P. SUBRAMANI,CHENNAI vs. ACIT, CORPORATE CRICLE 1(1), CHENNAI

5. The NFAC further failed to appreciate that the amount is recognized income in the subsequent year when the student undertakes the training course and thereby is offered to tax in that particular year and hence the addition u/s.68 was only on surmises and conjectures and needs to be deleted.

6. The NFAC further failed to appreciate that the assessee has rightly recognized the amount as income in the appropriate year when the student undertakes the computer course and the prerogative of assessee cannot be doubted by the officer to render the addition as unexplained cash credits.

8. The NFAC was not justified in confirming the entire amount of addition without taking due cognizance of the fact that the amounts received from the students in the earlier years is reflected as opening balance of this year and therefore confirming the entire addition was unjustified and unsustainable on the facts of the case.

9. The NFAC was not justified in confirming the addition without taking cognisance of the submissions and documents uploaded in the portal in response to the hearing notice and the conclusion that assessee has not filed any evidence is perverse and not justified.

C. Capital Gains computation for T.Nagar property :

11. The NFAC erred in confirming the recomputation of capital gains by the AO for the T.Nagar property.

D. Capital Gains computation for Kolathur property

14. The NFAC erred in confirming the re-computation of capital gains by the AO for the Kolathur property.

16. The NFAC, in any event, ought to have considered all the contentions and submissions of assessee in the proper perspective and deleted the additions made over and above the income returned by assessee.

3. Brief facts of the case are that the assessee is an individual filed his return of income for the assessment year 2016-17 comprising of income of proprietary business by name Apollo Computer Education which offers various computer related training courses. The assessee is also deriving income from let-out property, income from capital gains and interest income. For the relevant assessment year 2016-17, the assessee filed his return of income on 02.08.2017 declaring total income of Rs.83,91,200/-. The case was selected for complete scrutiny under CASS and statutory notices were issued to the assessee calling for information and details. The assessee submitted the details and documents as and when called for and the AO completed the assessment u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) dated 27.12.2018 by making the following additions:- i) Income from house property – Rs.59,850/- ii) Addition under Other sources – Rs.7,34,55,700/- iii) Capital Gains : Long Term – Rs.1,19,98,298/- Short Term – Rs.5,16,528/- The AO on perusal of Form 26AS found that the assessee had offered rent of Rs.18,00,000/- under the head ‘rental income’ against the rental income reported of Rs.18,85,500/-. Hence, the rental income not disclosed by the assessee to the extent of Rs.85,500/- is added to the income after allowing 30% standard deduction. Further, the AO found that the assessee has shown an amount of Rs.7,34,55,700/- as fees received in advance under the head ‘current liabilities’ in the balance sheet and has not supported by the supporting documentary evidences to substantiate the same. Hence, the AO added the same as income u/s.68 r.w.s 115BBE of the Act as unexplained credits. The AO also found that the assessee has sold a vacant land at T.Nagar admeasuring 6,925 sq.ft., at the rate of Rs.12,000/- per sq.ft. amounting to Rs.8,31,00,000/- during the assessment year. However the AO found that the guidance value as per the TN Registration Department was Rs.16,000/- per sq.ft., in the area of T.Nagar and hence, the capital gain has been recomputed based on the provisions of section 50C of the Act and brought to tax, of Rs.1,19,98,298/- as long term capital gain and Rs.5,16,528/- as short term capital gain. Aggrieved by the order of AO, the assessee filed appeal before the ld.CIT(A).

4. The assessee filed detailed submissions before the ld.CIT(A)- NFAC for all the three issues.

4.1. In respect of addition under the head income from House property, the assessee stated that he has not received the additional amount of Rs.85,500/- as rent, which has been shown in Form 26AS as per the webportal of Income-tax and the same has been relied by the AO. The assessee has disclosed the entire amount of Rs.18,00,000/- which has been received under the head ‘income from house property’ as rent Income. Therefore, the assessee cannot be penalized for the amount which has been received by him and merely the information is available in the income-tax portal.

4.2 In respect of the addition u/s.68 of the Act, the assessee submitted that, the assessee collects advance fees to ensure the participation of students in the course, so that the assessee does not deny admission for them when they seek the seat for the course. In this way, for the various courses, the assessee has collected Rs.7,34,55,700/- and is shown as "fees advance from students" in the balance sheet under the head Current liabilities. The AO has added the entire amount as unexplained credits under sec.68 of the Act. The amount shown as other liabilities and provisions is recognized as income as and when the students join for the coaching / training session. This event need not necessarily fall within this financial year. The assessee has recognized the amounts as income in the subsequent assessment years when the students complete their computer courses with the assessee. Hence, the recognition of income takes place when the computer training/coaching is completed. The assessing officer without taking cognizance of the method of accounting followed by assessee in recognizing the income has erroneously treated the entire amount as unexplained credits. It is submitted that if the assessee had shown the advance amounts received as income in the year of receipt itself, then it could not relate it to the year in which the course for the students is rendered. Hence, the recognition of income is done only in the year in which the student takes up the course for which he is enrolled. Further, the assessee has recognized the income from these students for the respective courses by adjusting the amounts lying against the advances received in the following A.Ys. AY.2018-19 Rs.64,92,800 AY.2019-20 Rs.1,40,72,475 AY.2020-21 Rs.4,80,22,000, Thus, out of total of Rs.7,34,55,700/- received as advance fees as on 31.3.2016, an amount of Rs.48,68,275/- remains to be recognized as income. The assessee submitted the following:

