2020 (7) TMI 274 - AT - Income Tax

Allowance of expenses u/s 57(iii) against income from other sources - depreciation and car expenses - HELD THAT - As is discernible from the assessment order for A.Y 2013-14, the A.O had disallowed 50% of the assessee s claim for car depreciation and car expenses primarily for the reason that he had not furnished any evidence with regard to maintenance of any log book. As the fact situation during the year under consideration in context of the aforesaid issue before us remains the same, therefore, after principally agreeing with the view taken by the Tribunal as regards the entitlement of the assessee towards claim for car depreciation and car expenses, we accept the alternative claim of the assessee and restrict the disallowance of car depreciation, car insurance expenses and car expenses to the extent of 50% of the claim raised by the assessee. Accordingly, the A.O is directed to restrict the disallowance as regards the assesse s claim for car depreciation, car insurance expenses and car expenses to the extent of 50% of the claim that was raised by him. Disallowing claim for expenditure incurred towards professional fees - On a perusal of the records, we find that there is no material available on record which would substantiate the claim of the assessee that the professional fees as claimed by him was incurred for availing certain professional services in the course of his business. In fact, the assessee except for harping on his claim that the aforesaid expenses were incurred in lieu of professional advice for issues relating to litigation, tax appeals, accounting and compliances in the course of his business, had however failed to fortify the same on the basis of any corroborative material. - Matter restored before AO for verification. Addition towards the Annual Lettable Value ( ALV ) of a property owned - property jointly owned by the assessee alongwith his brother - HELD THAT - As per Sec. 23(1), the actual rental receipt as per clause (b) shall be taken as the ALV of a property only where the same is found to be in excess of the notional lettable value contemplated in clause (a). In the case before us, the assessee had failed to explain as to why the notional lettable value of the property of ₹ 1,80,000/-( share) that was adopted by him as the ALV of the property in the immediately preceding year i.e A.Y 2011-12 was not to be adopted for the year under consideration. As such, we are of the considered view that as the rent of ₹ 60,000/- ( share) received by the assessee during the year under consideration is less than the notional lettable value of the aforesaid property which during the year under consideration can safely be taken at ₹ 1,80,000/-, therefore, its ALV has to be taken as per Sec. 23(1)(a) at ₹ 1,80,000/-. We thus finding no infirmity in the view taken by the CIT(A) uphold the same. Disallowance of deduction claimed by the assessee in respect of tower rent - assessee s claim for deduction of 30% u/s 24(a) as regards the rent received from the cellular company - assessee had let out space on the terrace of a house property owned by him to a mobile company on which the latter had erected a tower - HELD THAT - Both of the lower authorities had dismissed the aforesaid claim of deduction raised by the assessee without passing any reasoned order. We are not inclined to subscribe to the manner in which the lower authorities had rejected the assesse s claim for deduction u/s 24(a) insofar the same pertained to the rent received from the cellular company i.e without giving any logical reasoning. In fact, we find that though the CIT(A) had reproduced the exhaustive submissions filed by the assessee in context of the aforesaid issue under consideration of his order, but had failed to adjudicate the same on the basis of a speaking order. In the backdrop of the aforesaid facts, we herein restore the issue to the file of the A.O who is directed to adjudicate the aforesaid claim of the assessee on the basis of a speaking order. Notional lettable value of the property - Flat - Gaurav Palace - HELD THAT - The impugned property s possession was not handed over to the assessee by the builder. Nothing has been submitted before us that this finding is wrong. In this view of the matter in our considered opinion when the assessee has not gotten possession of the said property there was no question of assessee letting out the same and offering rental income. Hence we do not find any infirmity in the order of the learned CIT appeals on this issue Taxability of unrealized rent in the year of receipt - Vacany allowance - it has been the claim of the assessee that the property in question during the year under consideration was let out and the unrealized rent was to be recovered from the lessee/licensee viz. HCRMP, therefore, such amount of unrealized rent would be brought to tax in the hands of the assessee u/s 25AA of the Act in the year of receipt. - Held that - in terms of our aforesaid observations we uphold the view taken by the CIT(A) that as the property in question was inherently incapable of being let out during the year under consideration because of the legal constraint imposed by the High Court, therefore, the reasonable rent for which it might be let-out could not be computed. As a consequence, since the computation provisions u/s 23 failed the charging provisions u/s 22 would also fail. As such, the deletion by the CIT(A) of the addition upheld. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues Involved:
1. Disallowance of expenditure claimed against income from "other sources" under Section 57(iii) of the Income-tax Act, 1961.
2. Addition of notional lettable value of certain properties under Section 23(1)(a) read with Section 23(4) of the Income-tax Act, 1961.
3. Disallowance of deduction claimed under Section 24(a) of the Income-tax Act, 1961 in respect of tower rent.

Detailed Analysis:

1. Disallowance of Expenditure Claimed Against Income from "Other Sources" under Section 57(iii):

The assessee claimed various expenses including depreciation on motor car, professional fees, insurance expenses, and car expenses against income from "other sources." The Assessing Officer (A.O) disallowed these expenses, noting the lack of nexus between the expenses and the income from "other sources." The CIT(A) upheld this disallowance.

Upon appeal, the Tribunal agreed that the expenses did not have a direct connection with the income from "other sources." However, the Tribunal noted that the assessee had alternatively claimed depreciation on the motor car under Section 32 and other car-related expenses under Section 37. The Tribunal referred to a similar case for the A.Y 2011-12 where such claims were allowed. Consequently, the Tribunal allowed 50% of the depreciation and car-related expenses, directing the A.O to restrict the disallowance to 50%.

Regarding the professional fees, the Tribunal found no substantial evidence supporting the claim that these expenses were incurred for business purposes. The matter was remanded to the A.O for verification, allowing the assessee to substantiate the claim with fresh evidence.

2. Addition of Notional Lettable Value of Properties under Section 23(1)(a) read with Section 23(4):

A. Flat No. 503, Shreenath Tower, Kandiwali West:

The A.O added the notional lettable value of this property, observing that the rental income shown was significantly lower than the previous year. The CIT(A) upheld this addition. The Tribunal agreed with the lower authorities, noting that the actual rent received was less than the notional lettable value previously adopted by the assessee. The Tribunal upheld the addition, dismissing the assessee's appeal on this ground.

B. Gaurav Palace:

The A.O added the notional lettable value of this property, which was under construction, and possession was not delivered to the assessee. The CIT(A) deleted this addition, noting the property was not capable of being let out. The Tribunal upheld the CIT(A)'s decision, agreeing that without possession, the property could not have a notional lettable value.

C. Veena Souk:

The A.O added the notional lettable value of this commercial complex, which was under litigation. The CIT(A) deleted this addition, noting the property was under a court receiver and could not be let out. The Tribunal upheld the CIT(A)'s decision, agreeing that the property was inherently incapable of being let out due to legal constraints.

3. Disallowance of Deduction Claimed under Section 24(a) in Respect of Tower Rent:

The A.O disallowed the deduction of 30% claimed under Section 24(a) for rent received from a mobile tower. The CIT(A) upheld this disallowance. The Tribunal found that the lower authorities did not provide a reasoned order for the disallowance. The matter was remanded to the A.O for adjudication based on a speaking order, allowing the assessee to substantiate the claim with fresh material.

Conclusion:

The appeal of the assessee was partly allowed, with directions to restrict certain disallowances and remand other issues for further verification. The appeal of the revenue was dismissed, upholding the deletion of additions related to notional lettable value of properties under construction or litigation. The Tribunal also addressed procedural delays due to the COVID-19 lockdown, extending the time for pronouncement of orders.