The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) has held that Rental income can’t be brought to tax when assessee not entered into any lease agreement with tenants.
The assessee was represented by Ms Urvashi Shodhan and the revenue was represented by Shri Rakesh Jha.
On verification of details in form 26AS, the AO observed that Mansha Textile Pvt. Ltd, the assessee had received an amount of ₹ 21,42,504/- as rental income for the year under consideration, however, the same was not offered to tax by the assessee company in the return of income.
The AO reopened the assessment under section 147 of the Income Tax Act, of 1961. The AO observed that various parties had made rental payments to the assessee company, which has been found credited in the current account of the assessee company held with Axis Bank Ltd, however, the assessee has not shown this bank account in its books of account for the year under consideration and neither the rental receipts were offered to tax by the assessee in the return of income.
The assessee contended before the AOthat neither the Directors of the company had entered into any rent agreement on behalf of the company nor money has been deposited in the official bank account of the company towards rental receipts.
The matter came to the notice of the assessee company only when the TDS certificates were received at the registered office of the company and the assessee company approached the Company Law Board in this matter and is exploring the possibility of restricting the Deepak Ochhaney group from taking the rental income from the tenants. The AO rejected the assessee’s contention and added a sum of ₹ 2,142,504/- as rental income of the assessee (after allowing standard deduction@30%) for the year under consideration.
The ITAT observed that the assessee was never in receipt of the rental income since neither the assessee company had entered into a lease agreement with the tenants nor was the rental income ever received by the assessee company, accordingly the said rental income was not offered to tax by the assessee in its return of income.
A Coram of ITAT bench Smt. Annapurna Gupta, accountant member and Shri Siddhartha Nautiyal, Judicial Member set aside the case to the file of the CIT(Appeals) for hearing the case afresh on merits, after giving due opportunity of hearing to the assessee and the appeal of the assessee was allowed for statistical purposes.
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