ITO, W-4, CHANDIGARH vs. SANT RAM SHARMA, PANCHKULA

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘B’, CHANDIGARH

BEFORE MS.DIVA SINGH, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.392/Chd/2018 (Assessment Year : 20131-4) The Income Tax Officer, Vs. Sh.Sant Ram Sharma, Ward 4, H.No.883, Sector 8, Panchkula. Panchkula. PAN: AMPPS1995K (Appellant) (Respondent)

Appellant by : Shri Akhilesh Gupta, Sr. DR Respondent by : Shri T.N. Singla, CA Date of hearing : 27.06.2018 Date of Pronouncement : 24 .09.2018

ORDER PER ANNAPURNA GUPTA, A.M. :

This appeal has been preferred by the Revenue against

the order of Ld. Commissioner of Income Tax

(Appeals)[hereinafter referred to as ‘Ld.CIT(Appeals)’],

Panchkula dated 23.1.2018 relating to assessment year

2013-14.

“I. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) is right in applying the N.P. Rate of 16.49% (4,70,790/-) to gross receipts of Rs.28,55,000/- declared by the appellant from business of marriage palace.” 3. Briefly facts relating to the case are that the assessee

had filed return of income showing income from rent of

commercial complex and agricultural income. During

assessment proceedings, the Assessing Officer noted that

the assessee had deposited cash of Rs.53,04,500/- in his

ITA No.392/Chd/2018 2 A.Y. 2013-14

bank account on different dates.When confronted with the

same the assessee contended the source of the cash

deposited to the following:

Rental income Rs.9,00,000/- Agricultural income Rs.4,50,000/- Hiring income from Running business of Marriage place Rs.28,55,000/- Innova Car sold Rs.8,25,000/- 4. Vis a vis the cash received of Rs.25,55,000/- the

assessee stated that he had a marriage palace at Pinjore

from where he was receiving income in cash and that the

cash of Rs.28,55,000/- was received through M/s Gupta

Tent House, Pinjore on account of lease of accommodation

for marriage/ceremonies functions. The receipt from M/s

Gupta Tent House, Pinjore for giving the impugned cash was

also furnished by the assessee. The Assessing Officer asked

the assessee to furnish details of receipts of cash alongwith

documentary evidences which the assessee failed to do so.

As a consequence, the Assessing Officer treated the cash

deposited as income from undisclosed sources and added

the same to the income of the assessee.

detailed explanation which is reproduced at para 4..1 of the

CIT(Appeals)’s order, alongwith confirmations from M/s

Gupta Tent House, Pinjore regarding payment of the same

made by him. The assessee also contended that in the

succeeding year i.e. assessment year 2014-15 receipts from

marriage palace, Pinjore had been treated as business

ITA No.392/Chd/2018 3 A.Y. 2013-14

income, against which expenses had been allowed by the

Department. The confirmation submitted by the assessee as

additional evidence was sent to the Assessing Officer calling

for a report from him, who pointed out infirmities in the

same stating that the assessee had provided a

bill/quotation from M/s Gupta Tent House, Pinjore which

did not mention the date of the same, nor any reference

number. In response, the assessee contended that the

Assessing Officer had misappreciated the evidence filed,

which was not a bill but was in fact confirmation of

Rs.28.52 lacs paid by him for leasing out the marriage

premises owned by the assessee. The assessee further

contended that he was running the business of giving

marriage palace at Pinjore on hire since 2011 and had even

taken vehicles for the said business and that the income

from leasing out of the premises had been declared during

assessment years 2011-12 and 2012-13 also, claiming

expenses for electricity, depreciation, salaries, etc. against

the same. The assessee was, therefore, asked to produce

complete details of the aforementioned business and justify

its claim. The assessee furnished details of the expenses

incurred but could not give details of receipts with

documentary evidence. It was also noted that several other

discrepancies were also noted alongwith the fact that the

assessee had expressed its inability to furnish the receipt

book for booking of venue and cars. Thus the CIT(Appeals)

