2019 (11) TMI 1227 - AT - Income Tax

Disallowance of interest representing 1/3rd interest on loans obtained from Indian Overseas Bank - housing loan availed - loan was taken by 3 person, property was constructed for 2 persons - HELD THAT - The CIT (A) however, observed that the loan was a housing loan availed by three persons. Therefore, he directed the AO to allow only 1/3rd of the interest paid as being the assessee s share of interest. The learned Counsel for the assessee submitted that though the loan was taken by three persons, the entire loan was utilized in construction of the house property by two people only, i.e.the assessee and his wife at Plot No.301, GR Elite, Road No.14, Banjara Hills, Hyderabad, and since he was offering the income from house property in his hands, the entire interest amount were also to be allowed in his hands. These facts need verification by the AO i.e. whether that the entire rental income is offered in the hands of the assessee alone. Only if the assessee is offering the entire income in his hands, then the entire interest paid on the housing loan shall be allowed in the hands of the assessee. Therefore, the assessee s ground in all the AYs on this issue are treated as allowed for statistical purposes. Addition u/s 68 - credit allegedly received from his father-in-law - HELD THAT - We agree with the relationship of the assessee and creditor, we find that unless the details of the Bank A/c are furnished and it is proven that the amounts have been received through banking channels, the identity and creditworthiness of the said persons cannot be accepted. Therefore, we direct the AO to verify the Bank A/c of the assessee and to verify if the amount has been received through Banking channels and if it is found to have been credited to his Bank A/c, then this addition cannot be sustained. As regards the amount of ₹ 45,20,000/- received from Sri G.Madhusudan Reddy, the assessee submitted that he has received the sum through cheque No.707006 on 17.01.2007 and it was deposited in the Bank A/c with M/s. Sai Sudheer Constructions and credited to the capital a/c of the assessee. This fact also needs verification by the AO, hence we direct the AO to verify the same and if it is found to have been credited to the assessee s Bank a/c, the disallowance cannot be sustained. Therefore, assessee s appeal for the A.Y 2007-08 is also partly allowed for statistical purposes. Disallowance of interest paid on loan obtained from the Indian Overseas Bank - HELD THAT - We find that the assessee has not given the details of the Bank A/c and the date on which M/s. Sai Sudhir Infra Co. has received the amount and in in turn, transferred the same to the assessee s company. If the assessee is able to produce the details, then the addition may be deleted. The issue is therefore, remanded to the file of the AO afresh to enable the assessee to produce the relevant details and on verification of the same, if the AO found that the amount is received from Obulapuram Mining Co. (P) Ltd, into the books of Sai Sudhir Infra Co and from such A/c to the A/c of the assessee, then no addition can be made in the hands of the individual. Addition of the fresh loans received by the assessee during the relevant financial year - HELD THAT - Assessee reiterated the submissions made before the authorities below and the learned DR supported the orders of the lower authorities, we find that it is not disputed that the amount was received through banking channels, thus identity of the remitter is confirmed. But, it does not prove the nature of the remittance, nor does it prove the creditworthiness of the creditor. The assessee has not filed any evidence to prove these two conditions even before us. Therefore, the addition of ₹ 20,00,000/- is confirmed. Addition u/s 56(2) - shares received as gift - HELD THAT - If the contentions of the assessee were true, then as rightly pointed out by the CIT (A), the assessee could have taken this stand before investigation team. In fact, he offered to admit it as his undisclosed income. He never mentioned that the shares were HUF property, but it was stated so only during the assessment proceedings. Therefore, we agree with the findings of the CIT (A) that the contentions of the persons who have given affidavits to the above effect are not verifiable or acceptable. We also agree with his findings that unless contrary is proved, the investment belonged to the person in whose name it stands. Therefore, the shares standing in the names of E. Yella Reddy and E. Sailaja Reddy belong to them only and though they are the cousins of the assessee, they do not fall within the meaning of a relative u/s 56(2) Agricultural income after deducting expenses incurred on agriculture - HELD THAT - We find that the AO in the remand report has confirmed that the assessee is the owner of the land to the extent of nearly 30 acres. However, the possibility of the assessee getting the agricultural income is doubted by the CIT (A). When there are two bore wells and one well along with electricity connection, we doubt whether any person would keep the land idle. However, without any evidence as to records, the nature of the agricultural crops grown and the expenditure claimed by the assessee, the claim of the assessee cannot be accepted in toto. Therefore, the agricultural income can only be estimated at this stage. We therefore, deem it fit and proper to remand the issue to the file of the AO to consider and estimate the agricultural income which could be derived from the land of 30 acres owned by the assessee for both the A.Ys 2010-11 and 2011-12

