2021 (8) TMI 793 - AT - Income Tax

Disallowance of claim for deduction of the interest expenditure - As observed by the A.O that the assessee had given certain interest free loan and advance towards certain policy, besides making investments in certain fixed assets, viz. residential premises, banquet hall and other properties - HELD THAT - As the aforesaid documents, viz. letters of the scripts writers; photographs showing photo shoots of models; rehearsals; auditions; look tests etc. to which our attention was drawn by the ld. A.R in order to fortify his claim that the aforementioned properties in question were being used by the assessee for the purpose of his business had though been admitted by us as additional evidence , however, the same were not there before the A.O in the course of the assessment proceedings. In the backdrop of the aforesaid facts, we are of the considered view that the matter in all fairness qua the assessee s claim for deduction of interest expenditure equires to be revisited by the A.O. We, thus, set-aside the matter to the file of the A.O with a direction that he shall re-adjudicate the matter - Decided in favour of assessee for statistical purposes. Income from house property - Annual Lettable Value (ALV) - notional lettable value of the 3 house properties of which one was sold during the year, while for the others were being used by the assessee for the purpose of his business and profession - HELD THAT - it is the claim of the assessee that the aforementioned three properties in question were being used by him for business purposes. As we have while adjudicating the assessee s claim for deduction of interest expenditure qua the loans raised by him for acquiring the aforementioned properties, therein, restored the matter to the file of the A.O for re-adjudicating the issue after making necessary verifications after considering the additional evidence filed by the assessee before us, therefore, as a corollary thereto the present issue i.e saddling the asssessee with tax qua the ALV of the said properties which as claimed by him had been acquired and were being used by him during the year under consideration for his business purposes, in all fairness, also requires to be restored to the file of the A.O. Accordingly, the A.O is directed to verify as to whether or not the aforementioned properties in question were being used by the assessee during the year under consideration for the purpose of his business - Decided in favour of assessee for statistical purposes. Computation of LTCG - Addition invoking section 50C - grievance of the assessee that the lower authorities had erred by failing to appreciate that as the property sold by him during the year, viz. Midas Banquet Hall was a depreciable asset that formed part of the block of assets , therefore, the sale of the same ought to have been considered under Sec. 50 - HELD THAT - As the assessee had rebutted the very basis for assessing the gain on the transfer of the property in question as LTCG in his hands. It is the claim of the assessee that as the property in question formed part of the block of assets , therefore, the profit arising on the sale of the same could only be be considered as per the provisions of Sec. 50 of the Act. In our considered view, the aforesaid claim of the assessee, though, principally correct, cannot however be summarily accepted on the very face of it specifically in the backdrop of the aforesaid inconsistencies emerging there from, and would require to be verified. Accordingly, to facilitate such verification, we herein restore the matter to the file of the A.O with a direction to re-adjudicate the issue after considering the documents filed by the assessee before us as additional evidence - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Disallowance of interest expenditure claimed as professional income.
2. Consideration of notional income from house properties.
3. Treatment of sale of Midas Banquet Hall under Section 50 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Expenditure:
The assessee, a film actor, filed a revised return for A.Y. 2014-15, claiming a total income of Rs. Nil after accounting for a current year loss. The A.O. disallowed an interest expenditure claim of ?58,77,140/- under Section 36(1)(iii) of the Income Tax Act, 1961. The assessee had availed various loans and claimed the interest as expenditure incurred for earning professional income. The A.O. observed that the loans were used for personal assets, not related to the assessee's profession. The CIT(A) upheld this disallowance, noting the lack of documentary evidence. However, the Tribunal admitted additional evidence, including letters from scriptwriters and photographs, indicating the properties were used for business purposes. The Tribunal remanded the matter to the A.O. for re-adjudication, allowing the assessee to substantiate the claim with the new evidence.

2. Consideration of Notional Income from House Properties:
The A.O. added notional income of ?17,15,589/- for three properties owned by the assessee, treating one as self-occupied and calculating the Annual Lettable Value (ALV) for the others. The assessee claimed one property was sold during the year and the others were used for business. The CIT(A) directed the A.O. to verify the sale of the Pune property. The Tribunal, considering the additional evidence, directed the A.O. to verify if the properties were used for business purposes. If substantiated, the ALV should not be taxed under 'Income from house property'.

3. Treatment of Sale of Midas Banquet Hall:
The assessee sold the Midas Banquet Hall, a depreciable asset, for ?1,75,00,000/-, while the stamp duty valuation was ?3,90,68,000/-. The A.O. added the difference as Long Term Capital Gain (LTCG). The assessee argued that the asset was part of a 'block of assets' and should be treated under Section 50 of the Act. The Tribunal noted inconsistencies in the sale consideration reported and the audit report. The matter was remanded to the A.O. to verify the factual position and re-adjudicate, considering the additional evidence provided by the assessee.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the A.O. to re-examine the issues with the additional evidence provided by the assessee, ensuring a fair opportunity for the assessee to substantiate his claims. The general ground of appeal was dismissed as not pressed. The order was pronounced on 22.07.2021.