The Income Tax Appellate Tribunal (ITAT), Hyderabad Bench, has recently, in an appeal filed before it, held that interest income from loan extended against mortgage of properties would not constitute Rental Income.
The aforesaid observation was made by the Hyderabad ITAT, when an appeal was preferred before it by the assessee, as directed against the order dated 28.02.2022 of the CIT (A), Hyderabad, relating to A.Y.2009-10.
The facts in brief were that the Assessing Officer, during the course of assessment proceedings, noted that the assessee had shown substantial cash received as
rental income. And on being confronted by the Assessing Officer during the assessment proceedings, the assessee submitted details of rent received, account confirmation copies and copies of rental agreement.
Thereafter, the Assessing Officer issued summon under section 131, to some of the persons for his examination. He noted that Shri Mohd.Asif Ali Khan, in his statement had submitted that he had borrowed a sum of Rs.4.5 lacs by pledging the property with the assessee at 4% per month, and that to cover up the interest, a rent agreement was made and interest in the guise of rent, paid by him in cash.
However, the assessee could not produce Shri Lakshmi Gopal,Bharadwaj and Smt. Sheela Lajwanti ,from whom rent was shown to have been received. And, it was found by the Assessing Officer that no such person was available at the address given by the assessee.
He therefore, recorded the statement of the assessee during the course of assessment proceedings, who stated that he stands by the transactions recorded in the book and that the statement given by the witness were given to suite their purposes.
In absence of any satisfactory explanation given by the assessee during the assessment proceedings, the Assessing Officer treated the rent received over the years in cash as ‘income from other sources’ in respective years. However, wherever the assessee has shown rent in excess of cash rent, he treated the cash portion as income from other sources and the balance was treated as a rent only. And, for the impugned A.Y, he treated an amount of Rs.34,14,900/- as income from other sources.
In appeal, the CIT (A), after obtaining a remand report from the Assessing Officer and rejoinder of the assessee to such remand report, upheld the action of the Assessing Officer. And it is being aggrieved by such an order of the CIT (A), that the assessee is presently in appeal before the Tribunal.
Hearing the opposing contentions of both sides as presented by Shri Rama Rao, Advocate,on behalf of the assesssee, and by Shri Rajendra Kumar, the CIT(DR) on behalf of the Revenue, and thereby perusing the materials available on record, the ITAT observed:
“We have heard the rival arguments made by both sides, perused the orders of the Assessing Officer and the CIT (A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.34,14,900/- by treating the same as ‘income from other sources’,as against rental income shown by the assessee on the ground that the assessee could not prove the existence of the persons against whom he has shown the cash receipt as rental income as those persons were not in existence and were not traceable. It is the case of the Assessing Officer that the assessee had given certain amount as loan against mortgage of property and such interest income has to be treated as income from other sources and not rental income. We find the learned CIT (A) sustained the addition the reasons of which are already reproduced in the preceding paragraphs. It is the submission of the learned Counsel for the assessee that since the properties were mortgaged to the assessee for giving loan, therefore, the properties have become the property of the assessee and merely because the loanees were staying in their respective houses, such amount given by them as interest cannot be treated as income from other sources and has to be treated as rental income in the hands of the assessee.”
“We do not find any force in the above argument of the learned Counsel for the assessee. It is an admitted fact that the assessee was giving loan against mortgage of the property and such interest income received towards loan extended against mortgage of properties cannot partake the character of rental income,” a coram of R.K. Panda, the Accountant Member and Laliet Kumar, the Judicial Member,added.
Thus, dismissing the assessee’s claim, the ITAT held:
“We find the learned CIT (A) while upholding the addition has also given a finding that since the assessee has already offered the rental income under the head income from house property as per remand report, the addition should be limited to the disallowance u/s 24(b) of the Act only which in our opinion is just and proper and needs no interference”.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
