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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE
PER DUVVURU RL REDDY, Judicial Member :
This appeal filed by the assessee is against the order of the Ld. CIT(A)-NFAC, Delhi in DIN & Order No. ITBA/NFAC/S/250/2022-23/1049469059(1), dated 6/2/2023 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 [the Act] for the AY 2017-18.
Brief facts of the case are that the assessee is a partnership firm engaged in the business of running a school in the name and style of “Oakwood The Rajahmundry School” filed its return of income for the AY 2017-18 on 21/10/2017 admitting a total income of Rs. 4,94,780/-. The case was selected for scrutiny under CASS. Accordingly, notice U/s. 143(2) was issued to the assessee on 14/09/2018. Further, notice U/s. 142(1) was also issued to the assessee on 11/1/2019 and called for certain information ie., copy of ROI for the AY 2017-18 with its enclosures; copies of bank A/c statements and details of cash deposits with their sources. Since there is no response, the Ld. AO issued reminders to the assessee in the due course. However, the assessee responded to the notices issued by the Ld. AO and furnished the documents as called for vide its letter dated 10/07/2019. On perusal of the ROI filed by the assessee as well as the details and documents furnished by the assessee, the Ld. AO noted that the assessee has claimed excess rent of Rs.2,68,200/- for the AY 2017-18 and therefore the same is added to the total income of the assessee as per the discussion given vide para 9 of the assessment order. Further, Ld. AO made addition of Rs. 83,863/- towards unexplained credit on account of sundry creditor Sri A. Satyanarayana as the assessee could not furnish the satisfactory explanation during the assessment proceedings. Thus, the Ld.AO completed the assessment U/s. 143(3) of the Act on 21/10/2019 and determined the total income at Rs. 8,46,840/-. Aggrieved by the decision of the Ld. AO while making the additions aggregating to Rs. 3,52,063/-, the assessee preferred an appeal before the Ld. CIT(A)-NFAC. On appeal, the Ld.CIT(A)-NFAC sustained the additions made by the Ld. AO and dismissed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in further appeal before the Tribunal by raising the following grounds of appeal:
“1. The order of the Ld.CIT(A), NFAC is bad and unsustainable in the eyes of law as the same is passed without proper application of mind, as it is also contrary to the spirit and provisions of the Income Tax Act, 1961. The dispute in this appeal is the addition of Rs. 3,52,063/- made by the Ld. CIT(A)-NFAC towards disallowance of rent U/s. 68 of Rs. 2,68,200/- and unexplained cash credit U/s. 68 of Rs. 83,863/-. The appellant submits that rent amount of Rs. 14,66,820/- has been claimed as expenditure out of which Rs. 13,82,957/- has been paid to Mr. Akula Satyanarayana and the balance rent of Rs. 83,863/- was paid in the next year. The above rental income of Rs. 14,66,820/- has been considered by A. Satyanarayana for filing of his income tax return vide acknowledgement no. 42543143106318. While passing the order CIT(A) has not considered the additional evidence filed before him and he simply followed the findings of the Ld. AO.”
At the outset, with respect to the addition of Rs. 86,863/- made by the Ld. AO, the Ld. Authorized Representative submitted that Mr. A. Satyanarayana is a joint owner of the property situated at R.S. No. 556, Palacharla Village, Rajanagaram Mandal, East Godavari Distirct, Andhra Pradesh and the said property was given on lease to M/s. JSR Educational Society which is running a school under the name of M/s. Oakwood The Rajahmundry School (the assessee). During the FY 2016-17, relevant to the AY 2017-18, the assessee has paid an amount of Rs. 13,82,957/- out of the total rent of Rs. 14,66,820/- (along with the arrears of Rs. 46,820/-) and the balance payable towards rent is Rs.83,863/-. In this regard, the Ld.AR drawn my attention to page 25 of the paper book wherein the Mr. Akula Satyanarayana confirmed that the balance of Rs. 83,863/- is payable to him by the assessee towards rent as on 31/3/2017.
