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2020 (12) TMI 863 - AT - Income TaxAddition on account of notional house property income - Signature Villa in UAE owned by the assessee which was kept for self use - CIT(A) while upholding the said addition agreeing with the view of ld. AO to make adhoc increase of 10% over the annual value assessed for the previous assessment year - HELD THAT - From the perusal of the valuation report we find that the valuer had categorically mentioned the suo moto value of the subject mentioned property for different parties - Rental value had been consistently showing a declining trend in respect of subject mentioned property at Palm Signature Villa Dubai. Hence we hold that there is absolutely no justification for the ld. AO to adopt an adhoc increase on 10% over and above the value assessed in the previous year. Hence we direct the ld.AO to determine rental income without making any adhoc increase of 10% for the year under consideration. Accordingly the ground Nos.1-3 raised by the assessee are partly allowed. Disallowance u/s.14A of the Act r.w.r. 8D - Assessee suo moto disallowed expenses - HELD THAT - We find that the ld. CIT(A) had directed the ld. AO to consider only those investments which had actually yielded exempt income for the purpose of working out the disallowance u/s.14A of the Act r.w.r. 8D(2)(iii) of the rules. This is in consonance with the Special Bench Delhi Tribunal in the case of Vireet Investments 2017 (6) TMI 1124 - ITAT DELHI - We are in complete agreement with such direction of the ld. CIT(A). We further direct the ld. AO that in any case the disallowance made u/s.14A of the Act cannot exceed the exempt income earned by the assessee. From the disallowance so computed as per the aforesaid directions needless to mention that voluntarily disallowance made by the assessee in the sum of 60, 000/- is to be reduced by the ld. AO.
Issues Involved:
1. Addition on account of notional house property income for a property in UAE. 2. Disallowance under Section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules. Detailed Analysis: Issue 1: Addition on Account of Notional House Property Income Assessment Year 2013-14 (ITA No.2506/Mum/2018): - Background: The primary issue was whether the CIT(A) was justified in upholding the addition of ?43,42,946/- as notional house property income for a property in UAE, which the assessee claimed was for self-use. - Arguments and Findings: The AO computed the deemed notional rental income based on the fair market value and a valuation report from earlier years, applying a 10% increase over the previous year’s assessed value. The assessee contested this, citing the declining rental value trend and the Double Taxation Avoidance Agreement (DTAA) between India and UAE. - Tribunal’s Decision: The Tribunal noted the declining rental trend and found no justification for the 10% adhoc increase. It directed the AO to determine the rental income without the 10% increase. This resulted in the partial allowance of the assessee's appeal. Assessment Year 2014-15 (ITA No.2507/Mum/2018): - Background: The issues and arguments were identical to those in A.Y. 2013-14, with only a variance in figures. - Tribunal’s Decision: The Tribunal applied the same reasoning and decision as in A.Y. 2013-14, partly allowing the assessee's appeal. Issue 2: Disallowance under Section 14A read with Rule 8D Assessment Year 2013-14 (ITA No.2506/Mum/2018): - Background: The issue was the disallowance made under Section 14A for expenses related to earning exempt income. The AO disallowed ?66,03,681/- using Rule 8D(2), while the assessee had suomoto disallowed ?60,000/-. - Arguments and Findings: The AO observed that the assessee's expenses were indivisible and related to both professional income and investment activities. The CIT(A) directed the AO to recompute the disallowance considering only investments yielding exempt income and to reduce the suomoto disallowed amount. - Tribunal’s Decision: The Tribunal upheld the CIT(A)'s direction to recompute the disallowance as per Rule 8D(2)(iii) and to ensure the disallowance does not exceed the exempt income. The appeal was partly allowed. Assessment Year 2014-15 (ITA No.2507/Mum/2018): - Background: The issues and arguments were identical to those in A.Y. 2013-14, with only a variance in figures. - Tribunal’s Decision: The Tribunal applied the same reasoning and decision as in A.Y. 2013-14, partly allowing the assessee's appeal. Revenue Appeal for A.Y. 2014-15 (ITA No.2983/Mum/2018): - Background: The Revenue's appeal contested the same issues as the assessee's appeal for A.Y. 2014-15. - Tribunal’s Decision: The Tribunal dismissed the Revenue's appeal, applying the same reasoning and decisions as in the assessee's appeal for A.Y. 2014-15. Conclusion: - Assessee's Appeals (A.Y. 2013-14 and 2014-15): Partly allowed. - Revenue's Appeal (A.Y. 2014-15): Dismissed. Summary Table: | Sr. No. | ITA No. | A.Y. | Appeal By | Result | |---------|--------------------|---------|-----------|--------------| | 1. | ITA No.2506/Mum/2018| 2013-14 | Assessee | Partly Allowed | | 2. | ITA No.2507/Mum/2018| 2014-15 | Assessee | Partly Allowed | | 3. | ITA No.2983/Mum/2018| 2014-15 | Revenue | Dismissed | Order pronounced on 11/12/2020 by way of proper mentioning in notice board.
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