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2015 (2) TMI 1155 - AT - Income TaxEstimation of annual letting value - (ALV) of the property taken at 8.5% on the total investments for the purpose of determination from house property u/s. 22 by CIT(A) - Held that - Perusal of the order of CIT(A) shows that annual value for the property in question has been determined by BBMP at 29, 722 for the relevant financial year. The Hon ble High Court of Karnataka in the case of Shri P. Balakrishnan v. CIT ITRC No.59/1982 dated 26.2.1982 has taken the view that in the absence of any other details the ALV fixed by the Corporation is the yardstick for determination of ALV u/s. 23 of the Act. If that yardstick is applied then the actual rent received by the assessee would be much greater than the ALV determined by the BBMP. The CIT(A) has however determined the ALV u/s. 22/23 of the Act on the basis of Hon ble Gujarat High Court referred to in the grounds of appeal by the Revenue. The course adopted by the CIT(A) is favourable to the Revenue but the assessee has not chosen to challenge the same. In the light of law as declared by the Hon ble High Court of Karnataka and in view of the fact that the CIT(A) has determined the ALV at a much higher figure than what is contemplated by the decision of Hon ble High Court of Karnataka and in view of the fact that the assessee has not challenged the said determination of ALV by the CIT(A) we are of the view that the order of CIT(A) calls for no interference and should be confirmed - Decided in favour of assessee Disallowance of interest on borrowings made - CIT(A) allowed the claim - Held that - The findings of the CIT(A) clearly show that assessee had borrowed loans for the purpose of acquiring the property. There is no material on record brought out by the Revenue to dislodge the findings of CIT(A). - Decided in favour of assessee Deemed dividend addition u/s. 2(22)(e) - Held that - Since the Assessee in the present case is not a shareholder in the lender company we are of the view that loan or advance to a non-shareholder cannot be taxed as Deemed Dividend in the hands of a non-shareholder - Decided in favour of assessee
Issues Involved:
1. Justification of CIT(A) in estimating the Annual Letting Value (ALV) of the property. 2. Justification of CIT(A) in deleting the disallowance of interest on borrowings. 3. Justification of CIT(A) in deleting the addition made as deemed dividend under Section 2(22)(e) of the Act. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in estimating the Annual Letting Value (ALV) of the property: The first issue concerns whether the CIT(A) was justified in estimating the ALV of the property at 8.5% on the total investments for determining income from house property under Section 22 of the Act, and whether following the decision of the Hon'ble Gujarat High Court in Bipin Bhai Vadilal Family Trust v. CIT, 208 ITR 1005, was appropriate. The assessee owned a property in Koramangala, Bangalore, which was let out for Rs. 9 lakhs. The AO believed the declared rent was low and recalculated the rental income based on prevailing rates, arriving at Rs. 43,20,000. The CIT(A) determined the 'fair rent' based on the total investment in the property, applying an 8.5% rate as per the Gujarat High Court decision, resulting in an annual value of Rs. 46,10,080. The Tribunal upheld CIT(A)'s order, noting that the ALV determined by the CIT(A) was higher than what the Karnataka High Court's yardstick would suggest, and since the assessee did not challenge this determination, the order was confirmed. 2. Justification of CIT(A) in deleting the disallowance of interest on borrowings: The second issue is whether the CIT(A) was justified in deleting the disallowance of interest on borrowings amounting to Rs. 10,45,850. The assessee claimed a deduction under Section 24(1) of the Act against rental income, which the AO disallowed for lack of documentary evidence linking the loan to property acquisition. The CIT(A) found that loans were indeed taken for acquiring the property, initially from ING Vysya Bank, later repaid by loans from other entities. The CIT(A) directed the AO to consider interest on the relevant portion of the loan, resulting in a partial allowance of Rs. 10,45,872. The Tribunal found no merit in the Revenue's challenge, as the CIT(A)'s findings were based on clear evidence of the loan's purpose. 3. Justification of CIT(A) in deleting the addition made as deemed dividend under Section 2(22)(e) of the Act: The third issue pertains to the deletion of an addition of Rs. 3,10,28,384 as deemed dividend under Section 2(22)(e) of the Act. The assessee received an advance from Jupiter Capital Pvt. Ltd., which the AO treated as deemed dividend, arguing that the assessee was indirectly a shareholder through Vectra Holdings Pvt. Ltd. The CIT(A) deleted the addition, stating that since the assessee was not a direct shareholder in Jupiter Capital Pvt. Ltd., the amount could not be treated as deemed dividend. The Tribunal upheld this view, referencing the Special Bench decision in Bhaumik Color Labs, which held that deemed dividend can only be assessed in the hands of a shareholder of the lender company, not a non-shareholder. Thus, the CIT(A)'s order was confirmed, and the Revenue's appeal was dismissed. Conclusion: The appeal by the Revenue was dismissed, with the Tribunal confirming the CIT(A)'s decisions on all three issues: the estimation of ALV, the deletion of interest disallowance, and the deletion of the deemed dividend addition. The Tribunal's judgment was pronounced on February 27, 2015.
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