2024 (11) TMI 1308 - AT - Income Tax

Service tax demand on rental income fails without corroborative evidence beyond tenant statements under Section 9D

Patdi Commercial & Investment Ltd Versus Commissioner of C.E. & S.T. -Surat-i

CESTAT Ahmedabad held that service tax demand on rental income cannot be sustained solely on tenant statements without corroborative evidence. Revenue ... Differential value and service tax - activity of renting shops fall under the taxable category of “Renting of Immovable Property”- Appellant has received the rent in excess of the rent booked in the books of accounts on the basis of four tenants' statements out of total tenants - As argued Revenue has calculated the service tax demand on hypothetical basis on the basis of assumption only on the basis of shop owners' statements regarding the payment to agent in cash, however no cash receipts has been found by the department from the tenants HELD THAT:- Burden of proof is on the Revenue and same is required to be discharged effectively. Without corroborative evidence only on the basis of statements of few tenants it cannot be concluded that the appellant has collected the part of rent in cheques and balance is taken in cash. In the present matter tenants nowhere produced any records/piece of paper in support of their statement. The only oral statements of service recipient cannot be accepted as admissible piece of evidence. No cash receipts has been relied upon by the department, no financial flow back has been relied upon by the department for the alleged collection of rent in cash, no rent agreement has been found by the department for the support of excess rent , no ledger entry in the books of accounts of the appellant found for so called excess collected rent. Moreover, none of the persons on whose statements reliance was placed by the department were cross-examined by the Ld. Adjudicating authority in the present matter. Clearly, the Adjudicating Authority had failed to follow the requirement of Section 9D of the Central Excise Act, 1944 regarding examination in chief of witness, therefore quantification of demand of service tax on the basis of statements of persons is not sustainable. Before fastening the service tax demand, it was incumbent on the revenue to come up with tangible evidence to prove the suppression of taxable value and quantify the demand on the basis of documentary evidences. We also find that in the present matter appellant also produced the details of rent received from each tenant and shops during the disputed period before revenue and both Adjudicating authority. However, department has calculated the demand of services tax on all the shops for whole periods without verifying the details that whether the said shops has been given on rent during the whole disputed period or not; whether shops has been given on rent or sale basis; what is the actual rent recoverable or received by the appellant; how many months occupant’s have been holding the shops as a tenant. We noticed that in the present matter revenue has not considered the proper facts while calculating the liabilities against the appellant. We, therefore, reduce the demand of Service tax from Rs. 25,81,955 to Rs. 9,52,944/- together with interest and remaining demand is set aside. Penalties imposed - We find that the appellant in the present matter not has disputed the liability of services tax i.e. reduced amount as above and has admittedly paid the service tax well before the issuance of show cause notice. In these circumstances, we do not find that there was any mala fide on the part of the appellant. Therefore, benefit of Section 80 should be extended to the appellant and penalties imposed by the Ld. Adjudicating Authority are set aside. Issues:1. Taxability of renting immovable property under the Finance Act 1994.2. Calculation of service tax demand based on tenant statements.3. Burden of proof on the Revenue.4. Lack of corroborative evidence in determining tax liability.5. Failure to follow examination requirements under Section 9D of the Central Excise Act, 1944.6. Quantification of demand based on documentary evidence.7. Consideration of facts in calculating tax liabilities.8. Imposition of penalties.Analysis:The appeal pertains to the taxability of renting immovable property under the Finance Act 1994. The appellant, a commercial entity, was alleged to have rented out shops and suppressed income generated from renting. The Department issued a show cause notice for recovery of service tax, interest, and penalties. The Adjudicating Authority confirmed the demand, which was upheld by the Commissioner (Appeals), leading to the appeal before the Tribunal.The appellant contested the service tax demand, arguing that the calculation was based on statements of a few tenants and lacked factual data. They claimed that the revenue's calculation was hypothetical and demanded a reduction in the tax liability. The appellant also argued against the imposition of penalties on the amount already paid before the show cause notice.The Revenue, represented by the Authorized Representative, supported the findings of the impugned order, emphasizing the evidence from tenant statements to determine the taxable value. However, the Tribunal noted that mere statements without corroborative evidence were insufficient to establish the guilt of the appellant. The burden of proof rested on the Revenue, and the lack of tangible evidence to prove suppression of taxable value rendered the quantification of demand unsustainable.The Tribunal highlighted the importance of documentary evidence in determining tax liabilities. It noted that the Revenue had not considered crucial facts while calculating the liabilities, such as the actual rent received, occupancy periods, and rental agreements. Consequently, the Tribunal reduced the service tax demand significantly based on the appellant's detailed rent receipts and set aside the remaining demand.Regarding penalties, the Tribunal found no mala fide intent on the appellant's part, as they had paid the reduced service tax amount before the show cause notice. Therefore, the penalties imposed by the Adjudicating Authority were set aside, and the appellant was granted the benefit of Section 80.In conclusion, the Tribunal modified the impugned order, partially allowing the appeal by reducing the service tax demand and setting aside the penalties.