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2020 (12) TMI 383 - AT - Income TaxAddition on account of deemed let out property - AO has made addition on the ground that the assessee is the Owner of Three Properties - HELD THAT - We notice from the record that in remand proceedings, AO has agreed with the documents submitted by assessee that the flat nos. 61, 62, 51 and 52 are combined and having single kitchen and common entrance, therefore, it satisfies the definition of single dwelling unit. Therefore, we are inclined to accept the findings of Ld. CIT(A) and accordingly, ground raised by revenue is dismissed. Addition on account of low withdrawals - assessee's own cash withdrawals including those of the members of his joint family amount to less than ₹ 31,000/- per member per month which cannot be perceived as sufficient for an upper class family residing in Mumbai - CIT-A deleted the addition - HELD THAT - We notice from the record that the assessee is living in the joint family consisting of 6 members. Such family members having independent income - CIT(A) has observed that the family has a withdrawal of ₹ 34.44 lakhs during FY 2011-12 and it appears to be adequate to maintain the entire family. Therefore, we are inclined to accept the findings of Ld. CIT(A) and accordingly, ground raised by revenue is dismissed. Addition u/s 57(iii) - assessee has accepted the fact that monies borrowed at a higher rate of interest has been utilized in avenues which offer a lower rate of interest and that too in a company in which the assessee is interested and supported the findings of AO - CIT-A deleted the addition - HELD THAT - The loan is secured with the keyman insurance. Since, it is assigned to assessee, the loan also transferred in the name of assessee and assessee has paid interest on the above loan to the extent to LIC. This payment of interest is towards the loan assigned in the name of assessee and direct connection with the loan given to the company M/s Maneesh Pharmaceuticals Ltd. Therefore, there is direct link to the interest income earned by the assessee. Therefore, it is allowable expenditure u/s 57(iii) of the Act. With regard to Interest payment to Mr. Balkrishna Hedge, we notice that M/s Maneesh Pharmaceuticals Ltd. has taken loan from assessee and assessee has received the funds from Mr. Balkrishna Hedge on 26.11.2010 and subsequently, assessee has transferred the same to M/s Maneesh Pharmaceuticals Ltd and the company has utilized the same in their upcoming projects - A clear findings of Ld. CIT(A) that assessee has earned the interest income from M/s Maneesh Pharmaceuticals Ltd. and there is direct link to the loan given to them and link to the loan taken from Mr. Balkrishna Hedge. Therefore, it is established that the interest expenditure is linked to the interest income earned by assessee from the company. Therefore, it is allowable expenditure u/s 57(iii) of the Act. Therefore, we are inclined to accept the findings of Ld. CIT(A) and accordingly, ground raised by revenue is dismissed. Disallowance u/s 14A - balance in the assessee's capital account is already utilized in the form of assets lying in the balance sheet of the assessee and, therefore, the provisions of section 14A are required to be implemented in the case of the assessee - HELD THAT - The interest expenditure incurred by assessee is directly linked to the interest income earned during the year and it is not incurred to make investment. Therefore, there is no separate interest expenditure incurred by assessee other than the interest incurred to earn interest income. The findings of Ld. CIT(A) is proper as per the facts. Therefore, we are inclined to accept the findings of Ld. CIT(A) in deleting the disallowance u/r 8D(2)(ii) of the rules. With regard to the rule 8D(2)(iii), assessee has not claimed any administrative expenditure and however, as per rule 8D(2)(iii), AO has to disallow 0.5% of the average investments - assessee has earned dividend income of ₹ 18,880/-. AO can calculate 0.5% of the average investments on which assessee has actually earned dividend income. AO should not calculate any other investment in which assessee has not earned any dividend income. Partly allowing the ground raised by revenue.
Issues Involved:
1. Deletion of addition on account of deemed let-out property. 2. Deletion of addition on account of low withdrawals. 3. Deletion of disallowance under Section 57(iii) of the Income Tax Act. 4. Deletion of disallowance under Section 14A of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Deletion of Addition on Account of Deemed Let-Out Property The revenue challenged the deletion of an addition of ?9,31,460/- made by the Assessing Officer (AO) on account of deemed let-out property. The AO had treated three flats (Nos. 61, 62, and 63) as separate housing units, arguing that flat No. 63 was a distinct and unconnected unit. The assessee contended that these flats were interconnected, forming a single dwelling unit with a common kitchen and entrance. The Ld. CIT(A) accepted the assessee’s submission and held that these flats should be considered as one house under Section 23(2) of the Income Tax Act. The Tribunal upheld the findings of the Ld. CIT(A), noting that the AO had agreed during remand proceedings that the flats were combined and used as a single dwelling unit. 2. Deletion of Addition on Account of Low Withdrawals The revenue contested the deletion of an addition of ?7,20,000/- made by the AO due to low cash withdrawals, arguing that the withdrawals were insufficient for an upper-class family in Mumbai. The assessee argued that the family, consisting of six members, had total withdrawals of ?2.61 crores, with cash withdrawals amounting to ?34.44 lakhs. The Ld. CIT(A) observed that the family’s withdrawals appeared adequate to maintain the entire family. The Tribunal upheld the Ld. CIT(A)’s findings, noting that the family members had independent incomes and the withdrawals were sufficient. 3. Deletion of Disallowance under Section 57(iii) of the Income Tax Act The revenue appealed against the deletion of a disallowance of ?98,05,878/- made by the AO under Section 57(iii). The AO disallowed the interest expenses on the grounds that the assessee borrowed at a higher rate and invested in avenues offering a lower rate. The Ld. CIT(A) found that the interest paid to LIC and Dr. Balkrishna Hedge had a direct nexus with the interest income earned from M/s Maneesh Pharmaceuticals Ltd. The Tribunal upheld the Ld. CIT(A)’s findings, noting that the interest expenses were directly linked to the interest income earned by the assessee and were thus allowable under Section 57(iii). 4. Deletion of Disallowance under Section 14A of the Income Tax Act The revenue disputed the deletion of a disallowance of ?75,55,490/- made by the AO under Section 14A. The AO made the addition on the grounds that the assessee had shown dividend income but no expenditure incurred. The Ld. CIT(A) found that the interest expenses allowed under Section 57(iii) were directly attributable to earning interest income and not for making investments. The Tribunal upheld the Ld. CIT(A)’s findings, noting that the interest expenditure was directly linked to the interest income earned and not incurred for making investments. However, the Tribunal directed the AO to calculate 0.5% of the average investments on which the assessee had actually earned dividend income for disallowance under Rule 8D(2)(iii). Conclusion The Tribunal partly allowed the revenue’s appeals, upholding the Ld. CIT(A)’s decisions on most grounds but directing a partial recalculation under Section 14A. The order was pronounced beyond the usual 90-day period due to the extraordinary circumstances of the COVID-19 lockdown, as discussed in detail with reference to relevant judicial precedents.
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