2018 (11) TMI 590 - AT - Income Tax

Tribunal rules in favor of assessee, denying revenue's appeals and allowing deduction for rental income

Asstt. Commissioner of Income Tax, 3 (1), Indore Versus Shri Pramod Kumar Sethi

Asstt. Commissioner of Income Tax, 3 (1), Indore Versus Shri Pramod Kumar Sethi - TMI Issues Involved:1. Addition of unsecured loans as unexplained cash credit under Section 68.2. Disallowance of interest on unsecured loans.3. Addition for unexplained expenditure for procuring loans.4. Treatment of rental income as business income and denial of deduction under Section 24.Issue-wise Detailed Analysis:1. Addition of Unsecured Loans as Unexplained Cash Credit under Section 68:The Assessing Officer (AO) added unsecured loans of Rs. 1,05,00,000 for AY 2006-07 and Rs. 1,25,00,000 for AY 2007-08 as unexplained cash credit under Section 68 of the Income Tax Act. The AO doubted the identity, genuineness, and creditworthiness of the creditors, linking them to the Lunkard Group, which was under scrutiny for providing accommodation entries. Despite the assessee providing confirmation letters, PAN details, and bank statements showing transactions through account payee cheques, the AO was not satisfied and made the additions.The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, noting that the creditors were assessed to tax, and their assessments under Section 143(3) were completed. The CIT(A) emphasized that the AO did not provide concrete evidence linking the creditors to the Lunkard Group and failed to establish that the transactions were not genuine. The CIT(A) relied on various judicial precedents, including the case of 'ACIT vs. Girish Kumar Sharda,' where similar issues with the same creditors were decided in favor of the assessee.The Tribunal upheld the CIT(A)'s decision, noting that the creditors were genuine, regularly assessed to tax, and had sufficient funds. The Tribunal emphasized that the initial burden of proof was discharged by the assessee, and the AO failed to bring any contrary evidence.2. Disallowance of Interest on Unsecured Loans:The AO disallowed the interest claimed on the unsecured loans, amounting to Rs. 6,14,855 for AY 2006-07 and Rs. 5,55,875 for AY 2007-08, on the grounds that the loans were not genuine.The CIT(A) deleted the disallowance, reasoning that since the loans were genuine, the interest paid on them was also legitimate. The Tribunal concurred with the CIT(A), noting that the interest was paid after deducting tax at source and through account payee cheques, further supporting the genuineness of the transactions.3. Addition for Unexplained Expenditure for Procuring Loans:The AO added Rs. 5,25,000 for AY 2006-07 and Rs. 6,25,000 for AY 2007-08 as unexplained expenditure for procuring loans, assuming that the assessee incurred these amounts to obtain accommodation entries.The CIT(A) deleted the additions, observing that there was no evidence to support the AO's assumption. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on mere speculation without any concrete evidence.4. Treatment of Rental Income as Business Income and Denial of Deduction under Section 24:The AO treated the rental income of Rs. 26,87,635 as business income instead of income from house property and denied the deduction under Section 24 amounting to Rs. 7,92,350, arguing that the assessee was engaged in the real estate business and the properties were part of the business stock.The CIT(A) upheld the AO's decision, but the Tribunal reversed it, relying on judicial precedents, including 'East India Housing and Land Development Trust Ltd.' and 'Azimganj Estate Pvt. Ltd. vs. CIT,' which held that rental income from unsold flats shown as stock-in-trade should be treated as income from house property. The Tribunal allowed the deduction under Section 24, noting that the rental income was consistently shown as income from house property in subsequent years and accepted by the revenue authorities.Conclusion:The Tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s deletion of additions related to unsecured loans, interest, and unexplained expenditure. The Tribunal allowed the assessee's appeal, treating the rental income as income from house property and allowing the deduction under Section 24.