ACIT Vs Anand Jayantilal Kharbhari (ITAT Surat)
We note that addition of unsecured loans of four parties totaling to Rs.3,65,00,000/- was made by the assessing officer only for want of Income Tax Returns. The assessing officer had mentioned in the assessment order about the confirmation and other details filed but because scrutiny selection through CASS was based on non-filing of Income Tax Returns by some lenders and the assessee did not file the same during assessment, therefore these loans were treated as unexplained. However, this lacunae was also cured by the assessee by filing copies Income Tax Returns (ITRs) of these four parties during of appellate proceedings before the ld CIT(A). Even the assessing officer could have himself verified through, the available PANs of these four parties regarding ITRs status as also further enquiry u/s 133(6) could have been made. Since confirmation with name, address and PAN Number, copy of the Income Tax Returns, balance sheet, profit and loss accounts in respect of all the creditors/lender were furnished and when it has been found that the loans were received through cheques and the loan accounts were duly reflected in the balance sheet, the Assessing Officer was not justified in making the addition. Therefore, based on this factual position, we note that ld CIT(A) has rightly deleted the addition made by the assessing officer
FULL TEXT OF THE ORDER OF ITAT SURAT
The captioned appeal filed by the Revenue, pertaining to Assessment Year 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), Valsad [in short ‘ld. CIT(A)’], in Appeal No. ITBA/APL/S/250/2020-21/1028054664(1) dated 24.09.2020, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 30.03.2016.
2. Grounds of appeal raised by the Revenue as follows:
“i) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.60,000/- under the head house property income in respect of shop at Subh Laxmi tower, Vapi.
ii) On the facts and in the circumstances of the case and in law, the old. CIT(A) has erred in deleting the addition of Rs.3,65,00,000/- done by the assessing officer on account of unexplained unsecured loan.
iii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding the creditworthiness of the lenders as genuine merely on the fact that the assessee has submitted copy of ITR of lenders.
iv) It is therefore, prayed that the order of the CIT(A), be set-aside and that of the Assessing Officer be restored.
v) The assessee craves to add, modify or alter any grounds during the course of appeal proceedings.”
3. Ground No.1 raised by the Revenue relates to addition of Rs.60,000/- under the head income from house property in respect of shop at Subh Laxmi tower, Vapi.
4. Succinct facts are that assessee before us is an individual and engaged in business activities of Trading of building materials i.e. sand, metal, carting and also in trading of shares. The assessee has declared his net taxable income to the tune of Rs.10,48,930/- after deductions under Chapter – VIA of the Act. On perusal of Income Tax Returns (ITR), the assessing officer observed that assessee has shown Rs. NIL/- income from house property that was rented to Shri Manoj Shahu. The assessee was asked to give clarification regarding rent income from property at Subh Laxmi Tower, Vapi that was rented to Shri Manoj Shahu.
5. In response, the assessee had submitted the reply to the assessing officer as follows:
“Assessee has not earned any rent income from shop at Subh Laxmi, since this shop is situated at the interior area and thereby it is vacant for the entire year. However, prevailing market rate of that area for letting out is Rs.5,000/- per month. Please note that other than this property, assessee had two more property, one was flat and one more shop which were used for own purpose and business only.”
6. However, assessing officer rejected the contention of the assessee and held that income from prevailing market rate of the house for letting out to Shri Manoj Shahu is at Rs.5,000/- per month that comes to Rs.60,000/-. Therefore, assessing officer disallowed Rs.60,000/- and added back to the income of the assessee for year under consideration.
7. On appeal, the ld. CIT(A) deleted the addition. Aggrieved, the Revenue is in appeal before us.
8. Learned DR for the Revenue pleaded that notional rent of Rs. 5000 per Month should be added in the hands of the assessee, which comes Rs. 60,000/- for one year. Thus, ld DR supported the order of assessing officer.
9. On the other hand, ld Counsel for the assessee, defended the order passed by the Commissioner of Income Tax (Appeals).
10. We have heard both the parties and perused the material available on record. We note that assessee has not given his shop on rent therefore notional rent based on prevailing market rate cannot be taxed in the hands of the assessee. We note that rent income has not accrued in the hands of the assessee, hence question does not arise to tax notional rent. The tax should be imposed on real income. In the assessee`s case neither rent income has accrued nor received actually by the assessee. The Hon`ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT, (1955) 1 SCR 313 at 343 held as follows:
“It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W.S. Try Ltd. v. Johnson (Inspector of Taxes) [(1946) 1 AER 532 at p. 539], and Webb v. Stenton, Garnishees [11 QBD 518 at p. 522 and 527]. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.”
11. Thus, in assessee`s case under consideration neither rent income has accrued nor assessee has acquired a right to receive the rent income. We note that assessee`s shop was lying vacant for the whole year and no actual rent was received. We also note that assessing officer has not mentioned about any factual evidence of shop given on rent. If the shop is vacant and no rent is received, the addition should not be made. Therefore, based on this factual position, we note that conclusions arrived at by the CIT(A) are correct and admit no interference by us. We, approve and confirm the order of the CIT(A). Thus, ground no.1 raised by the Revenue is dismissed.
12. Coming to Ground No.2 and 3 raised by the Revenue, which relate to addition of Rs.3,65,00,000/- made by the Assessing Officer on account of unexplained unsecured loan.
13. Brief facts of the issue in dispute are stated as under. During the assessment proceedings, the assessing officer noted that assessee did not submit any details in respect of unsecured loans from Shri Mahasati (Rs.1,75,00,000/-), Urmila D. (Rs.1,00,00,000, Usha mangsingka (Rs.10,00,000/-) and VC Finance (Rs.80,00,000/-). Therefore, assessing officer issued a show-cause notice to the assessee to submit the bank statement, confirmations and copy of Income tax Returns etc. In response, assessee submitted bank statement, confirmations, PAN number and name and address of creditors. However, assessing officer noted that assessee failed to furnish the copy of Income Tax Return and Balance Sheet in respect of the following creditors:
