2016 (4) TMI 814 - AT - Income Tax

Determination of income from house property - Held that - The assessee claimed that the said property was prematurely vacated by the tenant and remained vacant. However, nothing is brought on record to substantiate that the lease agreement was not in existence for the year under consideration and what were the reasons for vacating the premises. In the present case, it is noticed that the assessee claimed that the premise was vacated premature due to hanging sealing drive by MCD and later on the premise was sealed by MCD on 09.11.2006, the said fact has been mentioned by the ld. CIT(A) in para 5.3 of the order dated 14.03.2012 passed in the case of co-owner Smt. Amita Garg. However, these facts were not brought by the assessee before the AO and nothing is mentioned in the impugned order of the ld. CIT(A) that new evidences were admitted under Rule 46A of the Income Tax Rules, 1962. It is well settled that nobody should be condemned unheard as per maxim audi alteram partem but in the present case, it appears that opportunity was not given to the AO while admitting the fresh evidences, if any. In the instant case, it is also noticed that the assessee on the one hand claimed that the premise was sealed on the other hand it claimed that a portion of the property was given on rent to M/s Global Realty Ventures Ltd. @ ₹ 5,000/- per month and the said company was taking care of the rented property. From the said submissions, it is not clear that when M/s Global Realty Ventures Ltd. was taking care of the property then why the service charges were not paid to the said company, on the contrary, the rent was received. It is also not clear when the property in question was sealed on 09.11.2006 as mentioned in para 5.3 page no. 6 of the order dated 14.03.2012 by the ld. CIT(A) in the case of Co-owner of the property then how it was given on rent to M/s Global Realty Ventures Ltd. From the aforesaid discussion we are of the view that the facts of the present case were not appreciated by the ld. CIT(A) in right prospective. Therefore, we set aside the impugned order and remand the issue back to the file of the ld. CIT(A) for fresh adjudication in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Interest paid on the loans raised for making the investment in the partnership firm - Held that - In the present case, it is noticed that the claim of the assessee was that the loans were raised for making the investment in the partnership firm and from the said firm, the assessee earned the interest income, therefore, the interest paid on the loans raised for making the investment in the partnership firm was allowable against the interest income earned. However, in the present case, it is not clear from the material available on the record as to whether the assessee made the investment in the partnership firm from the interest bearing loans on which the interest of ₹ 5,58,089/- was paid and that there was a direct nexus between the investment made in the partnership firm and interest bearing loans raised. We, therefore, in the absence of clear facts available on record, deem it appropriate to set aside this issue also to the fie of the ld. CIT(A) to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Determination of income from house property.
2. Disallowance of expenses related to interest paid on loan, bank charges, legal expenses, and telephone expenses.

Detailed Analysis:

1. Determination of Income from House Property:

Facts and Background: A search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted in the Rajdarbar Group of cases, including the assessee's case. The Assessing Officer (AO) issued a notice under section 153A, and the assessee filed a return of income declaring ?2,87,110/-. The AO observed that the assessee was a co-owner of a property at 11, Ring Road, Lajpat Nagar-IV, New Delhi, which was previously rented to M/s NIIT Institute of Information Technology at ?8,85,000/- per month. However, for the year under consideration, the property was let out to M/s Global Realty Venture Ltd. for ?5,000/- per month. The AO, applying the provisions of Section 23(1)(a), deemed the annual value of the property to be ?1,06,20,000/- and computed the income from house property accordingly.

Assessee's Argument: The assessee contended that the property was vacated by NIIT due to a sealing drive by the Municipal Corporation of Delhi (MCD) and remained vacant. The assessee argued that the provisions of Section 23(1)(c) were applicable, which considers the actual rent received or receivable if the property was vacant during the whole or part of the year.

CIT(A) Decision: The CIT(A) deleted the addition made by the AO, stating that the provisions of Section 23(1)(c) were applicable as the property was vacant, and the actual rent received was less than the deemed rent under Section 23(1)(a). The CIT(A) relied on the judgment of the Hon’ble High Court of Delhi in the case of CIT v Modi Industries Ltd. (No.4) [1993] 200 ITR 350 (Del), which held that the actual rent received or receivable should be considered as the annual value.

Tribunal's Decision: The Tribunal noted that the facts regarding the property being sealed by MCD and the premature vacation by NIIT were not brought before the AO. It was also unclear how the property was rented to M/s Global Realty Ventures Ltd. if it was sealed. The Tribunal set aside the order of the CIT(A) and remanded the issue back for fresh adjudication, directing the CIT(A) to provide a reasonable opportunity of being heard to the assessee.

2. Disallowance of Expenses Related to Interest Paid on Loan, Bank Charges, Legal Expenses, and Telephone Expenses:

Facts and Background: The AO noticed that the assessee had claimed ?5,58,089/- as business expenditure towards interest paid on loan, bank charges, legal expenses, and telephone expenses. The AO disallowed the expenses, stating that the assessee was not carrying on any business or profession during the year.

Assessee's Argument: The assessee argued that she earned ?5,50,114/- as interest on capital from a partnership firm, which was shown as business income. The interest expenses were incurred to earn this business income, and therefore, should be allowed as per Sections 28 and 37 of the Act.

CIT(A) Decision: The CIT(A) observed that the interest received from the partnership firm was business income under Section 28(v) of the Act. The expenses incurred to earn this business income were allowable. Therefore, the CIT(A) deleted the disallowance made by the AO.

Tribunal's Decision: The Tribunal noted that it was not clear whether the investment in the partnership firm was made from interest-bearing loans and if there was a direct nexus between the investment and the interest expenses. The Tribunal set aside the issue to the CIT(A) for fresh adjudication, providing a reasonable opportunity of being heard to the assessee.

Conclusion:

Both the appeals by the department and the cross objections by the assessee were allowed for statistical purposes, with directions for fresh adjudication by the CIT(A) on both issues.