D.C.I.T CIR - 56,KOLKATA., KOLKATA vs. SMT. SARITA ARORA, KOLKATA

The contention of the Revenue in this appeal is that the ld. CIT(Appeals) erred in not sustaining the enhancement of rental income by not sustaining the addition made under section 48 and by not sustaining the addition made on account of cessation of liability under section 41(1) of the Income Tax Act. For convenience, the grounds of appeal are reproduced as hereunder:-

Brief facts of the case are that the assessee is an individual. She derives income for the relevant assessment year under consideration from property, interest from Banks and others. The assessee has purchased 50% undivided share from the vendor, i.e. Shri Ramesh Kumar Saraogi and the same has been let out to Regency Welfare Association @ Rs.12,000/- per annum for 99 years. She also got 3013 sq.ft from his father through a Will and she entered into an agreement with M/s. Samuel Fitz & Co. Pvt. Ltd. for a period of nine years for letting out the portion at a monthly rent of Rs.13,558.50 on 02.08.2001. Further, the assessee also granted licence to renovate the rented portion and to conduct business of catering food, convention centre or marriage hall @ Rs.32,000/- per month. Accordingly she filed a return declaring total income of Rs.1,26,16,980/- on 11.03.2010. During the assessment proceedings, the Assessing Officer determined the income from house property at Rs.24,48,897/- as against Rs.3,56,524/-. In support of the assessee’s contention, ld. A.R. produced a Deed of rent dated 01.08.2001 and submitted that the assessee is receiving Rs.13,558.50 per month from 01.08.2001. But however, the Assessing Officer did not take into consideration the agreement and it is not registered and does not contain the duration of rent and observed as under:-

Regarding the rent agreement dated 30.03.1978 with Regency Welfare Association, the Assessing Officer was of the view that the rent agreement entered in 1978 has not been revised till the relevant year, thereby it cannot be enforced in 2008-09, in the absence of any explanation from the assessee, the value of rent reasonably estimated at Rs.16,000/- per month and Rs.7,20,000/- per annum by relying on the

In the appellate proceedings, ld. A.R. on behalf of the assessee contended that the assessee has been receiving rent under the above head in terms of agreement. From the same tenants also, the assessee has all along been assessed in terms of the said agreement and the returns were accepted by the Revenue. Further, the ld. CIT(Appeals) has also found fault to the order of Assessing Officer that he ought not to have accorded much credence to the report of the Income Tax Inspector and the ld. CIT(Appeals) observed that in the absence of any evidence that the assessee is receiving the rent higher than the amount returned and in the absence of any corroborative evidence in support of books of account, the Assessing Officer is unjustified in determining the rent on few estimates without concrete evidence. Therefore, the ld. CIT(Appeals) directed the Assessing Officer to accept the rental income as per the return filed by the assessee.

Before us, the ld. D.R. submitted that the ld. CIT(Appeals) without taking into consideration the merits of the case deleted the enhancement of rental income of house property. Further, the ld. D.R. submits that the property under consideration is situated in Kolkata city and it is a commercial complex. The Assessing Officer rightly determined and enhanced the rent at Rs.50/- per sq.ft. as per the report of the Income Tax Inspector. In reply, the ld. A.R. contended that the assessee has produced all the relevant material i.e. rent agreement, books of account, etc. inspite of which without considering the same in terms of the facts of the case, the Assessing Officer determined the rent unilaterally without any basis and the ld. A.R. drew our attention to para 7 of the ld. CIT(Appeals)’s order, which reads as under:-

We have heard the ld. Representatives of both the sides and carefully considered the relevant material available on record and the facts relating to the issue on merits, in which the issue on this ground is whether the Assessing Officer considered the evidence placed before him during the assessment proceedings in right perspective or not. It appears from the record that the assessee produced all the evidences in reference to the income returned but the observations of the Assessing Officer regarding the agreements dated 30.03.1978, 11.08.2001 and 02.08.2008 were not registered, cannot be enforced in the relevant year under consideration, not stipulated any period of rent, in our opinion, is not justified. Further, the Assessing Officer observed that the rent has not been revised, the assessee is expected to get higher rent in the relevant year are all on assumptions and presumptions without there being any evidence to that effect. With reference to the report of the Income Tax Inspector that, as a dubious from the Assessing Officer’s assessment order that the lettable rental value in similar area in financial year 2008- 09 is a minimum of Rs.50/- per sq.ft., but, however, the Ld. CIT(Appeals) has rightly observed that the report of the Inspector in estimating the value cannot partake the assessment of an approved valuer, but for the reason of that the Income Tax Inspector is not technical person to submit valuation report. In our view, in absence of any evidence it is just improper to fix the rent on mere assumptions and presumptions, therefore, we confirm the order of the ld. CIT(Appeals) on this issue and dismiss the ground no. 1 raised by the revenue.