1. 1. List showing the students applied for the course and advance paid totaling to Rs.7,34,55,700.

2. Ledger entry of Fees showing the opening balance of Rs.5,96,33,000 and the current year advance fees received of Rs.3,81,60,100.

3. List of students for fees received in advance in FY.2015-16 - Rs.3,20,30,100 + Rs.61,30,000 =Rs.3,81,60,100.

5. List showing the fees received in advance in the earlier years and accounted as income during FY.2017-18 - Rs.64,92,300 + in FY.2018-19 - Rs.1,40,72,475 and in FY.2019-20 - Rs.4,80,22,000.

7. Sample of the Receipts vouchers and certificate issued to the students.

The above details would clearly show that the entire fees received as advance has been disclosed in the later years when the student has completed the course. The assessing officer has not appreciated the factual position that the students fees received in advance is always and consistently maintained as 'fees advance received' and reflected in current liabilities. The AO adding the entire amount as unexplained credits was without the proper appreciation of the entire facts of the case. The assessing officer is not correct in referring to the various case laws to justify the addition, when the provisions of sec.68 itself are not attracted to the facts of the assessee. Most importantly, the case laws relied on by the assessing officer does not apply to the facts herein since in the assessee's case, the amount was not recorded as cash credit in the books but reflected as advance fees from students and so sec.68 cannot be applied. Further, it is evident that the balance sheet entry also comprised of opening balance of advance fees received from students. So, alternatively, only that much of the amount received during the year can be considered for explanation of assessee in this year and the amounts figuring as opening balance are outside the purview of examination in the current year. It is it is settled law that sec.68 would operate only for amounts credited in the books of the current year and cannot be applied to amounts recorded in the earlier years and shown as opening balance. Therefore, the alternate submission is that the opening balance of Rs.5,96,33,000/-, as on 01.04.2016 is to be deleted as not arising for consideration in the asst. year 2016- 17.

4.3 In respect of addition under head 'Capital gains', the assessee stated that he had sold two properties, one vacant land at T.Nagar and another property in Kolathur comprising of land and flats constructed on it. The T.Nagar property was in two parts, i.e., sale of 6,345 sq.ft. of land and 580 sq.f. of land. The computation of capital gains by assessee is as follows:

I.vacant house site @ Duraisamy Road, T.Nagar, Chennal-17 -6,345 sq.ft. Sale consideration : Rs. 7,61,40,000 Less: Cost of acquisition in 2006-07 – Rs.5,23,20,180x 1081/519 : Rs.10,89,75,173 Long Term Capital Loss : (Rs. 3,28,35,173)

II Vacant house site @ Duraisamy Road, T.Nagar, Chennai-17 - 580 Sq.ft. Sale consideration : Rs. 69,60,000 Less: Cost of acquisition in 2014-15- Rs.1,56,45,000 x 1081/1024 :Rs. 1,65,15,864 Short Term Capital Loss : (Rs. 95,55,864) As against the above, the AO recomputed the capital gains as follows: I. On 20/6/2015 sold to Mrs.Hema Kiran Kumar: 6345 sq.ft. x Rs.l6000 per sq.ft. : Rs.10,15,20,000 Less: cost of acquisition – Rs.4,80,00,000 x 1081/519 : Rs. 9,99,76,880 Long Term Capital Gains : Rs. 15,43,120 II On 20/6/2015 sold to Mrs.Hema Kiran Kumar: 580 sq.ft. x Rs.16000 per sq.ft. : Rs. 92,80,000 Less: cost of acquisition - Rs.145,00,000 (No indexation is applicable as 3 years not expired) Short term capital loss : (Rs.52,20,000)

The AO in his computation taken the rate per sq.ft. of the property sold at Rs.16,000 per sq.ft., whereas the actual guideline value of the property was Rs.12,000. The rate adopted by the officer does not pertain to the relevant year. The assessee has applied the actual sale consideration for computation of Capital gains, which is also aligned with the guideline value, whereas the officer has adopted the guideline value which is not relevant for the date of sale, hence the recomputation of capital gains is wholly erroneous. Further, in support of the claim, the assessee furnished the certificate given by Sub-Registrar, T.Nagar for the guideline value prescribed for the impugned assessment year. That apart, for indexation purposes, the AO had taken only the cost of property and excluded the stamp duty and registration charges on the property, thus bringing down the indexed value of the property. Hence, the Long-Term Capital Loss of Rs.3,28,35,173/- returned for 6,345 sq.ft of land and Short Term Capital Loss of Rs.95,55,864/- for 580 sq.ft. may be accepted by the appellate authority.

