2016 (9) TMI 698 - AT - Income Tax

Disallowance made u/s. 14A - Held that - It can be noticed that own funds available with the assessee in each of the three years is more than investment made and hence disallowance u/r. 8D(2)(ii) of the I.T. Rules is not called for in view of the decision rendered by Hon ble Bombay High Court in the case of HDFC Bank Ltd. (2014 (8) TMI 119 - BOMBAY HIGH COURT ). Accordingly, we set aside the order of learned CIT(A) passed on this issue and direct the Assessing Officer to delete the disallowance made u/r. 8D(2)(ii) of the I.T. Rules. Assessment of Service charges received from the tenants - Income from other sources or Income from house property - Held that - In the instant case, the impugned property was let and the termination notice was given in July 2008 and it was stated that the tenant has vacated the property in that month itself. The Ld A.R also made a statement at bar that the assessee has offered the rent pertaining to the period from April, 2008 to July 2008. It is not the case of the AO that the assessee has let out this property during this year itself, after it was vacated by M/s Athma Productions P Ltd. The assessee has stated that the property was only let out in June 2009 and the same has not been proved to be wrong. In view of the above, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the assessment made on notional basis.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Assessment of service charges as income from other sources.
3. Addition of notional rent.

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act
The assessee contested the disallowance made under section 14A of the Act, arguing that the interest-free funds exceeded the investments, citing the decision of the Jurisdictional High Court. The Tribunal found merit in the assessee's contentions, noting that the own funds surpassed the investments in all three years. Relying on the decision of the Bombay High Court, the Tribunal directed the Assessing Officer to delete the disallowance made under section 14A.

Issue 2: Assessment of service charges as income from other sources
The dispute revolved around the treatment of service charges collected from tenants. The assessee maintained that the services provided were routine and closely connected to renting the property, thus contending that the charges should be considered part of rental income. The Tribunal agreed with the assessee, emphasizing that the services offered were integral to property rental, leading to the decision to treat service charges as part of rental income, overturning the orders of the lower authorities.

Issue 3: Addition of notional rent
Regarding the addition of notional rent, the Assessing Officer had assessed a difference in rental income based on reconciliation with rental agreements. The Tribunal observed that the property was vacated by the tenant in the relevant period and subsequently let out to another party. Citing the provisions of the Income Tax Act, the Tribunal concluded that the actual rent received should be considered as the Annual Letting Value, rejecting the notion of assessing notional rent. Consequently, the Tribunal directed the Assessing Officer to delete the assessment made on a notional basis, allowing the appeals filed by the assessee in this regard.

In conclusion, the Appellate Tribunal, in a detailed analysis of the issues raised by the assessee, provided reasoned judgments on each matter, ultimately ruling in favor of the assessee and directing the Assessing Officer to make necessary adjustments in accordance with the Tribunal's findings.