issued a notice to the assessee asking the assessee to show

cause as to why in the absence of maintaining of proper

ITA No.392/Chd/2018 4 A.Y. 2013-14

books of account, the books of account be not rejected and

the income estimated on comparable basis. No reply was

filed by the assessee to the show cause notice, but the

assessee later on submitted and agreed to the income of the

marriage palace being considered on estimate basis and

submitted the assessment order in the case of M/s AKM

Resorts, Zirakpur as a comparable case wherein the net

profit on marriage palace business had been estimated at

16.49%. The Ld.CIT(Appeals) after considering the

submissions made by the assessee held that considering the

fact that in preceding years and even in succeeding years,

the assessee’s income from letting out of marriage premises

owned by it had been assessed as business income and the

Assessing Officer had misconstrued the confirmation filed

by the assessee on account of receipt of income from letting

out of marriage venue during the year as a bill, no addition

on account of receipt from letting out of the marriage venue

of Rs.28.52 lacs was to be made as income from undisclosed

source. However, the Ld.CIT(Appeals) held that in the

absence of proper books of account, the books ought to be

rejected. He thereafter applied a net profit rate of 16.49%

on the gross receipts earned by the assessee from the

letting out of the marriage venue, accepting the comparable

case submitted by the assessee for the same, and computed

the income at Rs.4,70,790/-. The assessee having shown a

net income of Rs.94,568/- from the said business, the

same was reduced from the net profit computed by the

ITA No.392/Chd/2018 5 A.Y. 2013-14

CIT(Appeals) and addition made of the balance amount

amounting to Rs.3,76,222/-.

challenged the estimation of the profits of the assessee @

16.49% of the gross receipts. The Ld.DR however made no

submissions vis a vis the correctness of the G.P rate

applied but in fact contested the finding of the CIT(A) that

the receipts can be attributed to its income from letting out

of marriage palace. The Ld. DR relied upon the order of the

Assessing Officer stating that the assessee had failed to

give the details of the cash received from M/s Gupta Tent

House, Pinjore to the tune of Rs.28.55 lacs and even the

documentary evidence filed was only a bill or quotation

from Gupta Tent House which neither carried any date or

reference number and the telephone no. was also struck off.

Ld.DR therefore stated that the CIT(A) had erred in treating

the cash received as business income of the assessee and

the assessee having failed to explain the source of the same

,it had been rightly treated as income from undisclosed

sources by the AO.

upon the order of the CIT(Appeals).

have gone through the orders of the authorities below. We

have also gone through the findings of the Ld.CIT(Appeals)

deleting the disallowance made on account of unexplained

cash credits and restricting the same to the estimated net

ITA No.392/Chd/2018 6 A.Y. 2013-14

profit earned. The Ld.CIT(Appeals) at para 4.6 of his order,

we find, has observed as under:

