2018 (10) TMI 858 - AT - Income Tax

Tribunal affirms deletion of cash credits under Section 68 and classifies rental income as business income

The Tribunal upheld the CIT(A)'s decision to delete the addition under Section 68 as the assessee proved the genuineness of cash credits. Additionally, ... Addition u/s 68 unexplained cash credits - share subscription amounts received - identity, genuineness and creditworthiness - Held that:- AO(s) made u/s 68 unexplained cash credits additions of share premium in case of first four entities and accepted similar credits of ₹20,45,00,000/- to be genuine satisfying all parameters of identity, genuineness and creditworthiness. It can therefore be safely assumed that all these additions sums forming subject-matter of the impugned additions to be accepted as genuine in respective investors entities’ end as the source of the amount(s) in issue totalling to ₹3,01,00,000/-. DR fails to dispute that the same very amount cannot be added twice in payees and recipients’ hands u/s 68 of the Act. No reason to accept Revenue’s instant former substantive ground. We affirm CIT(A)’s findings under challenge qua the instant former issue. Treatment of rental income derived from its warehouse as income form house property instead of business income - Held that:- Respectfully following the decision of the Hon’ble Supreme Court in the case of Chennai Properties [2015 (5) TMI 46 - SUPREME COURT], we hold that the CIT-A had rightly directed the AO to treat the warehouse rentals as income from business and consequentially allow the expenditure claimed in the return as business expenditure. Issues Involved:1. Validity of addition under Section 68 regarding unexplained cash credits.2. Classification of rental income from warehouse facilities as business income or income from house property.Detailed Analysis:1. Validity of Addition under Section 68 Regarding Unexplained Cash Credits:The Revenue challenged the reversal of the Assessing Officer's (AO) decision to treat the taxpayer's share subscription amount of Rs. 3,01,00,000 as unexplained cash credits under Section 68. The AO had issued notices under Section 131 to verify the genuineness of the transactions, but three notices were returned unserved, and there was no compliance from the served notices. The AO concluded adverse inferences against the assessee.The Commissioner of Income Tax (Appeals) [CIT(A)] noted that the AO did not dispute the submission of documentary evidence by the assessee, including PAN cards, bank statements, and IT acknowledgments of the share subscribing companies. The CIT(A) emphasized that the primary onus is on the assessee to prove the identity, creditworthiness, and genuineness of the transactions. The CIT(A) found that the share subscribing companies had substantial own funds and were regularly assessed to tax, proving their identity and creditworthiness. The transactions were conducted through banking channels, and no cash deposits were made prior to the payments.The CIT(A) criticized the AO for not proving any specific infirmity or falsity in the documents submitted by the assessee. The CIT(A) referred to various judicial decisions, including CIT Vs Lovely Exports Pvt Ltd, which held that once the assessee proves the identity and genuineness of the transactions, the burden shifts to the Revenue to disprove it with cogent evidence. The CIT(A) concluded that the addition under Section 68 was not justified and deleted the addition.The Tribunal upheld the CIT(A)’s findings, noting that the assessee had placed on record sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions. The Tribunal found no merit in the Revenue's argument and affirmed the CIT(A)’s decision.2. Classification of Rental Income from Warehouse Facilities:The Revenue's second grievance was regarding the classification of the assessee's rental income of Rs. 6,56,63,468 from its warehouse as income from house property instead of business income. The CIT(A) noted that the assessee was incorporated with the main object of setting up and operating infrastructure projects, including warehousing facilities. The assessee had made substantial investments in constructing the warehouse and installing various facilities and amenities for efficient storage and handling of goods.The CIT(A) referred to the Supreme Court's decision in Chennai Properties & Investments Ltd Vs CIT, which held that if the main object of the company is to let out properties and earn rental income, it should be treated as business income. The CIT(A) found that the assessee's activity of setting up and operating the warehouse was in line with its main object and was carried out in an organized manner, constituting a business activity.The CIT(A) also referred to other judicial decisions supporting the classification of income from warehousing activities as business income. The Tribunal upheld the CIT(A)’s findings, noting that the assessee's object clauses included the relevant stipulations for setting up the warehouse as a business activity. The Tribunal also referred to a similar case involving the assessee's sister concern, where the rental income from the warehouse was treated as business income.The Tribunal concluded that the CIT(A) had rightly treated the rental income from the warehouse as business income and dismissed the Revenue's appeal.Conclusion:The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)’s decisions on both issues. The addition under Section 68 was deleted as the assessee had proved the identity, creditworthiness, and genuineness of the transactions. The rental income from the warehouse was classified as business income, consistent with the assessee's main object and organized business activity.