2019 (4) TMI 1376 - AT - Income Tax

Addition made u/s 68 - as alleged parties are mere accommodation entry providers who provide accommodation entry in the form of unsecured loans as per the requirements of the beneficiary - CIT-A deleted the addition - HELD THAT - CIT(A) after appreciating the facts had rightly relied upon the judgment in the case of Lovely Exports Pyt Ltd. 2008 (1) TMI 575 - SUPREME COURT OF INDIA , wherein it was held that the AO is at liberty to bring to tax the amounts in their respective hands of the investors if their identity, genuineness and creditworthiness is not proved. AO should have made efforts to assess the amounts in the hands of the investors at least on protective basis. Even in case, the creditworthiness of the investors is not proved it will not automatically give license to the assessing authority to make additions in the hands of the recipient u/s 68 unless it is proved that it is the unexplained and unaccounted money of the appellant which has been introduced in its books of account in the name of bogus/non-existent entities. Since the AO had not observed the principles laid down by the Hon ble Apex Court, thus Ld. CIT(A) had rightly deleted the additions, more particularly after appreciating the facts that the assessee had filed all the details and supporting documentary evidences to prove the identity, genuineness and creditworthiness of the lenders. We also cannot lost sight of the fact that amount was paid by the investors from their running bank accounts which were also duly accounted in the books of the assessee as well as investors as is evident from the audited financial statements coupled with confirmation of the creditors. - Decided against revenue Addition made on account of deemed rent - CIT-A deleted the addition - as per AO said premises were vacant during whole of the year and not let out at all during the year, hence the provisions Section 23(1)(c) would not apply and therefore assessee is not eligible for any deduction on account of vacancy and annual value of all the vacant property should be taken in terms of section 23(1)(a) - HELD THAT - AO made additions u/s 23 of the Act on account of deemed rent in respect of the properties of the assessee lying vacant. Whereas assessee had categorically stated that he had all the intention to let out these premises but for want of suitable tenants, despite best efforts put in by the Estate Agents, whose services had been engaged, he could not find suitable tenants during the previous year under consideration and the said premises remained vacant for the whole of the year. Since the said properties remained vacant for whole of the relevant financial year, therefore Ld. CIT(A) taken into consideration the CBDT Circular No. 14/2001, wherein it was stated that where the property or any part of the property is let and was vacant during the whole or part of the previous year and owing to such vacancy, the actual rent received or receivable is less than ALV, the sum so received or receivable during the year is less than the sum received or receivable during year shall be annual value, then no deemed rent could be assessed. CIT(A) also noted that the AO had not considered the admissible deduction towards Municipal taxes and society maintenance charges. See DR. PRABHA SANGHI 2013 (1) TMI 18 - ITAT DELHI ., SMT. POONAM SAWHNEY VERSUS ASSESSING OFFICER, WARD 31(2), NEW DELHI 2007 (10) TMI 445 - ITAT DELHI - Decided against revenue.

Issues Involved:
1. Deletion of addition made under Section 68 of the Income-tax Act, 1961.
2. Deletion of addition made on account of deemed rent under Section 23(1)(a) of the Income-tax Act.
3. General grounds raised by the revenue.

Issue-wise Detailed Analysis:

1. Deletion of Addition Made Under Section 68 of the Income-tax Act, 1961:

The revenue challenged the order of the Commissioner of Income Tax (Appeals) [CIT(A)] for deleting the addition of ?3,09,00,000/- made under Section 68 of the Income-tax Act, 1961. The Assessing Officer (AO) had made this addition based on the findings from an investigation by the Investigation Wing, Mumbai, which indicated that the parties involved were mere accommodation entry providers. The AO relied on statements recorded during a search action under Section 132 of the Act, which suggested that the loans were not genuine.

The CIT(A), however, found that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions. The assessee had submitted PAN details, incorporation certificates, IT return copies, bank statements, and audited accounts, all of which indicated that the transactions were routed through banking channels. The CIT(A) noted that the AO had not provided the assessee with the corroborative evidence relied upon for the addition and had not allowed cross-examination of the parties involved. The CIT(A) also referred to several judicial precedents, including the Mumbai ITAT's decision in Anant Shelters P Ltd and the Supreme Court's ruling in Lovely Exports Pvt Ltd, which emphasized that the burden of proof initially lies with the assessee but shifts to the revenue once the assessee provides credible evidence.

The Tribunal upheld the CIT(A)'s decision, noting that the AO had failed to provide concrete evidence to prove that the transactions were sham or fictitious. The Tribunal reiterated that mere presumptions could not replace actual proof and that the AO had not adhered to the principles laid down by higher judicial authorities.

2. Deletion of Addition Made on Account of Deemed Rent Under Section 23(1)(a) of the Income-tax Act:

The revenue also challenged the CIT(A)'s decision to delete the addition made on account of deemed rent for properties that were vacant during the entire year. The AO had invoked Section 23(1)(a) of the Income-tax Act, arguing that the assessee was not eligible for any deduction on account of vacancy since the properties were not let out during the year.

The CIT(A) observed that the assessee had made genuine efforts to let out the properties but was unable to find suitable tenants. The CIT(A) referred to CBDT Circular No. 14/2001, which states that if a property remains vacant for the whole or part of the year and the actual rent received or receivable is less than the annual value, the sum received or receivable should be considered as the annual value. The CIT(A) also noted that the AO had not considered admissible deductions towards municipal taxes and society maintenance charges.

The Tribunal agreed with the CIT(A)'s findings, noting that the assessee had demonstrated genuine efforts to let out the properties and that the properties remained vacant for reasons beyond the assessee's control. The Tribunal also referred to several judicial precedents supporting the CIT(A)'s view.

3. General Grounds Raised by the Revenue:

The third ground raised by the revenue was general in nature and did not require specific adjudication. The Tribunal dismissed this ground without further discussion.

Conclusion:

The Tribunal dismissed both the appeals filed by the revenue and the assessee. The Tribunal upheld the CIT(A)'s order, finding it to be well-reasoned and supported by relevant evidence and judicial precedents. The Tribunal emphasized the importance of concrete evidence over mere presumptions and the need for the AO to adhere to established legal principles. The Tribunal's decision was pronounced in the open court on 22nd February 2019.

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