2019 (6) TMI 435 - AT - Income Tax

Addition u/s 14A r.w.r. 8D(2) - whether any interest expenditure can be attributed to earning of exempt income ? - HELD THAT - It is noted that assessee has deployed own funds to the tune of ₹ 4.39 cr. and investment to earn exempt income is only to the tune of ₹ 46 lacs, so, no disallowance need to be made under Rule 8D(2)(ii) of the Rules. For that we rely on the decision of CIT-vs.- Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT . Further, in respect of disallowance under Rule 8D(2)(iii) the AO is directed to compute 0.5% on the investment on which the assessee earned dividend income as held by this Tribunal in REI Agro Ltd. 2013 (9) TMI 156 - ITAT KOLKATA Income from house property - annual letable value of the house property which the assessee stated to have inherited from his mother on which the AO has calculated the annual letable value invoking sec. 22 and 23 - HELD THAT - No inquiry was carried out by the AO before estimating the annual letable value of the house despite the assessee pointed out this fact to the AO that the house in question is an old house, which is in a dilapidated condition and so it is not habitable and therefore, the question of letting out of the property does not arise. In the interest of justice and fair play set aside the order of CIT(A) and restore the matter to the file of AO to verify the contention of the assessee that the house in question is in a dilapidated condition and not habitable. AO after making enquiries finds the contention of the assessee to be correct then no deemed provision of sec. 22 read with section 23 should be saddled on the assessee. If the contention of the assessee fails and the house is habitable then the AO to make reasonable annual letting value considering the location and rent which the house could fetch in that locality in accordance to law after hearing the assessee. - Appeal of assessee is allowed for statistical purpose.

Summary

Issues:
1. Disallowance under section 14A r.w.r. 8D(2) of the Income Tax Rules.
2. Calculation of annual letable value of inherited house property.

Issue 1: Disallowance under section 14A r.w.r. 8D(2) of the Income Tax Rules:
The appeal was against the Ld. CIT(A)'s decision upholding the disallowance of ?1,37,387 under section 14A r.w.r. 8D(2) of the Rules for AY 2013-14. The AO disallowed the amount as the assessee failed to provide specific utilization of the loan received and interest paid, and did not prove that investments were exclusively from own funds. The Ld. CIT(A) confirmed the disallowance. However, the Tribunal noted that no disallowance was required under Rule 8D(2)(ii) as the assessee had deployed own funds far exceeding the investment for exempt income. The Tribunal relied on a Bombay High Court decision and directed the AO to compute 0.5% on the investment for disallowance under Rule 8D(2)(iii) based on a previous Tribunal decision.

Issue 2: Calculation of annual letable value of inherited house property:
The AO estimated the annual letable value of a house inherited by the assessee at ?1,20,000 per annum, despite it being in a dilapidated condition in a non-habitable village in Rajasthan. The Ld. CIT(A) upheld this estimation, leading to an addition of ?84,000. The Tribunal noted that the house was shown in the Balance Sheet and the AO did not inquire into its habitability before estimating the value. Considering the dilapidated state and non-habitable condition, the Tribunal set aside the Ld. CIT(A)'s order and directed the AO to verify the condition of the house. If found non-habitable, no deemed provision should apply; otherwise, a reasonable annual letting value should be determined after hearing the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes on both issues.