The Ld. AR further submitted that since the amount of Rs. 83,863/- towards rent stood payable to Mr. A. Satyanarayana, the same was shown as payable to sundry creditor. The Ld. AR further submitted that this amount of Rs. 83,863/- was paid in due course and the recipient Mr. A. Satyanarayana has offered to tax the total rent received amounting to Rs.14,66,820/- as income from house property in his return of income filed for the AY 2017-18. However, the Ld. AO without considering this fact and the explanation given by the assessee, made the addition and the Ld. CIT(A)-NFAC has also confirmed the same. Therefore, the Ld. AR pleaded that the addition of Rs. 83,863/- is unsustainable in law and the same may be deleted.
With regard to excess claim of rent amounting to Rs. 2,68,200/- the Ld. AR submitted that since the assessee has paid the rent @ Rs. 2,40,000/- per month as per the lease agreement (extension) dated 01/03/2016 entered into with Mr. A.
Satyanarayana, the owner of the building wherein the assessee is running its school, the total rent paid by the assessee aggregating to Rs. 29,33,640/- [for the period 1/3/2016 to 28/02/2018] is eligible for claim of expenditure. However, the Ld. AO did not consider the contention of the assessee and taking into consideration, the date of purchase of the stamp papers (which was stated to be purchased and dated after four months from the date of agreement) on which the agreement was entered into, computed the total rent at Rs. 26,65,440/- and made the difference amount of Rs. 2,68,200/- [Rs. 29,33,640 – Rs. 26,65,440] as addition on account of excess rent claimed by the assessee. The Ld. AR further drawn my attention to page 25 of the paper book to state that vide the confirmation letter dated 12/02/2021 Mr. A. Satyanarayana has stated that the assessee has paid Rs. 13,82,957/- out of the total rent of Rs. 14,66,820/- for AY 2017-18. He further submitted that for the AY 2017-18, the owner of the building Mr. A. Satyanarayana has filed his return of income and offered to tax Rs. 14,66,820/- as his income from house property. Therefore, the assessee has paid the rent in accordance with the lease agreement dated (extension) dated 01/03/2016 and claimed the same as expenditure and therefore there is no excess claim of rent by the assessee and hence the addition made by the Ld. AO and confirmed by the Ld. CIT(A)-NFAC may be deleted.
On the other hand, the Ld. Departmental Representative strongly relied on the orders of the Ld. Revenue Authorities as argued in support of the same.
I have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. On careful perusal of the material available before me, with respect to the addition of Rs. 83,863/- made by the Ld. AO towards unexplained cash credits on account of sundry creditor Mr. A. Satyanarayana, I find that as per the confirmation letter of Mr. A. Satyanarayana, the assessee has paid an amount of Rs. 13,82,957/- towards rent out of the total rent of Rs. 14,66,820/- and the balance payable to Mr. A. Satyanarayana is Rs. 83,863/-. Further, I also find that later on Mr. A.
Satyanarayana filed his return of income for the AY 2017-18 and offered to tax the total rent amount received Rs. 14,66,820/- under the head income from house property. Therefore, in my considered opinion the amount of Rs. 83,863/- stands explained by the assessee and hence I find merit in the arguments of the Ld. AR. Accordingly, I hereby delete the addition of Rs. 83,863/- made towards unexplained cash credits on account of sundry creditor Mr. A. Satyanarayana. It is ordered accordingly.
With respect to excess rent claimed by the assessee, I find that as per the confirmation letter of Mr. A. Satyanarayana, dated 12/02/2021, the assessee has paid only an amount of Rs.13,82,957/- out of the total rent amount of Rs.14,66,820/- even if I consider that the assessee has acted in accordance with the lease agreement (extension), dated 01/03/2016. Therefore, considering the facts and circumstances of the case, I am of the considered opinion that there is no sufficient documentary evidence to show and establish that the assessee has paid the total rent amount of Rs.14,66,820/- so as to claim the same as an expenditure whereas the assessee has established the proof of payment of rent only to the extent of Rs. 13,82,957/- by way of confirmation letter of Mr. A. Satyanaraya. Therefore, I hereby confirm Rs. 83,863/- [Rs.14,66,820 – Rs. 13,82,957] as the excess amount of rent claimed by the assessee and thereby granting relief to the assessee to the extent of Rs. 1,84,337/-. It is ordered accordingly.
In the result, appeal filed by the assessee is partly allowed as indicated herein above.
Pronounced in the open Court on 30th January, 2024.