4.4 On perusal of the submissions of the assessee the ld.CIT(A) dismissed the appeal of the assessee by confirming the additions made by the AO by passing an order dated 15.11.2023. Aggrieved by the order of the ld.CIT(A)-NFAC, the assessee is in appeal before the Tribunal.

6. Per contra, the ld.DR stated that the tenant has declared the amount in their TDS returns which has been displayed in 26AS of the assessee, an amount of Rs.18,85,500/- and hence, the action of both the AO and that of the ld.CIT(A) is correct and prayed for confirming the addition.

7. We have heard rival contentions and gone through the submissions made by the assessee along with the orders of lower authorities. We note that the assessee has declared rental income of various properties under the head ‘income from house property’ on receipt basis which is Rs.18,00,000/- and claimed corresponding eligible deduction i.e., standard deduction and interest on housing loan. Therefore, addition of Rs.85,500/- relying on Form 26AS, made by the AO and confirmed by the CIT(A) cannot be sustained, since there is no other evidence for having received additional amount of Rs.85,500/- by the assessee. In our considered view the assessee cannot prove the negative for having not received the said amount of Rs.85,500/- and hence, we delete the same by allowing the ground No-2 of assessee’s appeal.

raised by the assessee in ground Nos.3 to 10 is the ld.CIT(A) confirmed the addition of Rs.7,34,55,700/- u/s.68 of the Act on account of fees received in advance. The ld.AR for the assessee stated that the said amount is an advance fee collection received from the number of students for computer education and training courses and hence, the same has been shown under the head ‘current liabilities’ as advance fees received. The ld.AR submitted that these amounts have been credited to the profit & loss account as and when the courses of the students are completed on year-on-year basis. Since the courses offered to the students are spread over for more than one year, the fees collected also has been recognized as income in the corresponding year of completion of courses. In case, if the assessee had shown the advance amount received as income in the year of receipt itself, then it could not relate it to the year in which the course for the students is rendered. Hence the recognition of income is done only in the year in which the student takes up the course for which he is enrolled, or the course is getting completed. Further, the ld.AR stated that the assessee has offered the entire advances received in the subsequent assessment years by reducing it from the advance received. The assessee filed a paper book consisting of 84 pages substantiating the amount of advance fee received, declared as income in the subsequent assessment years i.e., assessment years 2017-18 to 2021-22 in the following manner:- S.No. Financial Assessment Closing balance of fees Fees offered income to year year received in advance as P&L statement (Also per Balance sheet - in includes fee receipts for Rs. current year) – in Rs.

1. FY 2014-15 AY 2015-16 4,14,25,600 2,04,29,360 2. FY 2015-16 AY 2016-17 7,34,55,700 2,31,71,500 3. FY 2016-17 AY 2017-18 8,11,64,944 1,62,96,036 4. FY 2017-18 AY 2018-19 7,46,72,144 2,20,06,750 5. FY 2018-19 AY 2019-20 6,05,99,669 1,62,12,018 6. FY 2019-20 AY 2020-21 1,25,77,669 4,80,22,000

7. FY 2020-21 AY 2021-22 - 1,25,77,669 8.1 The above details clearly shows that the entire fees received as advance has been offered as revenue in the later years when the student has completed the course. The ld.AR stated that the AO has not appreciated the factual position that the students’ fees received in advance is always consistently maintained as ‘fees – advance received’ and reflected under current liabilities. The AO added the entire amount as unexplained credit without proper appreciation of the entire facts of the case, when the provision of section 68 of the Act, itself was not attracted to the facts of the case. Further, the ld.AR also state that fees advance received has opening balance of Rs.4,14,25,600/- as on 01.04.2015 (relevant to AY 2016-17) which cannot be taxed u/s.68 of the Act since only unexplained credits during the year alone can be brought to tax by operating section 68 of the Act. Therefore, the AO and that of the ld.CIT(A) have erred in bringing the entire amount of Rs.7,34,55,700/- to tax u/s.68 of the Act, which amounts to double taxation since the same has been offered to tax in the subsequent assessment years by the assessee. Further, in support of the advance fee received, the ld.AR submitted the entire list of students from whom the advance fee has been collected as on 31.03.2015 i.e., Rs.4,14,25,600/- (PB-I, Pg 31 to 37) along with the list of students as on 31.03.2016 i.e., AY 2016-17 of Rs.7,34,55,700/- consisting of 486 students with their names and also the courses opted by them (PB –I, Pg 20 to 29). The ld.AR also drew our attention to the revenue offered out of the advance fee received from assessment years 2017-18 to 2021-22 (PB-1, Pg 37 to 45) along with the details of receipt date, receipt No., student name, course offered and fee collected. The ld.AR also submitted sample copies of certificate of training issued to the students along with the fee receipts (PB-1, Pg 47 to 56). In light of the above arguments, the ld.AR prayed for deleting the addition u/s.68 of the Act and allow the appeal of the assessee.

