2026 (2) TMI 1368 - AT - Income Tax

Income from House Property: advance rent taxable on receipt; Section 68 cannot attach corporate-account balances absent veil-lifting.

ITAT considered three issues: (i) advance rent documented by tenancy agreement and bank statements was held not to be an unexplained cash credit but ... Addition u/s 68 r.w.115BBE - additions were made only after the assessee failed to discharge the onus cast upon her u/s 68 - HELD THAT:- On a perusal of the reply of the assessee placed on record as well as the impugned order, we find that the assessee had, in response to the show cause notice dated 28.11.2024, furnished detailed written submissions along with documentary evidences including tenancy contracts, bank statements, trust documents and explanatory notes on peak balances. CIT(A) has recorded a categorical finding that the evidences were available on record and were considered while adjudicating the appeal. DR has not been able to point out any specific document which is being relied upon for the first time before the Tribunal. No merit in the prayer for remand merely for the purpose of re-appreciation of the same material. Addition relating to advance rent - assessee along with her husband was co-owner of an office premises - tenancy contract evidencing lease of the premises - CIT(A) held that the receipt was identifiable as rent and not an unexplained credit and therefore could not be assessed u/s 68 - HELD THAT:- We find that the Assessing Officer had not disputed the existence of tenancy agreements or the nature of receipt as rent. The addition was essentially made on the premise that the entire receipt was liable to be taxed in the year under consideration. CIT(A) has correctly appreciated that the source of receipt stood explained and that the character of income was house property income. The direction to avoid double taxation is also in consonance with settled principles. We do not find any infirmity in this finding. The contention of the DR that the learned CIT(A) has deleted the addition without evidence is not borne out from the record. Addition in respect of foreign bank accounts - AO treated the peak balances in certain foreign bank accounts as unexplained credits in the hands of the assessee - primary basis for such addition was that the assessee was an authorised signatory and beneficiary in relation to certain foreign entities - CIT(A) deleted addition - HELD THAT:- The bank accounts in question are admittedly not in the personal name of the assessee. No material has been brought on record by the AO to demonstrate that the corporate entities were sham or mere conduits of the assessee. The addition is premised solely on the fact of signatory authority and alleged beneficiary status. Such a presumption, in absence of evidence establishing ownership or control of funds as alter ego, cannot sustain an addition u/s 68. DR has not pointed out any specific material to contradict the factual findings recorded by CIT(A). Addition towards notional rent - legal or deemed owner - circumstances existed to warrant piercing of the corporate veil and attributing ownership of the company’s asset to the assessee - CIT(A) deleted addition - HELD THAT:- AO has not brought any material to demonstrate that the corporate entity was a mere façade or that the property was held benami for the assessee. DR has reiterated that the CIT(A) erred in deleting the addition without adequate evidence - tenancy contract and related documents were part of the assessment record and were examined by CIT(A). No contrary evidence has been placed before us to dislodge the finding that the property is owned by Parkland Investments Limited. In these circumstances, we concur with the CIT(A) that notional rent cannot be assessed in the hands of a person who is neither the legal nor deemed owner. Issues: (i) Whether advance rent of Rs. 22,49,854/- received during the year is an unexplained cash credit under section 68 or taxable as income from house property; (ii) Whether increases in peak balances totalling Rs. 7,31,35,963/- in foreign bank accounts in the names of corporate entities can be treated as unexplained cash credits of the assessee under section 68 read with section 115BBE; (iii) Whether notional rent of Rs. 1,51,27,315/- on Villa No. K-25, Palm Jumeirah can be assessed in the hands of the assessee when the property stands in the name of a corporate entity.Issue (i): Whether advance rent of Rs. 22,49,854/- is an unexplained cash credit under section 68 or taxable as income from house property.Analysis: Documentary evidence including tenancy agreement and bank statements were on the record showing the receipt as rent and that part of it related to the subsequent year; the CIT(A) found the source explained and treated the receipt as house property income assessed on receipt basis with direction to adjust in the subsequent year to avoid double taxation.Conclusion: The advance rent is not an unexplained cash credit; it is taxable as income from house property in the year of receipt. This finding is in favour of the assessee.Issue (ii): Whether increases in peak balances of Rs. 7,31,35,963/- in foreign bank accounts held in corporate names can be assessed as unexplained credits of the assessee under section 68 r.w.s.115BBE.Analysis: The accounts were in the names of separate corporate entities; the assessee was a signatory/beneficiary according to disclosed documents and trust/corporate records on the assessment record; no material was produced to establish that the companies were sham, alter ego, or conduits for the assessee such as to warrant lifting the corporate veil; section 68 applies to credits appearing in the books of the assessee.Conclusion: The addition under section 68 r.w.s.115BBE is not sustainable and is deleted. This finding is in favour of the assessee.Issue (iii): Whether notional rent of Rs. 1,51,27,315/- on Villa No. K-25, Palm Jumeirah can be assessed in the hands of the assessee when the property is in the name of Parkland Investments Ltd.Analysis: The tenancy contract and related documents on record show the property in the name of the corporate entity; there is no material to treat the corporate owner as a mere fac ade or to treat the assessee as legal or deemed owner within the meaning of sections 22 and 27; income from house property can be assessed only in the hands of the owner or deemed owner.Conclusion: The notional rent cannot be assessed in the hands of the assessee and the addition is deleted. This finding is in favour of the assessee.Final Conclusion: The appellate authority's deletions of the additions in respect of advance rent, unexplained foreign account balances, and notional rent are upheld and the revenue's grounds of appeal are dismissed, resulting in an overall decision favourable to the assessee.Ratio Decidendi: Section 68 can be invoked only for unexplained credits appearing in the assessee's books; mere signatory status or disclosed beneficiary status, absent evidence showing the corporate entities to be sham or alter egos, does not convert funds held in separate corporate accounts or corporate-owned property into the assessee's taxable income.