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I.T.O Ward 1 (4) , Kolkata Versus M/s. Pennar Trading Pvt. Ltd, M/s. Santosh Promoters Ltd, M/s. Delight Suppliers Ltd

2015 (12) TMI 1120 - ITAT KOLKATA

Treatment of rental receipts for the purpose of Income-tax - Held that:- Possession of the property was not taken by the tenant. Hence, the monies received by the assesses will not take the character of rentals and this is further strengthened by the relevant clause of the modified tenancy agreement herein. The monies received shall get converted as an advance and repayable by the assesses. Hence, it does not take the character of income.The assessees have received the monies subject to fulfillm .....

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the assesses and the tenant. The said modified tenancy agreement has been cancelled by the tenant due to failure on the part of the assesses to complete the construction in time. In these circumstances, we find no infirmity in the order of the ld.CIT(A) deleting the addition of ‘rental receipts’ as ‘Income from Other Sources’ - Decided against revenue

Fresh share capital received by the assesses - unexplained cash credit u/s 68 - Held that:- AO had clearly stated in his remand report .....

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the assessee that there is no violation of Rule 46A of the IT Rules by the Learned CITA in as much as the remand report has been called for by the Learned CITA only after admission of additional evidences by him and Learned AO had been given due opportunity on the additional evidences. Hence we hold that the receipt of share capital stands clearly explained in all the cases before us and there is no need to make an addition u/s 68 - Decided against revenue - ITA No. 1659/Kol/2012, ITA No. 1660/K .....

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CIT(A)- I/Wd-1(4)/08-09 dated 08-08-2012 for AY 2006-07 in the case of M/s. Santosh Promoters Ltd and Appeal No. 46/CIT(A)-I/Wd-1(4)/08-09 dated 08-08-2012 for AY 2006-07 in the case of M/s. Delight Suppliers Pvt. Ltd against the respective assessment order passed by the ld.AO u/s. 143(3) of the Income-tax Act, 1961 ( hereinafter referred to as the Act ). 2. Since the issues involved are identical in nature for all the aforesaid appeals, they are taken up together and disposed off by this common .....

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arry out the construction of incomplete super structure in the building at its own cost and is not entitled to claim reimbursement of the same from the assesses herein ( i.e the landlords). In other words, the assesses sought to let out the partially completed building to M/s SDPL and balance construction was agreed to be completed by the tenant without any right of seeking reimbursement of cost from the assesses. The monthly rental was agreed at ₹ 11,20,000/-. The tenancy is for a period .....

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been mutually agreed between the assesses and M/s. SDPL, the assessee(s) shall complete the entire construction of the super structure ( i.e. incomplete portion). It was also mutually agreed in the modified tenancy agreement that in case if the assesses were not able to complete the balance super structure of the building within the stipulated time i.e by 31.12.2005, then the rentals paid by the tenant as per the original tenancy agreement shall be treated as advance and the same shall become re .....

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the demised premises and/or building in all respect and all the expenses on that account shall be borne by the tenant. 2.2.1 Following clauses in the modified tenancy agreement dated 18-08-2005 shall be pertinent herein which are reproduced below:- AND WHEREAS, the owner have agreed that they will complete the demised premises and/or building in all respect by 31st day of December, 2005 and all the expenses on that account shall be borne by the owner. That the owner shall complete the pending c .....

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concerned authority prior to handing over the possession of the let out portion and in case of failure on the part of the owner to furnish the completion certificate, the rent paid by the tenant shall be treated as advance and tenant will be entitled and reserve the right to recover the same from the owner and/ or also cancel the tenancy agreement. The said tenancy is granted on as is where is basis since some completion job is yet to be carried out and tenancy shall be treated to have commenced .....

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paid by the tenant as per the original tenancy agreement after subjecting the same after due deduction of tax at source and story of the modified tenancy agreement is only an afterthought. 2.4. On first appeal, before the ld. CIT(A) the assessee produced all relevant documents i.e. original tenancy agreement, modified tenancy agreement, all the correspondences exchanged between the assesses and the tenant which eventually led to cancellation of the modified tenancy agreement, among others. The a .....

