2019 (6) TMI 1471 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on loan addition & interest expenses; rejects Revenue's appeal

ITO-21 (2) (4), MUMBAI Versus Ms. Naseem Hasan Mujawar And (Vice-Versa)

ITO-21 (2) (4), MUMBAI Versus Ms. Naseem Hasan Mujawar And (Vice-Versa) - TMI Issues Involved:1. Deletion of addition made on account of loan taken from M/s. Golden Agro Products Pvt. Ltd.2. Deletion of disallowance of interest expenses related to the loan.3. Establishment of M/s. Golden Agro Products Pvt. Ltd. as a shell company.4. Ignoring findings on the creditworthiness of the lender and genuineness of transactions.5. Deletion of addition under the head 'capital gains' related to surrender of tenancy rights.6. Taxing income from house property based on estimated rent instead of the actual amount offered by the assessee.Issue-wise Detailed Analysis:1. Deletion of Addition Made on Account of Loan Taken from M/s. Golden Agro Products Pvt. Ltd.:The Revenue challenged the deletion of the addition of Rs. 60,00,000 made by the Assessing Officer (AO) on the grounds that M/s. Golden Agro Products Pvt. Ltd. was a shell company. The Commissioner of Income Tax (Appeals) [CIT(A)] found that the identity of the creditor was established through PAN and address details, the genuineness of the transaction was confirmed by banking channels, and the creditworthiness was supported by audited accounts and bank statements. The CIT(A) concluded that the AO failed to establish that the creditor was a shell company and thus deleted the addition.2. Deletion of Disallowance of Interest Expenses Related to the Loan:The Revenue also contested the deletion of Rs. 3,60,000 in interest expenses related to the loan. The CIT(A) held that since the loan itself was genuine, the interest paid on such a loan could not be disallowed. The Tribunal upheld this view, noting that the AO did not provide sufficient evidence to classify the loan as bogus.3. Establishment of M/s. Golden Agro Products Pvt. Ltd. as a Shell Company:The AO argued that M/s. Golden Agro Products Pvt. Ltd. was a shell company based on the statement of its director, Shri Jitendra Salecha, who admitted to floating various companies for providing accommodation entries. However, the CIT(A) found that the company had changed its address and had filed Form 18 with the Registrar of Companies. The Tribunal agreed with the CIT(A) that the AO failed to prove the company was a shell entity, noting that the company’s financial transactions were transparent and there were no anomalies in the bank accounts.4. Ignoring Findings on the Creditworthiness of the Lender and Genuineness of Transactions:The Revenue contended that the CIT(A) ignored the AO's findings regarding the lender's creditworthiness and the genuineness of the transactions. The CIT(A) had considered the remand report and found that the creditor's identity, transaction genuineness, and creditworthiness were satisfactorily established. The Tribunal upheld this finding, emphasizing that the AO did not provide concrete evidence to dispute the lender's legitimacy.5. Deletion of Addition Under the Head 'Capital Gains' Related to Surrender of Tenancy Rights:The AO added Rs. 1,84,63,421 as capital gains, assuming the surrender of tenancy rights. The CIT(A) found that the agreement for redevelopment did not constitute a transfer under Section 2(47) of the Income Tax Act, as the assessee continued to pay rent and retained tenancy rights until the new property was received. The Tribunal agreed, noting that the transfer was incomplete as the assessee had not received the new property nor parted with the old tenancy.6. Taxing Income from House Property Based on Estimated Rent:The AO assessed deemed rental income at Rs. 5,40,000 based on the location and leave and license agreement, instead of the Rs. 2,20,000 offered by the assessee. The CIT(A) directed the AO to give a set-off for the amount already disclosed and restricted the addition to Rs. 3,20,000, allowing statutory deductions. The Tribunal found no reason to interfere with the CIT(A)'s findings, as the AO had not carried out any inquiries to establish that the lumpsum amount offered was not the actual rental income.Conclusion:The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s findings on all issues. The Tribunal found that the CIT(A) had judiciously considered the facts, remand reports, and legal principles, and no new evidence was presented to warrant a different conclusion.