2021 (10) TMI 410 - AT - Income Tax

Addition on account of income from house property - disallowance of the property tax and interest expenses as per provisions of section 24 - HELD THAT - Once the assessee has paid the property tax of USD 2151.71 through banking channel which is reflected as property tax in the bank statement, therefore, merely because no evidence or proof from the concerned property tax authority for the said payment was obtained should not have been a ground for denying the same. Interest on loan - on perusal of the paper book shows that the assessee has filed the mortgage interest statement in the paper book which gives the details of mortgage interest, mortgage principle, etc. Therefore, CIT(A) is not justified in denying the benefit of interest on bank loan to the assessee - We set aside the order of the CIT(A) and direct the AO to allow the claim of property tax and bank interest from the rental income of USD 16800. The ground of appeal No.2 raised by the assessee is accordingly allowed. Addition u/s 68 - treating the loan taken from relatives as unexplained cash credit - HELD THAT - Assessee is a resident and had stated to have received the loan from 2 persons namely Mr Naresh Aggarwal and Gaurav Aggarwal which are credited in the NRI account and there is no dispute to the above fact - assessee had furnished the copy of the confirmation of loan and also the passport of Shri Naresh Aggarwal as evidence. The assessee had also filed the copy of bank account of Naresh Aggarwal, affidavit of Shri Naresh Aggarwal, copy of bank account of Shri Gaurav Aggarwal giving loan of USD 5000 to Nitin Gupta, etc.- Since the assessee, in the instant case, has filed the bank statement of Shri Naresh Aggarwal along with his affidavit and confirmation along with his bank account substantiating the loan of 10000 USD, therefore, hold that the ld.CIT(A) was not justified in sustaining the addition. Amount of USD 5000 taken from one Shri Gaurav Aggarwal although the assessee had filed the confirmation of Shri Gaurav Aggarwal along with his passport and affidavit, etc., however, no evidence to prove the credit worthiness of the said loan creditor was produced. The bank statement of Shri Gaurav Aggarwal was not produced. Therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the AO with a direction to give one opportunity to the assessee to substantiate the loanreceived from Shri Gaurav Aggarwal. - Ground partly allowed for statistical purposes.

Issues Involved:

1. Taxability of rental income from foreign property under 'Income from House Property'.
2. Addition of loan amount received from NRI as unexplained cash credits under Section 68.
3. Levy of penalty under Section 271(1)(c) for concealment of income.

Issue-wise Detailed Analysis:

1. Taxability of Rental Income from Foreign Property:

The assessee, engaged in consultancy, filed a return declaring total income of ?4,89,280/-. The case was selected for limited scrutiny to examine foreign immovable property investments and income. The AO noted rental income of USD 16,800 from a property in the USA, reported in the US tax return but not in the Indian return. The AO computed the income from the US property at ?4,80,678/- under 'Income from House Property', denying deductions for property tax and interest on loan claimed by the assessee.

The CIT(A) upheld the addition, noting that the assessee, a resident, must report global income and failed to provide an explanation. The CIT(A) dismissed the assessee's contention that expenses were paid online, emphasizing the standard deduction of 30% under the Income Tax Act.

Upon appeal, the Tribunal found merit in the assessee's argument. The Tribunal noted that the AO acknowledged property tax payments in the remand report but denied the deduction due to lack of proof from the tax authority. The Tribunal ruled that payment through banking channels should suffice. Regarding interest on loan, the Tribunal noted the mortgage interest statement was provided, thus the CIT(A)'s denial was unjustified. The Tribunal directed the AO to allow the property tax and bank interest deductions, allowing the assessee's appeal on this ground.

2. Addition of Loan Amount as Unexplained Cash Credits:

The AO added USD 15,000 (?9,93,000/-) as unexplained cash credits under Section 68, as the assessee failed to furnish confirmation during assessment. The CIT(A) upheld the addition, noting discrepancies in the assessee's submissions and lack of evidence for the lenders' creditworthiness.

The Tribunal observed that the assessee provided confirmation and passport copies of the lenders, Mr. Naresh Aggarwal and Mr. Gaurav Aggarwal, during appellate proceedings. The AO's remand report acknowledged the submission but noted the confirmation was on plain paper. The Tribunal found the assessee substantiated the loan from Naresh Aggarwal with bank statements and affidavits, thus deleting the addition for USD 10,000.

For the USD 5,000 loan from Gaurav Aggarwal, the Tribunal noted the assessee introduced this lender at the appellate stage without proving creditworthiness. The Tribunal remanded this issue to the AO for verification, allowing the assessee an opportunity to substantiate the loan.

3. Levy of Penalty under Section 271(1)(c):

The CIT(A) confirmed penalty proceedings under Section 271(1)(c) for concealment of income due to the disallowances. The Tribunal deemed this ground premature at this stage and dismissed it.

Conclusion:

The appeal was partly allowed. The Tribunal directed the AO to allow property tax and interest deductions for the rental income and deleted the addition of USD 10,000 loan. The issue of USD 5,000 loan was remanded for further verification. The penalty proceedings were dismissed as premature.

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