2015 (12) TMI 1760 - AT - Income Tax

Enhancement of rental income not sustaining the addition made u/s 48 - addition made on account of cessation of liability u/s 41(1) - Held that - AO observed that the rent has not been revised, the assessee is expected to get higher rent in the relevant year are all on assumptions and presumptions without there being any evidence to that effect. With reference to the report of the Income Tax Inspector that, as a dubious from the AO s assessment order that the lettable rental value in similar area in financial year 2008-09 is a minimum of ₹ 50/- per sq.ft., but, however, the CIT(Appeals) has rightly observed that the report of the Inspector in estimating the value cannot partake the assessment of an approved valuer, but for the reason of that the Income Tax Inspector is not technical person to submit valuation report. In absence of any evidence it is just improper to fix the rent on mere assumptions and presumptions, therefore, we confirm the order of the CIT(Appeals) on this issue and dismiss the ground no. 1 raised by the revenue. Deduction allowed on the expenditure incurred during the transfer of an asset deduction can be allowed on the expenditure incurred during the transfer of an asset and it clearly shows that the burden is on the assessee to demonstrate that the expenses incurred for the transfer of asset is fulfilled. In the case on hand also, the assessee produced the bill issued by M/s. Sood Realtors & Developers and the amount paid by the assessee by way of cheque, therefore, the ld. CIT(Appeals) has rightly applied the principle laid down by the ITAT Pune Bench in the case of KRA Holding & Trading Pvt. Ltd. 2011 (5) TMI 498 - ITAT PUNE . We are of the view that the CIT(Appeals) was rightly justified in directing the Assessing Officer to allow the said deduction. Addition u/s 41 - Held that - In the case on hand, the father of the assessee died long back, the said amount given by him as in the nature of personal loan to purchase a house property and also received from the estate of her father entered into the books of account of the assessee since long back. The assessee did not credit the said amount to her profit & loss account Therefore, in our view, scope of section 41(1)(a) is not applicable to the case on hand. Appeal of the Revenue is dismissed.

Summary

Issues Involved:
1. Enhancement of rental income.
2. Disallowance of brokerage under Section 48.
3. Addition on account of cessation of liability under Section 41(1).

Detailed Analysis:

1. Enhancement of Rental Income:
The Revenue contended that the CIT(A) erred by not sustaining the enhancement of rental income from Rs. 3,56,524 to Rs. 24,48,897. The Assessing Officer (AO) had determined the income from house property based on the market rent assessed by the Income Tax Inspector, which was not supported by the rent agreements provided by the assessee. The CIT(A) found that the AO's reliance on the Inspector's report, which was not from an approved valuer, was unjustified. The CIT(A) observed that the rental income declared by the assessee was based on valid agreements and had been accepted in previous years. The Tribunal upheld the CIT(A)'s decision, stating that the AO's assumptions and presumptions without concrete evidence were not justified.

2. Disallowance of Brokerage under Section 48:
The AO disallowed the brokerage paid to M/s. Sood Realtors and Developers, citing lack of service tax registration and absence of evidence of services rendered. The CIT(A) relied on precedents from the ITAT Delhi and Pune Benches, which allowed such deductions if the expenditure was incurred for the transfer of an asset. The Tribunal agreed with the CIT(A), noting that the assessee had produced the bill and proof of payment by cheque, thus fulfilling the requirement to demonstrate the expenses incurred for the transfer of the asset.

3. Addition on Account of Cessation of Liability under Section 41(1):
The AO added Rs. 46,50,000 to the assessee's income, treating it as cessation of liability under Section 41(1). The amount included Rs. 15,00,000 received from the assessee's father during his lifetime and Rs. 31,50,000 from his estate. The CIT(A) referred to the Supreme Court judgment in CIT vs. Sougali Sugar Works Pvt. Ltd., which held that the expiry of the limitation period does not extinguish the debt but only prevents the creditor from enforcing it. The Tribunal noted that the assessee was never assessed under the head 'business' and the amounts were personal loans for purchasing house property. Therefore, Section 41(1) was not applicable. The Tribunal upheld the CIT(A)'s decision to delete the addition.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s order on all grounds. The enhancement of rental income, disallowance of brokerage, and addition on account of cessation of liability were all found to be unjustified based on the evidence and legal precedents. The Tribunal emphasized the importance of concrete evidence and proper valuation in determining rental income and upheld the principles laid down by higher judicial authorities regarding the cessation of liability.