2018 (11) TMI 590 - AT - Income Tax

Unexplained cash credit - establishment of identity of creditors - Held that - It is also evident from the perusal of the record that all the four companies are regularly assessed to tax and their assessment u/s 143(3) have been framed for AY 2006-07 and copies of the same are placed. They carry regular business activities and have sufficient funds for giving on credit towards interest. Identity of four companies are well established. Genuineness is duly proved by the transactions which are made through account payee cheque. All necessary details including bank statement/ financial statements, confirmation of account, PAN detail have been filed with these four companies and are placed on record at all proceedings are sufficient to prove the creditworthiness. The alleged unsecured loan of ₹ 1,02,00,000/- and ₹ 1,25,00,000/- were accepted during the year and were repaid also during the year which supports the contention of the assessee that the alleged loans were taken for business needs and were repaid back when the funds were available. Respectfully following the decision of ACIT V/s Girish Kumar Sharda (2014 (10) TMI 352 - ITAT INDORE) as well as detailed finding of fact by CIT(A) which is unconverted by the Ld. Departmental Representative as no material evidence has been placed to prove anything contrary. Therefore we find no infirmity in the finding of CIT(A) deleting the addition of ₹ 1,02,00,000/- and ₹ 1,25,00,000/- for alleged unsecured loans and also deletion of disallowance of interest on such loans at ₹ 6,14,855/- and ₹ 5,55,815/- and also deleting the addition for undisclosed expenditure of ₹ 5,25,000/- and ₹ 6,25,000/-. We accordingly dismiss Revenue s Ground No.1, 2 &3 for Assessment Year 2006-07 and 2007-08 respectively. Nature of income - Rental income earned - house property or busniss income - Held that - The alleged receipts of ₹ 26,87,635/- are purely rental income from renting out unsold property and manner of earning such income is purely taxable under the head income from house property and by no canon can be treated as business income and therefore the assessee is eligible for deduction u/s 24 of the Act @30% of the rental income which in this case is ₹ 7,92,350/-. The plea of the assessee further finds support that in the subsequent years this claim of the assessee of showing rental income of house property and claim of deduction u/s 24 has been consistently allowed by the revenue authorities. We therefore set aside the finding of CIT(A) for Assessment Year 2006-07 and allow the sole ground No.1 raised by the assessee.

Summary

Issues Involved:
1. Addition of unsecured loans as unexplained cash credit under Section 68.
2. Disallowance of interest on unsecured loans.
3. Addition for unexplained expenditure for procuring loans.
4. Treatment of rental income as business income and denial of deduction under Section 24.

Issue-wise Detailed Analysis:

1. Addition of Unsecured Loans as Unexplained Cash Credit under Section 68:
The Assessing Officer (AO) added unsecured loans of ?1,05,00,000 for AY 2006-07 and ?1,25,00,000 for AY 2007-08 as unexplained cash credit under Section 68 of the Income Tax Act. The AO doubted the identity, genuineness, and creditworthiness of the creditors, linking them to the Lunkard Group, which was under scrutiny for providing accommodation entries. Despite the assessee providing confirmation letters, PAN details, and bank statements showing transactions through account payee cheques, the AO was not satisfied and made the additions.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, noting that the creditors were assessed to tax, and their assessments under Section 143(3) were completed. The CIT(A) emphasized that the AO did not provide concrete evidence linking the creditors to the Lunkard Group and failed to establish that the transactions were not genuine. The CIT(A) relied on various judicial precedents, including the case of "ACIT vs. Girish Kumar Sharda," where similar issues with the same creditors were decided in favor of the assessee.

The Tribunal upheld the CIT(A)'s decision, noting that the creditors were genuine, regularly assessed to tax, and had sufficient funds. The Tribunal emphasized that the initial burden of proof was discharged by the assessee, and the AO failed to bring any contrary evidence.

2. Disallowance of Interest on Unsecured Loans:
The AO disallowed the interest claimed on the unsecured loans, amounting to ?6,14,855 for AY 2006-07 and ?5,55,875 for AY 2007-08, on the grounds that the loans were not genuine.

The CIT(A) deleted the disallowance, reasoning that since the loans were genuine, the interest paid on them was also legitimate. The Tribunal concurred with the CIT(A), noting that the interest was paid after deducting tax at source and through account payee cheques, further supporting the genuineness of the transactions.

3. Addition for Unexplained Expenditure for Procuring Loans:
The AO added ?5,25,000 for AY 2006-07 and ?6,25,000 for AY 2007-08 as unexplained expenditure for procuring loans, assuming that the assessee incurred these amounts to obtain accommodation entries.

The CIT(A) deleted the additions, observing that there was no evidence to support the AO's assumption. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's addition was based on mere speculation without any concrete evidence.

4. Treatment of Rental Income as Business Income and Denial of Deduction under Section 24:
The AO treated the rental income of ?26,87,635 as business income instead of income from house property and denied the deduction under Section 24 amounting to ?7,92,350, arguing that the assessee was engaged in the real estate business and the properties were part of the business stock.

The CIT(A) upheld the AO's decision, but the Tribunal reversed it, relying on judicial precedents, including "East India Housing and Land Development Trust Ltd." and "Azimganj Estate Pvt. Ltd. vs. CIT," which held that rental income from unsold flats shown as stock-in-trade should be treated as income from house property. The Tribunal allowed the deduction under Section 24, noting that the rental income was consistently shown as income from house property in subsequent years and accepted by the revenue authorities.

Conclusion:
The Tribunal dismissed the revenue's appeals for both assessment years, upholding the CIT(A)'s deletion of additions related to unsecured loans, interest, and unexplained expenditure. The Tribunal allowed the assessee's appeal, treating the rental income as income from house property and allowing the deduction under Section 24.