The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that declaring low rent for a flat by the owner in the income tax return is a device for tax evasion.
The assessee, an NRI, let out its flat to Bank of America for a rent of Rs.2 Lacs per month. The assessee also received interest-free security deposit of Rs.4 Crores from Bank of America and reflected lesser rent of Rs.0.25 Lacs in AY 2009-10 as well as in impugned AY.
The assessing officer opined that the assessee was compensated for the loss of rent by way of interest-free security deposit from the tenant and it was merely a tax reduction device to give the loss to the exchequer. It further transpired that the interest-free deposit received by the assessee was advanced to family members without interest and no income was reflected against the security deposit received by the assessee.
On the second appeal, the Tribunal upheld the department’s view that it was an income tax reduction device and also the addition of income of Rs 2 lakh per month as rent from the flat.
In an earlier year, the bank had paid him Rs 2 lakh per month as rent. The Income Tax department held that Vaswani was compensated for the loss of rent by way of an interest-free security deposit from the tenant. It was merely a device for reducing the income tax liability. Also, the deposit was advanced interest-free to family members. Thus, no income was reflected against the deposit.
Dismissing the appeal filed by the assessee, the Tribunal held that “It is noted that property situated at Flat No.72, L Block, Maker Tower, Cuffe Parade, Mumbai was actually let out to Bank of America during AY 2007-08 @ Rs.2 Lacs per month. However, this rent has drastically been reduced to Rs.25,000/- per month upon receipt of interest-free security deposit of Rs. 4 Crore from the tenant. No plausible/cogent explanation regarding drastic reduction has been placed on record. Secondly, similar addition in immediately preceding AY 2009-10 was accepted by the assessee by not preferring the second appeal and the matter had already attained finality in the preceding year. Another important factor to be noted that interest-free security deposit received by the assessee was advanced to sister concerns without any interest and no income has been reflected by the assessee against the same. The totality of the above facts lends credence to the reasoning of both the lower authorities and therefore, the conclusion that the whole exercise was a colorable device to reduce the overall tax burden, could not be said to be without any sound basis.”To Read the full text of the Order CLICK HERE
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