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2018 (5) TMI 1854 - AT - Income TaxIncome from house property - Deemed annual lettable value of flats - Assessee mainly received income from dividend, property income and profits from partnership firm of which the assessee is partner - HELD THAT - The Hon‟ble Bombay High Court held in Tip Top Typography 2014 (8) TMI 356 - BOMBAY HIGH COURT that when the monthly rental shows a total mismatch or does not reflect the prevailing rent, then AO is not prevented from carrying out necessary investigations and enquiry to find out the going rent of the property in question. The AO must have cogent material/evidences in his possession that parties have concealed the real position. The AO is required to disclose the material in his possession to the tax-payer for rebuttal before proceeding to adopt the prevailing market rent. The AO has to make comparative analysis of the comparable properties of similar nature before applying the prevailing market rent of the property under question. The satisfaction of the AO that the bargains reveal inflated or deflated rent based on fraud, emergency, relationship and other considerations which make it unreasonable must precede the undertaking of above exercise. Thus, under these circumstances keeping in view factual matrix of the case discussed in extenso above and recent decision in the case of Tip Top Typography (supra) we are of the considered view that this matter need to be restored back to the file of the AO for making making denovo assessment after make necessary enquires and investigation in line with decision of Hon‟ble Bombay High Court in the case of Tip Top Typography(supra) and after providing proper and adequate opportunity of being heard to the assessee. The evidences/explanation submitted by the assessee in its defence shall be admitted by the AO and adjudicated on merits in accordance with law. This ground no. 1 of the Revenue is allowed for statistical purposes. Addition u/s.68 - HELD THAT - Mere suspicion on part of the AO that the assessee may claim this expenses of ₹ 35.07 lacs in some future distant point of time is not sufficient to fasten tax-liability merely on basis of suspicion of the AO that some event may happen in future at some point of time which is unknown wherein the assessee may try to claim these expenses which it has not claimed now as deduction , and the same will cause prejudice to the Revenue at that unknown distant point of time. This is too far-fetched and have no legs to stand to fasten tax-liability on the assessee as these are baseless suspicions. In any case 1961 Act is a living and robust statute which is capable of taking care of such contingent events if at all and when they happens. We confirm the appellate order of learned CIT(A) and sustain the deletion of the addition as was made by learned CIT(A). The Revenue fails on this ground. The ground no. 2 is adjudicated against Revenue. Disallowance u/s. 14A r.w.r.8D - suo motu disallowance of 50% expenses offered by the assessee and non recording of satisfaction by the AO u/s 14A(2)- HELD THAT - Section 14A clearly speaks of disallowance of the expenditure incurred by the assessee in relation to earning of an exempt income and no notional expenditure can be disallowed u/s 14A which had not even been incurred at all by the assessee. Also there is no allegation or incriminating material on record that the assessee incurred any expenditure out of books of accounts which was not recorded in books of accounts warranting any additions to income to bring to tax the said unrecorded expenditure - on suo motu disallowance of 50% expenses offered by the assessee and non recording of satisfaction by the AO u/s 14A(2) before invoking Rule 8D, we are of the considered view that the appellate order of learned CIT(A) needs to be upheld/sustained which we sustain and hence the disallowance offered by the assessee u/s 14A suo-motu voluntarily to the tune of ₹ 5,44,975/- stood accepted.
Issues Involved:
1. Deletion of addition of ?87,05,760/- as deemed annual lettable value of flats. 2. Deletion of addition of ?35,07,000/- under Section 68 of the Income-tax Act. 3. Deletion of additional disallowance of ?2,35,62,191/- under Section 14A read with Rule 8D of the Income-tax Rules. Issue-wise Detailed Analysis: 1. Deletion of Addition of ?87,05,760/- as Deemed Annual Lettable Value of Flats: The Revenue challenged the deletion of the addition of ?87,05,760/- as the deemed annual lettable value (ALV) of flats. The assessee, an NBFC, owned two residential flats. Flat No. 8 was let out to a director at ?10,000/- per month, while Flat No. 3 was vacant. The Assessing Officer (AO) used real estate websites to determine the market rent at ?200 per square foot per month, leading to a higher ALV. The CIT(A) relied on earlier ITAT decisions and municipal rateable value, which was much lower. The tribunal referred to the Hon’ble Bombay High Court's decision in Tip Top Typography, which allows the AO to determine a fair rent if municipal valuation is not reflective of the market rent. Given the significant discrepancy between the municipal rate and market rate, the tribunal restored the matter to the AO for a de novo assessment, ensuring adherence to the principles laid out in Tip Top Typography. 2. Deletion of Addition of ?35,07,000/- under Section 68 of the Income-tax Act: The AO added ?35,07,000/- as unexplained cash credit under Section 68, suspecting that the liability shown payable to Mr. Jimmy J. Parekh was not genuine. The assessee explained that Mr. Parekh was a transferred employee from a group company, and the gratuity and leave salary payable were transferred along with a cheque. The CIT(A) accepted the assessee’s explanation, noting that the liability was correctly reflected as per accounting standards. The tribunal upheld the CIT(A)’s decision, finding no error in the assessee’s explanation and noting that the AO’s suspicion was not backed by concrete evidence. The tribunal emphasized that mere suspicion is insufficient to fasten tax liability. 3. Deletion of Additional Disallowance of ?2,35,62,191/- under Section 14A read with Rule 8D: The AO disallowed ?2,41,07,023/- under Section 14A read with Rule 8D, while the assessee had voluntarily disallowed ?5,44,975/-. The AO applied Rule 8D(2)(iii) mechanically without recording satisfaction as to why the assessee’s disallowance was inadequate. The CIT(A) noted that the total expenses debited were ?15,03,151/-, and the disallowance could not exceed this amount. The tribunal observed that the AO did not provide reasons for discarding the assessee’s computation and mechanically applied Rule 8D, leading to an excessive disallowance. The tribunal upheld the CIT(A)’s decision, accepting the assessee’s voluntary disallowance as sufficient and noting that disallowance under Section 14A cannot exceed the actual expenditure incurred. Conclusion: The tribunal partly allowed the Revenue’s appeal, restoring the ALV issue to the AO for fresh assessment while upholding the CIT(A)’s decisions on the other two issues. The tribunal emphasized adherence to legal principles and proper recording of satisfaction by the AO in disallowance cases.
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