Summary

Issues Involved:
1. Disallowance of interest on loans obtained from Indian Overseas Bank for A.Ys 2006-07 to 2009-10.
2. Addition of ?30.00 lakhs and ?45,20,000 under Section 68 for A.Y 2007-08.
3. Addition of ?10.00 lakhs under Section 68 for A.Y 2008-09.
4. Addition of ?20,00,000 under Section 68 for A.Y 2010-11.
5. Taxation of gift of shares under Section 56(2) for A.Y 2010-11.
6. Treatment of agricultural income for A.Ys 2010-11 and 2011-12.

Detailed Analysis:

1. Disallowance of Interest on Loans (A.Ys 2006-07 to 2009-10)
The common issue across A.Ys 2006-07 to 2009-10 pertains to the disallowance of interest representing 1/3rd interest on loans obtained from Indian Overseas Bank. The AO disallowed the interest claims due to lack of bank statements. However, the CIT (A) considered additional evidence confirming the payment of interest but allowed only 1/3rd of the interest paid, as the loan was availed by three persons. The Tribunal directed the AO to verify if the entire rental income was offered by the assessee alone; if so, the entire interest should be allowed. Hence, the appeals for these years were allowed for statistical purposes.

2. Addition under Section 68 (A.Y 2007-08)
For A.Y 2007-08, the AO added ?30.00 lakhs and ?45,20,000 under Section 68 due to unexplained credits. The assessee provided additional evidence, but the CIT (A) only accepted the explanation for ?9,75,000. The Tribunal directed the AO to verify the bank accounts and transactions to confirm if the amounts were received through banking channels. If verified, the additions should not be sustained. Thus, the appeal was partly allowed for statistical purposes.

3. Addition under Section 68 (A.Y 2008-09)
In A.Y 2008-09, apart from the disallowance of interest, the AO added ?10.00 lakhs under Section 68 due to lack of details. The CIT (A) confirmed the addition due to insufficient evidence. The Tribunal remanded the issue back to the AO to verify the banking transactions and if found credible, the addition should be deleted. The appeal was partly allowed for statistical purposes.

4. Addition under Section 68 (A.Y 2010-11)
For A.Y 2010-11, the AO added ?20,00,000 due to lack of confirmation from the creditor. The CIT (A) confirmed the addition as the assessee failed to prove the nature and creditworthiness of the loan. The Tribunal upheld the addition, noting that the identity of the remitter through banking channels was confirmed but not the nature and creditworthiness.

5. Taxation of Gift of Shares (A.Y 2010-11)
The AO taxed the gift of shares worth ?8,21,74,914 under Section 56(2), as the assessee did not disclose this in his return and failed to prove that it was a gift from a relative. The CIT (A) confirmed the AO's decision. The Tribunal agreed, noting that the affidavits provided were not sufficient to prove the shares were HUF property and thus, the shares were taxable as they did not fall under the definition of a relative.

6. Treatment of Agricultural Income (A.Ys 2010-11 and 2011-12)
The AO treated the agricultural income of ?37,96,000 as "income from other sources" due to lack of evidence. The CIT (A) confirmed this, noting the absence of records of agricultural activity. The Tribunal remanded the issue back to the AO to estimate the agricultural income based on the land owned by the assessee. The appeals for these years were partly allowed.

Conclusion:
The appeals were partly allowed for statistical purposes, with directions for the AO to verify various details and transactions to determine the correct tax treatment. The Tribunal emphasized the need for proper documentation and verification to substantiate claims made by the assessee.