2013 (8) TMI 695 - AT - Income Tax

Unexplained cash credit - Cash deposit in bank account - Held that - in view of provisions of section 68 of the Act ,where any sum is found credited in the books of the assessee for any previous year the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the AO, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money. If he fails to rebut, the said evidence being un-rebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee AO has act reasonably. The claim of withdrawal of amounts for purchasing plot of land at Surat and re-depositing the same in the bank a/cs.is not been supported by any plausible explanation. After considering the withdrawals made by the assessee, assessee did not have sufficient funds at the end of the AY. 2006-07, which could be deposited in the banks in the year under consideration. It is not correct that assessee had sufficient funds that were carried forward from the earlier AY and were deposited in the bank a/cs during the year under consideration - Following decision of Sumati Dayal Versus Commissioner of Income-Tax 1995 (3) TMI 3 - SUPREME Court - Decided in favour of Revenue. Income from House property - Addition on house rent - notional interest on interest free security deposit - if AO finds that the actual rent received is less than the fair/market rent because of the reason that the assessee has received abnormally high interest free security deposit and because of that reason, the actual rent received is less than the rent which the property might fetch, he can undertake necessary exercise in that behalf - High Court in the case of Commissioner of Income Tax Vs. J. K. Investors (Bombay) Ltd., 2000 -TMI - 14566 - BOMBAY High Court categorically rejected the formula of addition of notional interest while determining the fair rent - Decided in favor of the assessee Income from House property - whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal Authority Act can be the basis of adopting annual letting value for the purposes of Section 23 of the Act - Calcutta High Court in Satya Co. Ltd. (1985 -TMI - 60423 - ITAT CALCUTTA-C) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws - Held that If the assessing officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/ evidence placed on record - Following decision of COMMISSIONER OF INCOME TAX, Versus MONI KUMAR SUBBA & Miracle Exporters P. Ltd. 2011 (3) TMI 497 - DELHI HIGH COURT - Appeal is dismissed.

Summary

Issues Involved:
1. Deletion of addition made on account of unexplained cash credit amounting to Rs. 22,00,000/-.
2. Deletion of addition made to the Annual Letting Value (ALV) of house property on the basis of notional interest.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made on Account of Unexplained Cash Credit Amounting to Rs. 22,00,000/-:

During the assessment proceedings, the Assessing Officer (AO) found that the assessee had deposited cash on 12 occasions in April 2007 in his HSBC and Standard Chartered Bank accounts. The AO directed the assessee to explain the source of these deposits. The assessee claimed that the cash deposits were from withdrawals made in the previous financial years for household expenses and for purchasing a plot of land. However, the AO concluded that the withdrawals were almost the same in both financial years and that the assessee could not have had substantial savings to deposit in the subsequent year. The AO added Rs. 22 lakhs to the total income as unexplained cash credit.

The First Appellate Authority (FAA) deleted the addition, holding that the withdrawals were made in a short span and that there was no evidence to suggest the cash withdrawals were not available for redepositing. The FAA found the explanation of the assessee to be genuine.

Before the Tribunal, the Departmental Representative (DR) argued that the assessee did not have surplus funds for redepositing and that the explanation was an afterthought. The Authorized Representative (AR) reiterated that the deposits were from earlier withdrawals. The Tribunal found inconsistencies in the assessee's explanation, noting that documents provided did not prove the purchase of land and that the withdrawals were not sufficient to cover the deposits. The Tribunal reversed the FAA's order, deciding in favor of the AO.

2. Deletion of Addition Made to the Annual Letting Value (ALV) of House Property on the Basis of Notional Interest:

The AO found that the assessee had taken interest-free deposits while leasing properties and considered the notional interest on these deposits as part of the rent receivable. The AO added Rs. 38.28 lakhs to the income under the head 'property' based on notional interest, relying on various judicial precedents.

The FAA deleted the addition, holding that notional interest could not be the determinative factor for arriving at the Fair Rental Value (FRV). The FAA relied on the case of Moni Kumar Subba and other judicial precedents, concluding that the rent received was reasonable and higher than the municipal valuation. The FAA found no material evidence from the AO to show that the actual rent was less than the FRV.

Before the Tribunal, the DR supported the AO's order, while the AR argued that the AO had not provided evidence that the properties could yield higher rentals. The Tribunal upheld the FAA's order, agreeing that notional interest on deposits should not be included in the ALV and that the actual rent received was reasonable. The Tribunal decided both grounds of appeal against the AO.

Conclusion:

The appeal filed by the AO was partly allowed. The Tribunal reversed the FAA's order regarding the unexplained cash credit, deciding in favor of the AO. However, the Tribunal upheld the FAA's order regarding the deletion of the addition made to the ALV on the basis of notional interest, deciding against the AO.