2022 (5) TMI 898 - AT - Income Tax

Addition u/s 68 - unexplained cash deposited in bank account - HELD THAT - In the present case, certain aspects were neither properly examined by the Assessing Officer during assessment as well as remand proceedings nor were considered by the learned CIT(A), which making / upholding the addition under section 68 - We find that the Assessing Officer as well as learned CIT(A) on merits merely rejected the contention of the assessee in respect of cash withdrawn by Shri Nandaram Chavan without calling him for examination and recording his statement in this regard. Even the assessee has neither produced Shri Nandaram Chavan nor requested for same during proceedings before lower authorities, and merely furnished the bank statement of Shri Nandaram Chavan in support of his submission that the amount withdrawn was not utilised by the bearer. We further find that though the learned CIT(A) has recorded the submission of the Assessing Officer on the additional evidence produced by the assessee in respect of interest free loans taken from 85 farmers, however, did not admit the additional evidence so produced by the assessee under Rule 46A. We deem it appropriate to remand this issue to the Assessing Officer for de novo adjudication after appropriate examination of Shri Nandaram Chavan and after consideration of all the documents as may be filed by the assessee, including the additional evidence filed before the learned CIT(A). The Assessing Officer shall have the liberty to call any person/document for examination, as may be required for complete verification of all facts and adjudication of this issue. Accordingly, issue No. 1 raised in assessee s appeal is partly allowed for statistical purpose. Disallowance of interest claimed under section 24 - assessee availed loan which will be utilised by him for the purpose of developing and renovating the property to be leased out - CIT(A) upheld the disallowance of deduction under section 24(b) of the Act claimed by the assessee in the absence of any documentary evidence to substantiate the claim of major repairs in the aforesaid 5 shops before giving the same on rent - HELD THAT - In the present case, though the assessee has claimed that the loan was availed for the purpose of renovation of the aforesaid 5 shops, however, no documentary evidence was furnished to substantiate the fact of renovation of the aforesaid 5 shops. The learned AR only referred to the certificate issued by Vijaya Bank in support of its submission. As is evident, the purpose of the said certificate is only to certify the interest charged by the bank on the loan provided to the assessee. Though, the certificate also records the declaration of the assessee that the loan will be utilised for the purpose of developing and renovating the property to be leased out, no documentary evidence was furnished by the assessee to substantiate the said claim. We find from the material available on record that such information was also not directed to be produced by the Revenue. The claim of deduction was disallowed by the Assessing Officer only on the basis that the loan money was not utilised for the purpose of acquisition of property. Even in its remand report filed before the learned CIT(A), the Assessing Officer only submitted about the difference in amount of rent payable and doubted the bona fide of availing the loan of Rs. 52 lakhs. As under section 24(b) of the Act, deduction is available on payment of interest on loan availed, interalia, for the purpose of repair/reconstruction of the property, we deem it appropriate to remand this issue to the Assessing Officer for de novo adjudication. Thus issue No. 2 raised in assessee s appeal is allowed for statistical purpose.

Summary

Issues Involved:
1. Cash deposits treated as unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Disallowance of interest claimed under section 24(b) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue No. 1: Cash Deposits Treated as Unexplained Cash Credit

The first issue pertains to the addition made by the Assessing Officer (AO) under section 68 of the Income Tax Act, 1961, regarding cash deposits of Rs. 34 lakhs in Dattatray Maharaj Kalambe Sahkari Bank Account and Rs. 15 lakhs in Deccan Merchant Cooperative Bank Account. The AO did not accept the assessee's explanation that these deposits were sourced from business loan accounts. The AO concluded that the assessee failed to establish a nexus between the withdrawals and the deposits, treating the total cash deposits of Rs. 49 lakhs as unexplained income.

During the appellate proceedings, the learned Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, noting the lack of direct evidence linking the cash withdrawals to the deposits. The CIT(A) observed that the withdrawals were made by a third party, Shri Nandaram Chavan, and there was no proof that this cash was returned to the assessee. The CIT(A) also rejected the assessee's claim of receiving loans from 85 farmers due to the lack of interest payments and the improbability of these loans.

Before the Tribunal, the assessee argued that since the income was declared under section 44AD of the Act (presumptive taxation), no books of account were required to be maintained, and thus, section 68 could not be invoked. The Tribunal, however, rejected this argument, citing the Hon'ble jurisdictional High Court's decision in Arunkumar J. Muchhala v. CIT, which emphasized that even under presumptive taxation, the taxpayer must explain the source of cash deposits.

The Tribunal found that certain aspects were not properly examined by the AO and CIT(A), such as the examination of Shri Nandaram Chavan and the additional evidence regarding loans from farmers. Consequently, the Tribunal remanded the issue back to the AO for de novo adjudication, directing a thorough examination of all relevant facts and evidence.

Issue No. 2: Disallowance of Interest Claimed Under Section 24(b)

The second issue involves the disallowance of interest of Rs. 5,51,376 claimed under section 24(b) of the Act. The assessee had taken a loan from Vijaya Bank for renovating and improving a property leased to Aditya Birla Retail Limited. The AO disallowed the interest claim, arguing that the utilization of the loan for property acquisition was not proven.

During the appellate proceedings, the CIT(A) upheld the AO's decision, noting the absence of documentary evidence to substantiate the claim of major repairs. The assessee submitted a certificate from Vijaya Bank stating that the loan was for property development and renovation, but no further evidence was provided.

The Tribunal noted that section 24(b) allows for the deduction of interest on loans used for property repair or reconstruction. However, the assessee failed to furnish adequate evidence to support the claim. The Tribunal remanded this issue back to the AO for de novo adjudication, instructing the assessee to provide all necessary documentation to justify the claim of repairs/reconstruction.

Conclusion:

The appeal by the assessee is partly allowed for statistical purposes. The Tribunal remanded both issues back to the AO for further examination and fresh adjudication, ensuring a comprehensive verification of facts and evidence. The Tribunal emphasized the need for proper documentation and substantiation of claims under the Income Tax Act.