9. Per contra, the ld.DR stated that no computer courses and training conducted privately for the duration of more than 12 months to 24 months and hence, the entire amount brought in to tax u/s.68 of the Act by the AO and confirmed by the ld.CIT(A) is in accordance with law and hence, prayed for not to interfere in the impugned order and dismiss the appeal of assessee.

10. We have heard rival contentions, perused the material available on record and gone through the orders of lower authorities. It is admitted fact that assessee is into the business of compute training courses to the students in the name of Apollo Computer Education. During the year, the assessee has added an amount of Rs.3,20,30,100/- as advance fee received under the head ‘current liabilities’ to the opening balance held as on 01.04.2015 of Rs.4,14,25,600/-. During the impugned assessment year, the assessee has offered fee collections of Rs.2,31,71,500/- as income in its profit and loss account and declared business income of Rs.1,54,88,105 (PB II, Pg 20). We have observed that the AO and the ld.CIT(A) has made an addition of Rs.7,34,55,700/- u/s.68 of the Act irrespective of the fact that Rs.4,14,25,600/- was shown as opening balance during the impugned assessment year in the audited books of accounts furnished by the assessee. We find that the AO and the ld.CIT(A) erred in bringing the opening balance of Rs.4,14,25,600/- to tax u/s.68 of the Act as unexplained credit during the year since it was legally untenable and hence, we are of the considered view that Rs.4,14,25,600 cannot be legally sustained and therefore needs to be deleted.

10.1 Having deleted Rs.4,14,25,600/- out of Rs.7,34,55,700/- the balance addition which remains is only Rs.3,20,30,100/-. Coming to the addition of Rs.3,20,30,100/-, it was brought to our notice that the entire fee received in advance to the tune of Rs.7,34,55,700/- (which includes Rs.4,14,25,600/- which was deleted and Rs.3,20,30,100/- balance amount) has already been offered by assessee to tax by declaring as revenue under the head ‘business income’ in the subsequent assessment years i.e., from AYs 2017-18 to 2021-22 (supra, refer chart at para 8). In order to corroborate / support the aforesaid assertion, ld.AR placed before us the relevant documents called by us i.e., the audited financials for the said assessment years (AY 2017-18 to AY 2020-21) demonstrating the yearwise recognition of the revenue from the advances i.e., Rs.7,34,55,700/-. After examining the materials, we find that the assessee has already offered the said amount (Rs.7,34,55,700) as revenue in subsequent years and discharged the taxes at Maximum Marginal rates and hence it is revenue neutral. Therefore, the addition made was not warranted in the factual back drop discussed supra and there assessee succeeds and we are inclined to delete the addition and allow the appeal of assessee on these ground i.e., Ground Nos. 3 to 10.

12. The ld.AR of the assessee submitted that the sale deed for these two residential sites totally admeasuring to 6,925 sq.ft., (6,345 and 580 sq.ft.) has been registered on 22.06.2015 by the assessee to the buyers. The value of Rs.8,31,00,000/- has been accepted as market value by the stamp duty authorities and accordingly, calculated the stamp duty and registration charges at the rate of 1% on the sale. Further, the ld.AR also submitted that a certificate issued by the Sub-Registrar, Thyagaraya Nagar stating that the guideline value of Duraisamy Road, T.Nagar on the date of registration was Rs.12,000/- per sq.ft., only as against Rs.16,000/- per sq.ft., arrived by the AO, which has been confirmed by the ld.CIT(A). Further, the ld.AR also submitted that the AO has erred in allowing the cost of acquisition of the properties for computation of capital gain on Kolathur property by not considering the entire value for indexation i.e. including stamp duty and registration charges paid at the time of registration.

13. The ld.DR fairly agreed for the guidance rate to be adopted as per the certificate given by the Sub registrar.

15. Further, it is noticed that the AO has considered only the sale consideration paid by the assessee while computing the cost of acquisition and hence, we also direct the AO to verify and allow the entire cost of acquisition including corresponding stamp duty and registration charges paid to arrive the indexed cost while computing the capital gain on the sale of Immovable properties, by allowing the assessee’s ground No.14 & 15.

Order pronounced in the open court on 13th December, 2024 at Chennai.