2018 (10) TMI 878 - AT - Income Tax

Addition on account of un-explained loan - allegation that invester is engaged in providing accommodation entries to several beneficiaries with the help of several bank accounts opened in the name of several proprietary concerns and companies - Held that - It is clear that assessee produced sufficient documentary evidences before AO to prove the ingredients of Section 68 of the Act. The AO, however, did not make further enquiry on the documents filed by the assessee. The AO has thus, failed to conduct scrutiny of the documents at assessment stage and merely suspected the transaction between the investor company and the assessee because some materials found during the course of search in the case of Sh. Aseem Kumar Gupta or his statement recorded, but these would not prove anything against the assessee. It is not reported, if any, cash was found deposited in the account of the investor before making investment in assessee company. Therefore, clearly prove that assessee discharged its initial onus to prove the identity of the investor company, its creditworthiness and genuineness of the transaction in the matter. Addition on account of unexplained loan deleted - decided in favour of assessee. Addition on account of income from house property - Held that - AO has been increasing the rent 10% every year which is not justified, which was even as per Rent Control Act, the rent could be enhanced after three years. In the absence of any justification or reasons, we are of the view that rent should not be enhanced every year by the AO particularly without there being any evidence with the AO. We may not note that in AY 2009-10, AO has made the addition of ₹ 3,77,520/- on account of income from house property for both these properties after allowing statutory deduction. It appears that assessee did not challenge the same computation before the appellate authorities. Therefore, considering the past history of the assessee and the annual rental value decided by the AO in preceding AY 2009-10 at ₹ 3,77,520/- for both the properties, we set aside the orders of the authorities below and direct the AO to adopt the same amount as income from house property in a sum of ₹ 3,77,520/- and make addition accordingly. The addition is, therefore, restricted to ₹ 3,77,520/- instead of ₹ 4,36,036/-. This ground of appeal of the assessee is partly allowed.

Issues Involved:

1. Addition on account of income from house property.
2. Addition on account of unexplained loan.
3. Addition on account of deemed dividend u/s 2(22)(e) on a protective basis.
4. Admission of additional evidence under Rule 46A of the I.T. Rules, 1962.

Detailed Analysis:

1. Addition on account of income from house property:

The AO noted that the assessee did not declare rental income from two properties, leading to an addition of ?4,36,036/-. The assessee contended that these properties were used for business purposes and not for generating rental income. The AO, however, did not accept this explanation as there was no business income from the companies mentioned. The CIT(A) upheld the AO’s decision.

The Tribunal noted an error in the AO’s computation, where the net fair rental value was incorrectly totaled. The Tribunal corrected the error and noted that the AO unjustifiably increased the rent by 10% every year without evidence. The Tribunal decided to adopt the rental value determined in the preceding year (AY 2009-10) at ?3,77,520/- for both properties and restricted the addition to this amount.

2. Addition on account of unexplained loan:

The AO added ?2,29,73,630/- as unexplained income, comprising a loan of ?2,20,75,000/- and interest of ?8,98,630/- from M/s Ganpati Fincap Services P. Ltd., which was deemed a fictitious entity providing accommodation entries. The AO based this on the statement of Sh. Aseem Kumar Gupta and other seized materials.

The assessee argued that all necessary documents proving the loan's genuineness were submitted, including the loan agreement, confirmation from the lender, audit reports, ITR, and bank statements. The assessee also contended that the statements of Sh. Aseem Kumar Gupta were obtained without an opportunity for cross-examination, violating the principles of natural justice.

The Tribunal found that the AO did not dispute the documents provided by the assessee and that the investor company was an NBFC with sufficient net worth to provide the loan. The Tribunal noted that the AO failed to conduct further inquiries and relied solely on the statement of Sh. Aseem Kumar Gupta, which was not corroborated by any material evidence against the assessee. The Tribunal concluded that the assessee had discharged the initial onus to prove the loan's genuineness and deleted the addition of ?2,29,73,630/-.

3. Addition on account of deemed dividend u/s 2(22)(e) on a protective basis:

The Tribunal did not specifically address this issue in the detailed analysis provided. However, the focus was on the primary additions related to unexplained loans and income from house property.

4. Admission of additional evidence under Rule 46A of the I.T. Rules, 1962:

The CIT(A) admitted additional evidence submitted by the assessee, which included various documents supporting the loan's genuineness. The AO was provided an opportunity to examine these additional evidences and submit a remand report. The Tribunal upheld the CIT(A)'s decision to admit the additional evidence, noting that the AO did not provide any material evidence to dispute the documents submitted by the assessee.

Conclusion:

The Tribunal partly allowed the appeal by correcting the addition related to income from house property and deleting the addition related to unexplained loans. It emphasized the importance of adhering to the principles of natural justice and the need for the AO to conduct thorough inquiries before making additions based on statements obtained during search operations.

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