Regarding Ground No. 2, the Assessing Officer took a view that the bill issued by M/s. Sood Realters and Developers does not bear any service tax registration. The amount paid is not in terms of any duty or cess or taxes paid to the Government of Karnataka. The assesese has not produced any documentary evidence that M/s. Sood Realters and Developers rendered any services to the assessee and the assessee failed to establish the business expediency. Therefore, the Assessing Officer disallowed the sum paid therein to the said M/s. Sood Realters and Developers treating the same as not genuine. The ld. CIT(Appeals) relying on two orders of the Hon’ble Delhi Benches of this Tribunal in the case of DCIT –vs.- Jindal Equipment Leasing & Consultancy Services Limited reported in [2011] 131 ITD 263 and ITAT, Pune Bench in the case of KRA Holding & Trading (P) Ltd. –vs.- DCIT reported in [2011] 46 SOT 19 (Pune) opined that the Assessing Officer was not justified in disallowing the expenditure on payment to M/s. Sood Realters & Developers and thereby directed the Assessing Officer to allow the said deduction. During the proceedings before this Tribunal, ld. D.R. contended that there is no agreement between the assesese and M/s. Sood Realters & Developers to show that M/s. Sood Realters & Developers rendered their services in selling the property belonging to the assessee. He also submitted that the bill produced by the assessee in support of her payment to M/s. Sood Realters Limited does not contain any service tax, thereby the assesese failed to establish that the said M/s. Sood Realters & Developers had rendered their services for selling the property and the Assessing Officer has rightly disallowed the expenditure.

In reply, Ld. A.R. contended that the property is in Bangalore and from the paper book it clearly shows that the bill of the said realtor that he charged the amount for the services rendered by it to the assessee. The said amount also paid by the assessee through cheque and it clearly shows that the argument of the ld. D.R. is not sustainable in law in this regard. Further, the ld. A.R. has drawn our attention to the paragraph 25 of ITAT, Pune Bench’s order (supra).

In respect of Ground No. 3, the Assessing Officer found Rs.15,00,000/- and Rs.31,50,000/- in the ledger account of the assessee. The contention of the assessee is that a sum of Rs.15,00,000/- was received from her father during his life time and Rs.31,50,000/- was received from the estate of her late father by way of a lessee to enable her to purchase house property for herself. The Assessing Officer took the view that when both the amounts reflected in the ledger account of the assessee as loan and credit shown under the head ‘current liability’ having ceased to exist as there is no chance of revival as the father of the assessee died long back and treating the same as trading liability by invoking the provisions of section 41(1) of the Income Tax Act and added the amount of Rs.15,00,000/- and Rs.31,50,000/- totalling to Rs.46,50,000/- as income of the assessee.

During the course of first appellate proceedings, ld. A.R. contended that the order of the Assessing Officer is bad in law and the assessee was never assessed under the head ‘business’ and there is no cessation of liability and section 41(1) is not relatable to the assessee.

Ld. CIT(Appeals) following the judgment of the Hon’ble Supreme Court in the case of CIT –vs.- Sougali Sugar Works Pvt. Ltd. which confirmed the judgment of the Hon’ble Calcutta High Court, which was reported in 236 ITR at page 518 reproduced as under:- “The principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been, well settled. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any Act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not buy itself confer any benefit on the debtor as contemplated by the section”.

Ld. D.R. contended that the assessee has shown several liabilities in the return, the condition of section 41(1) is attracted treating the same as trading liability as the assessee has shown the loan outstanding and it is being forwarded for the last several years and the assessee failed to explain that it is not trading liability.

We have heard the submissions made by the ld. D.R. and ld. A.R. with regard to the scope of section 41(1). The assessee was never assessed under the head ‘business’ and the assessee has been assessed under individual capacity only for the previous assessment years. The said amount received from her father during his life time and also after his demise for the purpose of purchasing house property. Hence, there is no liability ceased under section 41(1) of the Act. The ld. CIT(Appeals) has rightly pointed out and relied on the judgment of the Hon’ble Supreme Court in the case of CIT –vs.- Sougali Sugar Works Pvt. Ltd., wherein it was held that the principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt and at the same time, the liability will not enable the debtor to say that the liability has come to an end. The principle that expiry of the period of limitation prescribed under the Limitation Act could not extinguish the

In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on December 16, 2015.