“4.6 I have gone through the facts of the case, written submission filed by the appellant, remand report of the AO, rejoinder filed by the appellant and the assessment record. I find that in earlier years, A.Y.2011-12 & A.Y.2012-13 appellant had declared net income from marriage palace which was accepted as business income as returned by appellant. In the present year, the whole of cash receipts on account of giving the marriage palace to M/s Gupta Tent House for bookings of ceremonies, which were deposited by the appellant in his bank account, have been added to income of appellant without allowing any expenditure on account of electricity, salary, repair & maintenance, interest & depreciation etc. claimed against receipts for running of marriage palace. The appellant has also filed a confirmation from M/s Gupta Tent House regarding payment of hire charges of Rs.28,52,000/- during 01.04.2012 to 30.03.2013 from marriage palace during the year in cash. In the remand report, the AO is found to be under a mis-impression that the confirmation from Gupta Tent House was a bill/ quotation. I find that, in subsequent assessment year 2014-15, the AO has treated receipts from marriage palace as business Income after making an addition of Rs.1 lakh to net income returned. Thus in the present year, the AO was not correct in treating the whole of the gross receipts of marriage palace business received from M/s Gupta Tent House as income from undisclosed sources and net income from the business of marriage palace has to be brought to tax after considering the expenses on running the marriage palace. Therefore as discussed in preceding paragraphs 4.4 & 4.5, since the appellant was found to be not maintaining complete & proper books of account for the business of hiring of marriage palace, I am satisfied that books of account are not complete and correctly maintained and therefore the books of account of the appellant in respect of this business are rejected u/s 145(3) of the I.T.Act. As regards the estimation of N.P. rate to be applied in the case of appellant under the provisions of section 144, the comparable case given by the appellant has been found to be acceptable and reasonable having regard to nature of business and turnover declared. Therefore N.P. Rate of 16.49 %, as agreed by the appellant, is applied to gross receipts of Rs.28,55,000/- declared by appellant from business of marriage palace and net profit thereby comes to Rs.4,70,790/- as against Rs.94,5687- declared by appellant. Therefore an addition of Rs.3,76,222/- is made to the returned income of appellant in place of addition of total receipts at Rs.28,55,000/- as made by AO. All the expenses like repair & maintenance, interest, salary, deprecation are deemed to have been allowed and no deduction in respect of any expenses is allowed separately. The AO is directed to take necessary action. This ground of appeal is partly allowed.”

ITA No.392/Chd/2018 7 A.Y. 2013-14

findings of fact that the assessee had returned business

income from letting out its marriage venue in the earlier

years i.e. assessment years 2011-12 and 2012-13 and also

in the subsequent year i.e. assessment year 2014-15, which

had been accepted by the Department also after giving

allowance of expenditure incurred against the same. The

said fact has not been controverted by the Revenue before

us. It is evident therefore that it was a fact established and

accepted on record by the department also that the assessee

was in the business of running a marriage palace. The

Ld.CIT(Appeals) has also stated in the impugned order that

a confirmation from M/s Gupta Tent House, Pinjore

regarding payment of hire charges of Rs.28.52 lacs had

been filed by the assessee which had been misappreciated

by the Assessing Officer as being a bill given by M/s Gupta

Tent House, Pinjore to the assessee. The Revenue has not

controverted the same before us. In view of the same, we

find that it has been clearly established that the assessee

was running a marriage palace and had received the said

cash on account of the same. We therefore see no reason to

disagree with the findings of Ld.CIT(Appeals) that the

impugned receipts tantamounted to business receipts of the

assessee from the letting out of its marriage venue. We

further find that the Ld.CIT(Appeals) after rejecting the

books of account of the assessee had applied a net profit

rate of 16.49% for the purpose of estimating the income of

the assessee on the basis of the comparable case of M/s

ITA No.392/Chd/2018 8 A.Y. 2013-14

AKM Resorts, Zirakpur, which was also in the business of

marriage palace business. Before us, the Ld. DR has neither

pointed out as to how M/s AKM Resorts, Zirakpur was not a

comparable case, nor has filed any comparable cases before

us to controvert the findings of the Ld.CIT(Appeals). In the

absence of the above, we see no reason to disturb the

findings of the CIT(Appeals) by accepting M/s AKM Resorts,

Zirakpur as a comparable case and applying net rate of

16.49% to the gross receipts of the assessee for the purpose

of determining its taxable income from the business of

letting out of marriage venue. In view of the above, ground

No.1 raised by the Revenue is dismissed.

“2. Whether on the facts and circumstances of the case and in law the Ld.C1T(A) is right in deleting the addition of Rs.8,25,000/- in the absence of documentary evidence.” 11. The above ground relates to addition made on account

of income from undisclosed sources and the fact relating to

the same are that during assessment proceedings, the

Assessing Officer noted that the assessee had received

Rs.8,25,000/- in cash on sale of his Innova car. In the

absence of any documentary evidence being furnished by

the assessee to prove the same, the Assessing Officer

treated the cash received as income from undisclosed

sources and added the same to the income of the assessee.

