available on record. We find that the ground raised by the Revenue is only challenging the violation of Rule 46A of the I.T Rules whereas it has observed from the record that the assessee did not file any new evidence before the CIT(A) and CIT(A) only considering the Profit & Loss A/c deleted the said addition which was submitted before the AO in the scrutiny proceedings. Therefore, we are of the view that the ld. DR unable to show that the assessee produced new evidence before the CIT(A). Therefore, no interference is required by this Tribunal. Thus, Ground No.3 raised by the Revenue is dismissed. 16. Ground No.4 is relating to an addition made on account of liability shown by assessee. The AO found that assessee has shown the liability of Rs.15,00,000/- on account of advance received against rent from Crysil Ltd., Mumbai now Tata Chemicals Ltd. in order to verify the same, the AO issued notice u/s 133(6) of the Act. The said Crysil Ltd replied by a letter dated 23.12.2011 stated that they have no transaction with assessee in the year under consideration, but they have paid a sum of Rs.42,50,000/- as security deposit concerning the A.Y 2010-11. The AO added the said amount as unexplained cash credit to the income of the assessee. Before the CIT(A), the assessee claimed that the said impugned amount was a liability pertaining to the advance received against rent from M/s Tata Chemical Ltd and contended that he addition made u/s 68 as unexplained income is not maintainable. The CIT(A) examined the annual accounts and found that the said amount is not a new credit during the year under consideration. The ld. CIT(A) also examined the agreement entered between assessee and said M/s Tata Chemical Ltd and found the contention of the assessee that the addition is not maintainable u/s 68 of the Act is acceptable. The relevant portion is reproduced below: “7.2 DECISION OF GROUND NO.5:- Page | 6

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 I have examined the observation of the Assessing Officer and the submission of the appellant. The assessee's submission is three-fold. It has claimed that the amount of liability Pertains to the amount of Advance Rent received from M/s Tata Chemicals Ltd. and hence it is not 'unexplained'. It has also claimed that Section 68 is only applicable on new credit entries during the year and not on brought forward balances and that there is no remedy in law to bring to tax any unexplained credit of earlier year. 7.2.2. I have seen from the Annual Accounts that the amount in question is not a new credit during the year. Also, the rent agreement shows that an amount of Rs.15,00,000/- was received from Tata Chemicals Ltd. towards advance rent. Based on the evidences in the paper-book and the decision of the Hon'ble Tribunals in the case of Shri Vardhman Overseas Ltd. v. Assistant Commissioner of Income-tax, Circle 8(1), New Delhi [2008] 24 SOT 393 (ITAT DELHI) and Assistant commissioner of Income-tax v. Shivalikloha Mills (p.) Ltd. [2003] 126 taxman 101(chd.)(mag.) I accept the contention that section 68 is not applicable to the said amount. 3. Coming to the objection of the A.O. that the advance rent must have been returned in 2006 on the termination of the agreement, the appellant has relied on the decision of the Hon'b1e Gujarat High court in the case of CIT vs. Bhogilal Ramjibhai Atara and has claimed that an outstanding credit balance cannot be added under section 41(1) merely because its genuineness is doubted. I have gone through the decision of the Hon'ble Gujarat High Court. The Hon'ble High Court has vividly discussed the facts similar to that of the appellant and has held that there is no remedy in the law to bring to tax outstanding credit amounts whose genuineness is doubted. Accordingly, I accept the legal contentions of the appellant and allow this Ground.” 17. The ld. DR submits that the AO issued notice u/s 133(6) of the Act to Tata Chemicals and denied the fact of payment of advance against the rent by the said M/s Tata Chemical Ltd. The ld. DR submits that the assessee has taken a new stand before the CIT(A) produced the agreement as well as annual accounts and nothing was filed before the AO and concealed the same. The CIT(A) without giving an opportunity was deleted the said amount. The A/R submits that all the details relating annual accounts, books of account and of every detail filed by the AO in the assessment proceedings and referred to Para No.4 of the order of AO. The CIT(A) only examined those details which were there before the AO and found that the said amount was reflected in the annual accounts. Therefore, it cannot be a cash credit attracting the section 68 of the Act and prayed to dismiss the ground raised by the Revenue. 18. Heard both and perused materials available on record. The CIT(A) examined the agreement entered between M/s Tata Chemical Ltd. and assessee which was found reflected in the annual accounts. Page | 7

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 The CIT(A) by placing reliance in the case of Shri Vardhman Overseas Ltd. v. ACIT, Circle 8(1), New Delhi [2008] 24 SOT 393 accepted the contention of the assessee that the addition made u/s 68 is not maintainable. Therefore, we find no infirmity in the order of CIT(A). 19. Ground No.5 is relating challenging the action of CIT(A) for violation of Rule 46A deleting the addition made on account of partners’ remuneration. 20. The assessee claimed an amount of Rs.1,48,000/- as remuneration paid to partners. On an examination of partners deed by the AO found that there was no such provision of payment of remuneration. Accordingly, the objection was raised by the AO for disallowance of said amount. The explanation of the assessee was that an amendment was carried on to the partnership deed but however, it appears failed to produce the same thereby the AO added the said amount to the income of the assessee. Before the CIT(A), it was contended that the said amount was not at all claimed as deduction in computing the income and adding the same separately is not maintainable. Considering the same, the CIT(A) sought remand report wherein the CIT(A) annexed the partnership deed but however, the AO did not give any comments on the said issue. The CIT(A) considering the amount of remuneration basing on the partnership deed restricted the addition up to 1,00,000/- and allowed the claim of deduction in respect of Smt. Mohini Dutta. The ld. DR relied on the order of AO. The ld. A/R relied on the order of CIT(A). 21. Heard both and perused materials available on record. The limited submissions as raised by way of this ground in this issue is only violation of Rule 46A but however, it is observed that the CIT(A) sought remand report by annexing partnership deed from the AO. The AO did not give any report nor any comments to the CIT(A). Therefore, the ld. DR unable to show that there was violation of Rule Page | 8

M/s. S. L. D Corporation I.T.A No.1220/Kol/2014 Assessment Year: 2009-10 46A deciding the issue by the CIT(A). Therefore, no infirmity in the order of CIT(A). Accordingly, Ground No.5 raised by the Revenue is dismissed. Order pronounced in the open court on 08.11.2017. Sd/- Sd/- P. M. Jagtap S.S. Viswanethra Ravi Accountant Member Judicial Member Dated :08.11.2017 Place : Kolkata RS(SPS) Copy of the order forwarded to: 1. Appellant –ITO, Ward-30(4), Kolkata, Aayakar Bhavan Dakshin, 2, Gariahut Road South, 5th Floor, Kolkata – 68. 2 Respondent – M/s. S.L.D. Corporation, 50/1A, Purnadas Road, Kolkata- 29. 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata //True Copy// By order, Sr.PS/H.O.O ITAT, Kolkata