2021 (2) TMI 1010 - AT - Income Tax

Revenue's appeal dismissed, CIT(A)'s decisions upheld. Key points: explanation, documentation, Sections 68, 41(1), proportional expense disallowance.

The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all counts. The key points were the proper explanation and documentation ... income from house property - Deemed rental of the basement property owned by the assessee - HELD THAT:- AO had proceeded with on the basis of a misconception that the assessee had received an amount of ₹ 66 lac as an interest free deposit from a tenant without any monthly rent. Insofar the contention of the ld. D.R that as the assessee had not shown any deemed lettable value of the property under consideration, the A.O, thus, had rightly determined the same as per the mandate of Sec. 23(1) of the Act is concerned, we find that the same being devoid and bereft of any force cannot be sustained - it is the claim of the ld. A.R that as the property in question was being used by the assessee for its own business and had not been let out thus, the issue of determining the deemed annual lettable value of the same does not arise. In the absence of any material which would support the claim of the A.O that the assessee had let out the property in question, the same cannot be summarily accepted. Accordingly, finding no infirmity in the well reasoned deletion of the addition of ₹ 33.60 lac made by the A.O towards deemed lettable value of the property in question, we uphold the order of the CIT(A) to the said extent. Grounds of appeal Nos. (i) & (ii) are dismissed. Addition u/s 68 - credits in the respective accounts of the shareholders as an unexplained credit - HELD THAT:- On a perusal of the ledger accounts of the shareholders w.r.t payment of stamp duty and registration charges, it can safely be gathered that on 20.03.2012 the amount of stamp duty/charges was distributed amongst them on the basis of their respective shareholdings. Admittedly, the assessee instead of debiting the stamp duty expenses to the premises in the “fixed assets a/c” had wrongly debited the respective accounts of the shareholders. As observed by us hereinabove, as and when the respective amount of contributions were received vide account payee cheques from the shareholders, the same were credited to their respective accounts. As the aforesaid transaction was not only fully explained, but there was no reason for treating the duly substantiated credits in the respective accounts of the shareholders as an unexplained credit within the meaning of Sec. 68 of the Act, the CIT(A), in our considered view had rightly vacated the addition that was made by the A.O u/s 68. Addition u/s 41(1) - Liability under the head “BMC Charges Payable” - A.O holding a conviction that the said amount was no more outstanding added the same u/s 41(1) - HELD THAT:- In order to substantiate the fact that the payments were made by the aforementioned respective shareholders, the assessee had placed on record the copy of the pass book of the assessee for the period April, 2007 to March, 2008, alongwith the ledger accounts of the respective shareholders. Before the CIT(A), it was the inter alia claim of the assessee that as the aforesaid amount paid to BMC in the year 2007-08 was never claimed as a deduction, the same, thus, by no means could have been added as the income of the assessee u/s 41(1) - In our considered view, the CIT(A) had rightly observed that as the assessee had at no stage claimed much the less was allowed any deduction of the “BMC charges” in question in assessment for any year, thus, the provisions of Sec. 41(1) could not have been invoked. Disallowance of security charges and repairs and maintenance charges pertaining to the property given on rent - CIT-A sustaining addition 20% - HELD THAT:- Nothing has been brought to our notice by the ld. D.R which would point out any perversity in the aforesaid observation of the CIT(A). Accordingly, in the backdrop of the fact that only 20% of the building in question was let out by the assessee, we concur with the view taken by the CIT(A). Accordingly, in the backdrop of the fact that only 20% of the building in question was let out by the assessee, we concur with the view taken by the CIT(A) that the security charges and repairs & maintenance charges only to the said extent could have been disallowed on the pretext that the same were subsumed in the statutory 30% deduction allowed while computing the income under the head ‘house property’. As such, finding no infirmity in the view taken by the CIT(A) in context of the aforesaid issue under consideration, we uphold the same to the said extent. Issues Involved:1. Addition made on account of deemed rent from basement property.2. Addition made under Section 68 regarding unexplained stamp duty.3. Addition made under Section 41(1) regarding outstanding BMC charges.4. Disallowance of security, repairs, and maintenance charges.Issue-wise Detailed Analysis:1. Addition Made on Account of Deemed Rent from Basement Property:The Assessing Officer (A.O) added Rs. 33,60,000/- as deemed rental income from the basement property, based on the observation that the assessee had shown a liability of Rs. 66 lakhs as 'basement charges deposit' without corresponding rental income. The A.O concluded that the basement was let out, calculating an average deposit rate of Rs. 450/- per sq. ft. and deemed the rental income accordingly.The CIT(A) vacated this addition, concluding that the Rs. 66 lakhs was a payment made by a shareholder for construction costs, not a rental deposit. The basement was used for business purposes, not rented out. The Tribunal upheld the CIT(A)'s decision, finding no material evidence to support the A.O's claim of rental income.2. Addition Made Under Section 68 Regarding Unexplained Stamp Duty:The A.O added Rs. 74,77,350/- under Section 68, questioning the source of funds for stamp duty and registration charges paid by the assessee. The amount was contributed by shareholders and debited to their accounts instead of being shown as a capital expenditure.The CIT(A) deleted this addition, noting that shareholders' contributions were legitimate and their identities and creditworthiness were not in doubt. The Tribunal upheld this decision, finding the transaction fully explained and no justification for treating it as unexplained credit under Section 68.3. Addition Made Under Section 41(1) Regarding Outstanding BMC Charges:The A.O added Rs. 1,01,25,139/- under Section 41(1), considering the liability for BMC charges as ceased since it had been outstanding since FY 2005-06. The assessee argued that the amount was collected from shareholders to pay BMC for tenancy rights and was never claimed as a deduction.The CIT(A) vacated this addition, stating that Section 41(1) applies only if a deduction was previously claimed, which was not the case here. The Tribunal concurred, noting that the liability had not ceased and was not claimed as an expense, hence not falling under Section 41(1).4. Disallowance of Security, Repairs, and Maintenance Charges:The A.O disallowed Rs. 12,10,003/- for security, repairs, and maintenance, arguing these expenses were covered under the 30% deduction for income from house property. The CIT(A) restricted the disallowance to 20%, corresponding to the portion of the property that was let out.The Tribunal upheld the CIT(A)'s decision, agreeing that only 20% of the building being let out justified limiting the disallowance to that proportion.Conclusion:The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on all counts. The key points were the proper explanation and documentation provided by the assessee, the correct interpretation of Sections 68 and 41(1), and the proportional disallowance of expenses related to the let-out portion of the property. The order was pronounced on 01/02/2021.