that it had furnished affidavit of the purchaser of the said

car before the Assessing Officer, who had not considered

ITA No.392/Chd/2018 9 A.Y. 2013-14

the same. The said evidence was furnished before the

Ld.CIT(Appeals) also. The Ld.CIT(Appeals) forwarded the

evidence to the Assessing Officer who stated that the

affidavit though was duly signed and attested, but did not

mention the price at which the car had been sold. He

further stated that no registration certificate of the car had

been shown by the assessee and that even the website of

the RTO office showed the car still registered in the name of

the assessee. The Assessing Officer, therefore, stated that

the documentary evidence furnished by the assessee was

not acceptable. In response, the assessee furnished copy of

NOC issued by the RTA in the name of the purchaser and

pointed out that it clearly proved the transfer of ownership

of the car from the assessee to the present owner and that

all the observations of the Assessing Officer in this regard

were baseless. The Ld.CIT(Appeals) considering the evidence

submitted by the assessee deleted the addition made by the

Assessing Officer holding at para 6.4 of his order as under:

“6.4 I have gone through the facts of the case, written submission filed by the appellant, remand report of the AO, rejoinder filed by the appellant and assessment record. It is seen that appellant has shown sale of Innova amounting to Rs.8.25 lac in Income & Expenditure account of marriage palace hiring business as reduced from the total value of fixed assets on which depreciation has been claimed. Further the NOC has been issued by Road Transport Authority, Panchkula, dated 17.05.2012 in the name of purchaser. The purchaser's affidavit has also been placed on record by the appellant. Therefore no addition is called for on this account and addition made by AO is ordered to be deleted. This ground of appeal is allowed.” 13. Before us, the Ld. DR relied upon the order of the

Assessing Officer and the Ld. counsel for assessee relied

ITA No.392/Chd/2018 10 A.Y. 2013-14

upon the findings of the CIT(Appeals) and submissions

made before him.

find no merit in the present ground raised by the Revenue.

The Ld.CIT(Appeals) has given a categorical finding that the

assessee has proved the source of cash deposited to the

extent of Rs.8.25 lacs as being from sale of car owned by it,

by reflecting the said transaction in its Books of accounts

by reducing the sale amount received from the value of the

car as reflected in the fixed asset in the Balance Sheet and

further by furnishing the NOC issued by the Road Transport

Authority, Panchkula in the name of purchaser alongwith

purchaser’s affidavit confirming the purchase of car for the

impugned amount from the assessee. The Ld. DR has not

been able to conrovert any of the above factual findings of

the Ld.CIT(Appeals). In view of the same, we find no reason

to differ from the order of the CIT(Appeals) in holding the

impugned sum as having been duly explained and thereby

deleting the addition made by the Assessing Officer holding

the same as unexplained cash receipts. ground No.2 raised

by the Revenue is, therefore, dismissed.

“3. Whether on the facts and circumstances of the case and in law the Ld.C1T(A) is right in holding that the registration/execution of lease deed is not mandatory and allowed the deduction amounting Rs.2,70,000/- claimed u/s 24 of the Income Tax Act 1961.” 16. The above ground relates to disallowance of deduction

claimed u/s 24 of the Income Tax Act, 1961 on account of

ITA No.392/Chd/2018 11 A.Y. 2013-14

deduction to the extent of 30% of the annual value of the

income from house property assessable as such.

assessee had attributed cash deposited in the bank

account to the extent of Rs.9 lacs to the rental income

earned by it. On being asked to furnish rent agreement, the

assessee expressed his inability to do so, on account of

which the Assessing Officer disallowed deduction claimed

against the said rental income u/s 24 of the Act, to the

extent of 30% of the same, amounting to Rs.2,70,000/-.

