2018 (11) TMI 391 - AT - Income Tax

Validity of assessment u/s 153C - addition of unexplained rental income received - Held that - CIT(A) was not justified to hold impounded documents belong to the assessee. Sh. Ravinder Singh did not confirm if the tenant company has paid cash of ₹ 33 lakhs to the assessee as rent security or advance rent. The AO, even as per the impounded document mentioned in the assessment order that the impounded document shows ₹ 33 lakhs rent security received in cash during the year but the AO did not affirm that the alleged amount of ₹ 33 lakhs in cash have been received by the assessee. Even the tenant has not confirmed to have paid any cash of ₹ 33 lakhs to the assessee. Therefore, no credence could be given to the seized/impounded paper because it did not contain any specific thing against the assessee. The seized document is not reliable as it was not supported by Sh. Ravinder Singh in his statement, if any, cash of ₹ 33 lakhs have been paid to the assessee. Thus, there is no basis or material available on record to justify the addition of ₹ 33 lakhs in the hands of the assessee. The authorities below thus, were unjustified in making addition of ₹ 33 lakhs in the hands of the assessee as unexplained rental income received for the above property. We, accordingly, set aside the orders of the authorities below and delete the entire addition. - Decided in favour of assessee

Summary

Issues:
1. Validity of proceedings under section 153C of the Income Tax Act.
2. Addition of undisclosed rental income.

Analysis:

Issue 1: Validity of proceedings under section 153C of the Income Tax Act
The appeal challenged the initiation of proceedings under section 153C of the Act, claiming them to be invalid and bad in law. The contention was that no incriminating material was found during the search. The Tribunal noted that no search was conducted in the case of the assessee, and there was no document connecting the assessee with the addition of undisclosed rent. It was observed that the impounded document containing information about rent security did not belong to the assessee but to the tenant company. The Tribunal found that there was no basis or material to justify the addition of the undisclosed rental income in the hands of the assessee. Therefore, the Tribunal set aside the orders of the authorities below and deleted the entire addition. The Tribunal did not delve into the detailed examination of the validity of proceedings under section 153C since the additions on merit had already been deleted.

Issue 2: Addition of undisclosed rental income
The assessee contested the addition of ?23,10,000 on account of undisclosed rent. The impounded document with rent details was found during a survey operation, but the Tribunal concluded that it did not belong to the assessee. The document was signed by the Director of the tenant company, who confirmed that it belonged to the tenant company. The Tribunal noted that the tenant company had not confirmed paying ?33 lakhs in cash to the assessee as rent security or advance rent. As there was no concrete evidence or confirmation of the cash payment, the Tribunal found no basis for the addition of ?33 lakhs as unexplained rental income. Therefore, the Tribunal held that the authorities were unjustified in making the addition and accordingly deleted the entire amount. The Tribunal emphasized that the impounded document lacked credibility as it was not supported by the Director of the tenant company regarding the alleged cash payment.

In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the addition of undisclosed rental income and highlighting the lack of concrete evidence to support the addition.