2013 (7) TMI 253 - AT - Income Tax

Income From House Property - enhancement of annual let out value - notional interest on deposits - municipal valuation is less than the value of actual rent - Held that - Clause (c) of the section 23 will not apply here as none of the properties in question remained vacant during whole or any part of the previous year. Even clause (a) will also not apply as it is applicable in those cases where property has not been let out at all during the entire year and in such a case, it has to be ascertained as to what could be the rent which property might reasonably be accepted to be let out from year to year. In the present case, clause (b) would be applicable because the property was let out and rent was received. The Tribunal in Manisha R. Jaisingh (2012 (5) TMI 159 - ITAT MUMBAI) held that if the actual rent received is more than municipal valuation of the property, then the actual rent received or receivable will be taken as annual letting value of the property within the meaning of section 23(1)(b). Also see Moni Kumar Subba (2011 (3) TMI 497 - DELHI HIGH COURT) which came to the conclusion that notional interest cannot form part of the actual rent. In the present case, assessee had submitted that the municipal valuation of both the properties is now available which is less than the value of actual rent received in the interest of justice, this issue needs to be restored back. Disallowance of administrative expenses - Held that - On perusal of the expenses, as found that it is not clear as to what are the expenses which have been incurred on account of income from house property and what have been incurred for the purpose of maintaining the corporate entity. If the expenses are directly related to earning of income from house property the same will not be allowed as the statute itself provides standard deduction and other deduction under section 24. However, it cannot be denied that certain expenses are required for maintaining a corporate status, which can be allowed from income from other sources under section 57. On a perusal of these expenses, it is seen that it is very difficult to bifurcate such expenses and, therefore, this issue needs to be restored back to the file of the AO. Set-off of carry forward of deprecation against income for the year disallowed - Held that - While computing the income of the assessee AO has computed the business income at Rs. 82,07,075 and from there has reduced various incomes aggregating to Rs. 82,85,313 which were not forming part of the business income. The unabsorbed carried forward of the depreciation which is coming from earlier years, has not been set-off either in this year or has been allowed to be carried forward in the subsequent year. If the assessee had not earned any business income in this year, unabsorbed depreciation from the earlier years has to be allowed to be carried forward to the subsequent years. Since there is no proper finding of the Assessing Officer as to why unabsorbed depreciation of the earlier year has not been allowed to be carried forward in the subsequent years, therefore, this issue also needs to be restore back to the file of the AO for examination. Assessee s appeals are partly allowed for statistical purposes.

Issues Involved:
1. Addition under "Income From House Property" due to notional interest on deposits.
2. Disallowance of administrative expenses.
3. Disallowance of set-off of carry forward depreciation.

Issue-Wise Detailed Analysis:

1. Addition under "Income From House Property" due to notional interest on deposits:
The assessee challenged the addition of Rs. 8,92,500 under "Income From House Property" based on the enhancement of annual let-out value by calculating notional interest on deposits. The Assessing Officer (AO) added notional interest on interest-free deposits to the rental income, arguing that the concessional rent charged by the assessee was less than the fair market rent. This decision was upheld by the Commissioner (Appeals), who distinguished the case from the J.K. Investors (Bombay) Ltd. ruling, noting that the assessee did not provide evidence of fair rent. The Tribunal, however, found that the municipal valuation of the properties, which was less than the actual rent received, was not considered by the authorities. Consequently, the Tribunal set aside the order and restored the issue to the AO for fresh examination, applying the ratio of the Delhi High Court in Moni Kumar Subba, which held that notional interest cannot form part of actual rent.

2. Disallowance of administrative expenses:
The AO disallowed administrative expenses totaling Rs. 4,56,150 on the grounds that the assessee did not carry out any business activity during the year, thus disallowing the deduction under section 37(1). The Commissioner (Appeals) upheld this disallowance, stating that expenses could only be deducted if the corporate entity was engaged in business activities. The Tribunal found that it was unclear which expenses were directly related to income from house property and which were necessary for maintaining the corporate status. The Tribunal restored the issue to the AO to examine and bifurcate the expenses, allowing those necessary for maintaining corporate status under section 57.

3. Disallowance of set-off of carry forward depreciation:
The AO did not allow the set-off of unabsorbed carry forward depreciation of Rs. 26,51,689, citing the absence of business income. The Commissioner (Appeals) confirmed this decision. The Tribunal noted that the AO computed business income but did not allow the carry forward of unabsorbed depreciation to subsequent years if no business income was earned. The Tribunal restored the issue to the AO to examine the allowability of carrying forward unabsorbed depreciation in subsequent years and decide in accordance with the law.

Separate Judgments:
For both assessment years 2004-05 and 2005-06, the Tribunal followed a consistent approach. The issues regarding the addition under "Income From House Property" and disallowance of administrative expenses were similarly restored to the AO for fresh examination in light of the municipal valuation and necessity for maintaining corporate status, respectively.

Conclusion:
The Tribunal's judgment resulted in the partial allowance of the assessee's appeals for statistical purposes, with directions for the AO to re-examine the issues based on the provided guidelines and legal precedents. The order was pronounced in the open Court on 30th April 2013.

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