its contention that the said income pertained to the rental

income received from shops owned by the assessee at

Pinjore. Copies of the rent agreement with the tenants of

the shop were furnished. The Ld.CIT(Appeals) forwarded the

same to the Assessing Officer for his comments. The

Assessing Officer in his reply stated that since the

agreements were not attested or certified by any local

authority/Tehsil, the genuineness of the agreement was in

question and thus could not be accepted as additional

evidence. The Assessing Officer further stated that no lease

deed has been executed by the assessee since as per the

assessee’s own submission the property had been let out in

the past years also. To this the assessee contended that he

had let out the property for 11 months only by executing

rent agreement in this regard and since the period of letting

out did not exceed 12 months, there was no requirement to

ITA No.392/Chd/2018 12 A.Y. 2013-14

execute a lease deed. Further the assessee contended that

merely because the rent agreement was not registered or no

lease deed was executed, the assessee could not be

penalized for the same. The Ld.CIT(Appeals) after

considering the assessee’s submissions deleted the

disallowance made on finding that the rental income from

shops in Pinjore had been regularly shown in the returns of

income filed by the assessee in the past also and further

that in assessment years 2010-11 and 2014-15 the

assessment u/s 143(3) had been completed accepting the

rental income as income from house property. The relevant

findings of the Ld.CIT(Appeals) at apra 5.4 of this order are

as under:

“5.4 I have gone through the facts of the case, written submission filed by the appellant, remand report of the AO, rejoinder filed by the appellant and assessment record. I find that rent of shops in Pinjore has been regularly shown in returns of income filed by appellant in the past. Ownership of shops/showrooms by appellant at Pinjore is also not disputed by the AO. During A.Y.2010-11 assessment u/s 143(3) was completed and rental income from shops at Pinjore was assessed as income from house property. Even in A.Y.2014-15 during assessment made u/s 143(3) the rental income received from shops at Pinjore was assessed as income from house property. I also find merit in the submission of the appellant that registration execution of lease deed is not mandatory and absence of the same and the AOs contention that rent agreements filed were not certified by local authority, cannot disprove the rental income earned by the appellant for which rent agreements for 11 months period with tenants have been duly furnished as evidence. I also find that AO has not brought out any independent material on record to controvert the claim of appellant. Thus the action of the AO in not considering the rental income as income from house property and instead treating the same as income from other sources is not found to be correct and reasonable. The rental income returned at Rs. 6,30,000/- by the appellant is to be assessed as income from house property after allowing the due deduction u/s 24 amounting to Rs.2,70,000/- to the total rent receipts of Rs.9 lakh as claimed by the appellant. The addition of Rs.2,70,000/- made on this account to the total income of

ITA No.392/Chd/2018 13 A.Y. 2013-14

the appellant is therefore ordered to be deleted. This ground of appeal is allowed.” 19. Before us, the Ld. DR relied upon the order of the

Assessing Officer and the Ld. counsel for assessee relied

upon the findings of the CIT(Appeals) and submissions

made before him.

merit in the ground raised by the Revenue. The

Ld.CIT(Appeals), we find, has given categorical findings of

fact that the rental income from shops owned by the

assessee in Pinjore has been assessed to tax as such in the

preceding year i.e. assessment year 2010-11 and the

succeeding year i.e. assessment year 2014-15. Therefore, it

is an accepted fact that the assessee was owner of shops at

Pinjore which it had given on rent. Even rent agreement has

been filed by the assessee. Therefore there was no reason to

disbelieve the claim of the assessee that the receipt

pertained to rental income, especially in the absence of

anything to the contrary brought on record by the Revenue.

We agree with the Ld.CIT(Appeals) that the receipts

attributed to the same during the impugned year by the

assessee, could not be rejected merely for the reason that

the rent agreements were not registered or no lease deed

was executed. We therefore uphold the order of the CIT(A)

treating the receipt of Rs.90,000/- as rental income of the

assessee and allowing statutory deduction of 30% thereof

amounting to Rs.27,000/-, as claimed by the assessee,

ITA No.392/Chd/2018 14 A.Y. 2013-14

thereby deleting the disallowance of the same made by the

AO .

In view of the above, the ground of appeal No.3 raised

by the Revenue is dismissed.

Order pronounced in the Open Court.

Sd/- Sd/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 24th September, 2018 *Rati*/PK Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh