H.ZAROOK SYED SHAH,CHENNAI vs. ITO, CHENNAI

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 4, Chennai, dated 27.02.2015 relevant to the assessment year 2008-09. In this appeal, the assessee has raised two effective grounds viz., first ground relates to confirmation of incorrect computation of rental income and next ground is with regard to confirmation of incorrect addition of ₹.7,00,000/- as unexplained cash credit under section 68 of the Income Tax Act, 1961 [“Act” in short].

Brief facts of the case are that the assessee is an individual and filed his return of income for the assessment year 2008-09 on 31.07.2008 admitting total income of ₹.8,80,052/-. The return filed by the assessee was processed under section 143(1) of the Act on 22.03.2010. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act dated 14.09.2009 was issued. The assessee has admitted income from house property and other sources. While examining the rental income, the Assessing Officer has noticed that there is some difference between the rental income admitted in the return and shown in the TDS certificate. The rental income shown in the TDS was taken for consideration.

There was an AIR information in this case, which reveals that the assessee has deposited a sum of ₹.13,42,739/- by way of cash during the year ended by 31.03.2008. The bank statement and details were called for and examined by the Assessing Officer. The AR of the assessee furnished the details in his reply dated 19.11.2010 by stating that “we have inadvertently reported the cash remittance in the account No. 121915500002340 for ₹.13,42,739/- for the period even though the actual transaction of cash is for ₹.7,00,000/- only”. This error was due to some technical problem during January, 2008 . The source for the cash deposit of ₹.7,00,000/- was called for. The assessee replied that an amount of ₹.13,72,739/- has been drawn from the bank and a part of the amount drawn, a sum of ₹.7,00,000/- has been remitted back in the account and the source for the amount does not arise. However, the Assessing Officer is not convinced with the reply of the assessee and assessment was completed under section 143(3) of the Act by adding ₹.7,00,000/- as unexplained cash credit under section 68 of the Act.

On being aggrieved, the assessee is in appeal before the Tribunal. With regard to the re-computation of income from house property is concerned, the ld. Counsel for the assessee submits that the assessee offered the net rent received from the tenant after deduction of service tax. He further submits that as per Circular No. 4 of 2008 dated 28.04.2008 “the service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax”. Therefore, there is no need for any re-computation of income.

On the other hand, the ld. DR strongly relied on the orders of the authorities below.

We have heard both sides, perused the materials on record and gone through the orders of authorities below. We have also perused the Circular No. 4 of 2008 dated 28.04.2008 issued by the CBDT, wherein it was stated that “3. Service tax paid by the tenant doesn’t partake the nature of “income” of the landlord. The landlord only acts as a collecting agency for Government for collection of service tax. Therefore, it has been decided that tax deduction at source (TDS) under section 194-I of Income-tax Act would be required to be made on the amount of rent paid/payable without including the service tax.”

The assessee has not furnished any evidence to show that he has paid service tax. Since there is no finding in the assessment order as to whether the assessee has paid any service tax or not, therefore, we remit the matter back to the file of the Assessing Officer to verify the same and decide the issue afresh in accordance with law after allowing opportunity of hearing to the assessee.

With regard to unexplained cash credit of ₹.7,00,000/-, the ld. Counsel for the assessee has submitted that the assessee was required to make investment of ₹.2,00,000/- in shares of M/s. Ariake Bio Tech Solutions (P) Ltd. on 01.06.2007 and as there was no sufficient credit balance available to meet cheque issued for the purpose, the assessee remitted ₹.3,00,000/- on 30.05.2007. The assessee had to pay ₹.1,00,000/- on 07.09.2007 to a group company for their business purpose. In order to meet the cheque issued by the assessee, he remitted ₹.1,00,000/- on 03.09.2007 and again in order to help Mr. S. Abdul Rawoof a friend of the assessee who was also financial consultant to the assessee a sum of ₹.3,00,000/- had to be deposited in to the account on 24.03.2008 again to meet the cheque issued. These facts were submitted before the Assessing Officer. However, he has not considered the submissions of the assessee. In support of his submission, the ld. Counsel for the assessee has filed detailed bank statement before us, containing to the relevant entries. Under the above facts and circumstances, we are of the opinion that the Assessing Officer should verify the bank statement as submitted before the Tribunal and decide the issue afresh in accordance with law after allowing opportunity of hearing to the assessee.

In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on the 8th July, 2016 at Chennai.