2020 (6) TMI 613 - AT - Income Tax

Income from the House property at Tolichowki - assessee had 1/10th share of the property - fair rental value - assessee submitted that this property is an open land with a small shed and this was given to Hyderabad Gas company on rent as godown to keep their gas cylinders and, therefore, rent paid by the said company was towards the land - HELD THAT - Property, which has been let out by the assessee is not just open land, but, with a shed thereon, which is treated as a godown. In the schedule of rental deed, it is mentioned that godown is built on a plot admeasuring 1000 sq. meters and therefore, income from such godown has rightly been treated as income from house property and even in the earlier years, the income received from the same godown has been offered / treated as income from house property. We agree with the contention of assessee that hike of 10% on rent should not have been adopted, but the rental paid by the said party prior to vacating the same should have been adopted as fair rental value for the period when the property was vacant. Therefore, I direct the AO to recompute the income from this property by adopting the rent paid by the party before the said property was vacated as fair rental value. Thus, Grounds No. 2 3 are partly allowed. Income from the property - assessee submitted that there was a dispute with the tenant with regard to the rent and the assessee has filed a suit for eviction and also recovery of rent from the tenant - HELD THAT - Assessee has not received the rent from the property during the relevant AY and has also filed a suit in O.S.No.408 of 2009 in the Court of XI Addl. Chief Judge, City Civil Court, Hyderabad for eviction of the tenant and for recovery of rent. It is the case of the assessee that the assessee has paid taxes on the receipt of the arrears of rent in AY 2013-14. In this connection, the assessee has referred to the computation of income for the AY 2013-14 which is available in the paper book to demonstrate that the assessee has paid tax on the same. Direct the AO to verify the same and if it is found that the assessee has offered the income to tax in the subsequent AY 2013-14, then, no addition of the same shall be made during the relevant AY. The ground Nos. 4 to 9 are thus treated as allowed for statistical purposes Agricultural income - assessee submitted that the total land owned by the family was around 97 acres, in which, coffee bean was grown and also various other crops, such as, cardamom, pepper, paddy, etc. were grown - HELD THAT - all the brothers of the assessee together held agricultural land to the extent of 97 acres and offered agricultural income accordingly in their returns of income which has been accepted by the AO except in the case of the assessees before the Tribunal. Thus, the disallowance was made only in the hands of two brothers relying on the statement of SM Lateefuddin. However, I find that SM Lateefuddin has clearly stated that there were other crops grown in the land and earned income from such other crops as well. The AO has relied upon the statement of SM Lateefuddin, but he cannot pick and choose and accept only part of the statement favourable to the revenue and disbelieve the other part, which is in favour of the assessee. Shri Lateefuddin in reply to Q.No.10, has clearly stated that coffee, was in 65 acres, Nilgiri trees in 10 acres and the balance area was paddy field. The AO has taken into consideration the income from coffee beans and minor income from pepper and cardamom only. He ignored the income from paddy and Nilgiri trees. AO has accepted the agricultural income from the same land in the hands of the other owners in proportion to their share of land. Therefore, entire agricultural income, which is as per the statement of SM Lateefuddin, should be accepted. The AO is directed accordingly. Addition as income as assets over liabilities - whether merely because the closing balances of State Bank of Hyderabad and Canara Bank were not reflected in the Statement of Affairs as assets cannot be added as income - whether AO has failed to appreciate the fact that the closing balances shown in the banks were duly explained? - HELD THAT - There is opening balance and also rental income and other incomes which have been deposited into the bank account and are forming part of the closing balance . When the assessee has offered the rental income to tax, bringing the rental income again to tax as part of closing balance in the bank A/c is not permissible. Therefore, direct the AO to exclude the opening balance and also other income which has already been offered to tax, and only the balance is directed to be brought to tax. This ground is accordingly partly allowed.

Summary

Issues Involved:
1. Addition of rental income from house property.
2. Dispute over agricultural income.
3. Addition of unexplained bank balances.

Detailed Analysis:

1. Addition of Rental Income from House Property:

Tolichowki Property:
- The assessee declared rental income from a property at Tolichowki, which included a shed used as a godown.
- The AO adopted a 10% hike on the rental income from previous years, treating it as 'income from house property'.
- The Tribunal found that the property was indeed a godown and agreed with the AO’s classification but directed the AO to recompute the income without the 10% hike, adopting the rent paid before the property was vacated as the fair rental value. Grounds No. 2 & 3 were partly allowed.

Banjara Hills Property:
- The assessee faced a dispute with the tenant, who deposited rent in court pending eviction and recovery.
- The assessee offered the rent received in AY 2013-14 to tax.
- The Tribunal directed the AO to verify if the rent was indeed taxed in AY 2013-14 and, if so, not to add it for the relevant AY. Grounds No. 4 to 9 were allowed for statistical purposes.

2. Dispute Over Agricultural Income:
- The assessee declared ?7 lakhs as agricultural income, but the AO only accepted income from coffee beans, disallowing ?5,28,300.
- The Tribunal noted that the family owned 97 acres, growing various crops, and accepted similar income in previous years and in the hands of co-owners.
- The AO was directed to accept the entire agricultural income as per the statement of SM Lateefuddin, including income from paddy and Nilgiri trees. Ground No. 10 was allowed.

3. Addition of Unexplained Bank Balances:
- The AO added the closing balances of ?2,98,532 from two bank accounts as income.
- The Tribunal found that the balances included rental and other incomes already taxed.
- The AO was directed to exclude the opening balance and already taxed incomes, bringing only the remaining balance to tax. Grounds No. 11 & 12 were partly allowed.

Conclusion:
- The appeals were partly allowed for statistical purposes, with directions to the AO for recomputation and verification of certain incomes.
- The judgment emphasized proper classification and verification of incomes, ensuring no double taxation.