2019 (5) TMI 1943 - AT - Income Tax

Income from house property - addition being deemed rental income for a let out property which has remained vacant - ALV determination - disallowing vacancy disallowance claimed by the assessee - HELD THAT - CIT(A) has wrongly relied on the judgment of the Hon ble Andhra Pradesh High Court in the case of Vivek Jain 2011 (1) TMI 897 - ANDHRA PRADESH HIGH COURT This judgment was prior to the amendment brought in the Act on this issue. In view of the above discussion, consistent with the view taken by the Pune Bench of the ITAT in the case of Shri Vikas Keshav Garud 2016 (7) TMI 942 - ITAT PUNE we delete this addition. Addition made u/s 2(22)(e) - addition as the account in question is a current account or loan account - HELD THAT - We find that the accounts of the assessee in the books of M/s. Panchdeep Constructions Ltd. is placed page 11 of the paper book filed by the assessee. A perusal of the same demonstrates that, it is a current account. Entries were passed on the last day of the previous year i.e., 31/03/2013. Even the Director s remuneration has been credited on the last day of the Financial Year. As per the case of Mr. Purushottam Das Mimanidelete 2014 (12) TMI 801 - ITAT KOLKATA the addition as the account in question is a current account and it is not a loan account. Moreover, it can be seen that the company M/s Panchdeep Constructions Ltd. received money from the assessee which makes it a commercial transaction of mutual benefit to both the parties and hence outside the purview of Section 2(22)(e) of the Act. Accordingly this ground of the assessee is allowed. Disallowance of interest - assessee s case is that the Assessing Officer restricted the claim of the assessee of deduction of interest to the extent of income earned by it under the head income from other sources - Whether assessee claims, is factually incorrect as the interest payment is related to income offered under the head income from house property? - HELD THAT - Computation of income that rental income has been offered to tax under the head income from other sources and has been assessed as such. This, in our view, is not correct. The rental income may have to be brought to tax under the head income from house property if it is rent from a building. The claim for interest may be examined afresh under such circumstances. If the money borrowed is for the purpose of acquisition of property, the deductions should be considered only under the head house property. Accordingly, this issue is restored to the file of the Assessing Officer for fresh adjudication in accordance with law.

Summary

Issues Involved:
1. Addition of deemed rental income for a let-out property that remained vacant.
2. Addition made under Section 2(22)(e) of the Income Tax Act.
3. Disallowance of interest.

Issue-wise Detailed Analysis:

1. Addition of Deemed Rental Income:
The primary issue was whether the Assessing Officer (AO) was justified in disallowing the vacancy allowance claimed by the assessee for a property that remained vacant throughout the year. The Pune Bench of the ITAT in the case of Shri Vikas Keshav Garud vs. ITO had previously addressed a similar issue, holding that under Section 23(1)(c) of the Income Tax Act, the annual letting value (ALV) of a property that remains vacant for the whole year should be considered as nil. The Tribunal noted that the property in question was vacant for the entire year, and the intention to let it out was evident. It was concluded that the phrase “property is let” should not be interpreted to mean that the property must be actually let out during the year. Consequently, the addition of Rs.1,84,303/- as deemed rental income was deleted.

2. Addition Made Under Section 2(22)(e):
The second issue pertained to the addition made under Section 2(22)(e) of the Act, which deals with deemed dividends. The assessee's account in the books of M/s. Panchdeep Constructions Ltd. was found to be a current account rather than a loan account. The Tribunal referred to the case of Mr. Purushottam Das Mimani vs. Dy. Commissioner of Income Tax, where it was held that transactions in a current account, characterized by mutual financial assistance and shifting balances, do not fall under the purview of Section 2(22)(e). The Tribunal emphasized that for Section 2(22)(e) to apply, the transaction must benefit the shareholder alone without any reciprocal benefit to the company. Since the transactions in question were of mutual benefit, the addition was deleted.

3. Disallowance of Interest:
The third issue involved the disallowance of interest claimed by the assessee. The AO had restricted the interest deduction to the extent of income earned under the head "income from other sources," which the assessee contested. The Tribunal found that the rental income had been incorrectly assessed under "income from other sources" instead of "income from house property." The Tribunal directed that the rental income should be assessed under "income from house property," and the interest deduction should be reconsidered accordingly. The issue was restored to the AO for fresh adjudication.

Conclusion:
The appeal was allowed for statistical purposes. The Tribunal deleted the addition of deemed rental income and the addition under Section 2(22)(e), and remanded the issue of interest disallowance back to the AO for fresh consideration.