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ng satisfied with the various documents as submitted by the assessee before him and undisputed findings of the ld.AO in the remand report agreed with the contentions of the assesses that the subject mentioned receipts from M/s. SDPL amounting to ₹ 49,49,677/- shall be treated only as advances as the assesses have not honoured their commitment of building the construction by 31-12-2005 as per the modified tenancy agreement. Aggrieved, the revenue is in appeal before us on the following grou .....

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ill under construction. He further argued that the modified agreement was not to be given any credence. Accordingly, he prayed before us for restoration of ld. AO s order. 2.6. In response to this, the Learned AR argued that at the outset, there is no violation of Rule 46A of the I.T Rules as pleaded by the revenue in their grounds of appeal, as in the instant case, the ld.CIT(A) had duly admitted the additional evidences filed before him and obtained the remand report. He argued that Rule 46A o .....

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he assesses had duly acted as per the terms of the modified tenancy agreement. The assesses admittedly could not comply with the completion of construction of building by 31-12-2005. In view of this, the tenant stopped to pay rentals. In other words, the assesses were in receipt of monies only from 19-08-2005 to 31-12-2005 amounting to ₹ 49,49,677/-. At this juncture, a specific query was raised on the Ld AR by the bench as to why the tenant chose to pay the rentals when the property itsel .....

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tenant if the property is never let out to tenant and hence the interest of the tenant is protected. Accordingly, he pleaded before us that the ld.CIT(A) has rightly approached the entire gamut of transactions and vehemently supported the order of the ld.CIT(A). 2.7. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. The facts mentioned herein above remain undisputed and hence the same are not re-iterated for the sake .....

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SBI pursuant to tripartite agreement entered on 19-08-2005 between the assesses, M/s. SDPL & SBI. We hold that the modified tenancy agreement, which completely changed the scope of obligations to be discharged by the parties cannot be brushed aside just like that as the assesses have admittedly borrowed the money from SBI in order to complete the incomplete portion of the construction for the subject mentioned property situated at 145, Rash Behari Avenue, Kolkata-29. It is also undisputed f .....

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he monies received by the assesses from the tenant shall only remain as advance and the tenant has got every right to recover the same from the assesses. We also find from the page 57 of the paper book that the tenant had not taken over the possession of the subject mentioned property, which is in dispute before us. The relevant paragraph addressed by the tenant to one of the assessees herein vide letter dated 2-1-2006 is reproduce herewith:- We have, therefore been compelled to revoke/suspend t .....

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take the character of rentals and this is further strengthened by the relevant clause of the modified tenancy agreement herein. The monies received shall get converted as an advance and repayable by the assesses. Hence, it does not take the character of income. 2.8 The assessees have received the monies subject to fulfillment of certain conditions on its part. These conditions ( i.e. completion of the building construction) are not satisfied by the assesses and hence the subject mentioned recei .....

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me. In these circumstances, we find no infirmity in the order of the ld.CIT(A). We uphold the same. Ground no.1 raised by the revenue is dismissed. 3. The last point to be decided in this appeal is as to whether the Learned AO is justified in treating the fresh share capital received by the assesses amounting to ₹ 25,55,000/- each as unexplained cash credit u/s 68 of the Act in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the assesses received fresh s .....

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the Learned CITA, who in turn admitted the same as additional evidences and sought to provide opportunity to the Learned AO in terms of Rule 46A of the IT Rules by calling for a remand report. The Learned AO during the remand proceedings issued notices u/s 133(6) of the Act to the shareholders and on receipt of details and confirmation from the shareholders reported in his remand report as below:- in view of the documents and paper filed and subsequent enquiries conducted by undersigned, the re .....

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violating the provisions of Rule 46A of I.T Rules. 3.2. The Learned DR argued that no details of shareholders were produced by the assesses before the Learned AO and accordingly had not satisfied the three necessary ingredients of section 68 of the Act viz identity, genuineness and creditworthiness of the shareholders. In response to this, the Learned AR argued that the entire details of shareholders were given before the Learned CITA who in turn called for a remand report from the Learned AO. T .....

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