2016 (7) TMI 1015 - AT - Income Tax

Deduction of interest expenditure - income from house property - annual value determination - Held that - Section 23 contemplates the manner as to how annual value will be determined. Section 24 provides certain deductions against house property income. Now in the present case, the assessee has no income from Bungalow No.2 at Deep Mangal Society. His income under the head Income from house property has also not been shown. If we look to the scheme of section 24(b) along with two proviso, then it would reveal that if the assessee had given a choice for self-occupied property with regard to the Bungalow No.2, and then under first proviso he could claim deduction to the extent of ₹ 30,000/-, and if it establishes fulfillment of conditions provided in second proviso, then to the extent of ₹ 2.00 lakhs. The assessee has to prove that this bungalow was purchased with borrowed funds. But neither the bungalow was ready for self-occupation nor the assessee has given a choice. Thus, under this head also the assessee is not entitled for deduction of an interest expenditure. In view of the above discussion it is concluded that under both the fold of propositions, the assessee is not entitled for the deduction of interest expenditure. - Decided against assessee Adhoc disallowance - Held that - The assessee failed to establish that the expenditure was exclusively incurred for the purpose of business or profession. Possibility of user of car for personal purpose cannot be ruled. Therefore, adhoc disallowance made by the AO and confirmed by the ld.CIT(A) is justified - Decided against assessee

Summary

Issues involved:
1. Addition of interest expenditure of ?1,24,952
2. Adhoc disallowance of ?60,370

Analysis of the judgment:
Issue 1: The first issue pertains to the addition of interest expenditure of ?1,24,952. The assessee had claimed this amount as a deduction against rental income from another property. The Assessing Officer (AO) disallowed this deduction as the borrowed fund was not invested in the property generating the rental income. The assessee's appeal to the ld.CIT(A) was unsuccessful. The Tribunal analyzed the provisions of sections 22, 23, and 24 of the Income Tax Act. It noted that the bungalow in question was purchased for the assessee's own residence and no rent or benefit was derived from it. The Tribunal observed that the assessee did not fulfill the conditions required to claim the deduction under section 24(b) for interest expenditure. Therefore, the Tribunal upheld the disallowance of the interest expenditure.

Issue 2: The second issue concerns the adhoc disallowance of ?60,370. The assessee had claimed expenditure of ?3,01,843 against commission income of ?4,00,000. The AO disallowed ?1,00,000 of the claimed amount, citing lack of maintenance of a log book for car-related expenses. The ld.CIT(A) reduced the disallowance to 20% from the AO's 33%. The Tribunal agreed with the AO and ld.CIT(A) that the assessee failed to prove the exclusive business purpose of the expenditure, leading to the possibility of personal use of the car. Consequently, the Tribunal upheld the adhoc disallowance of ?60,370. As a result, the appeal of the assessee was dismissed by the Tribunal on both issues.

In conclusion, the Tribunal's judgment upheld the disallowance of interest expenditure and adhoc disallowance of car-related expenses, emphasizing the need for proper documentation and meeting the statutory conditions for claiming deductions under the Income Tax Act.