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2023 (9) TMI 1115 - AT - Income TaxNature of expenses - disallowance is in respect of capital expenses of buildings, which was treated by the assessee as revenue - AO held such gross amount to be capital expenditure not eligible for deduction as revenue - total gross amount of disallowance is in respect of capital expenses of buildings, which was treated by the assessee as revenue - AO held such gross amount to be capital expenditure not eligible for deduction as revenue - AR submitted that necessary details were furnished before the AO, who failed to examine the same - HELD THAT - Similar stand was reiterated before the ld. CIT(A) as well. It is observed from the impugned as well as the assessment order that the AO has not specifically referred to the detail, whose supporting bills were not available. In contrast, the ld. AR submitted that all the bills are available, which can be explained before the AO. Considering all it would be in the fitness of things if the impugned order on this issue is set-aside and the matter is restored to the file of the AO. Addition towards notional rent in respect of its self-occupied units - assessee had two units under the Business plaza, which remained vacant throughout the year - As argued no disallowance be made as the assessee was making attempts for letting out the property - as not convinced, the AO computed the annual rental value from these two floors by arriving at reasonable rent - After allowing standard deduction @30%, he made the addition -No relief was allowed in the first appeal - HELD THAT - Though the assessee kept on making attempts for leasing out this property, but could not find a suitable lessee. This shows that the 7th floor was fully let out in the earlier three years, but was fully vacant from November, 2014 covering the full year under consideration. In this scenario, the annual value of 7th floor in terms of section 23(1)(c) has to be taken as Nil, provided the contention of the assessee that it was let out in the past, is correct. It is seen that no such contention was taken before the AO. In such circumstances, we deem it necessary to set aside the impugned order and remit the matter to the AO for examining the assessee s contention about the 7th floor having been let out in the three earlier years. If the contention turns out to be true, then no annual value should be computed for the year under consideration in respect of 7th floor. Needless to say, the assessee will be allowed a reasonable opportunity of hearing for proving its case. As regards the 5th floor, the ld. AR fairly admitted that the vacant area of 5071 sq.ft., was not let out in the past. The provisions of section 23(1)(a) get triggered without recourse to section 23(1)(c) and as such, the annual value of such property needs to be determined. AO computed the annual value of the 5th floor by considering the rent realized by the assessee from other floors. Necessary details as to whether the property was subject to Rent Control Legislation or the amount of standard rent etc. are not available on record. We set-aside the impugned order on this score and remit the matter to the file of the AO for re-computing the annual letting value of the 5th floor u/s. 23(1)(a) in the hue of the above decision of Smt. Kokilaben D. Ambani 2014 (9) TMI 763 - BOMBAY HIGH COURT as held held that while determining the annual value in respect of properties which are subject to Rent Control Legislation and in case where the standard rent has not been fixed, the AO shall determine the same in accordance with the relevant Rent Control Legislation. Addition u/s. 56(2)(viia) - shares acquired by the assessee from ABIL were undervalued as against the rate of per share charged from Indiabulls - differential amount of Rs. 884.94 per share as applied to 34000 shares, was liable to be added to the assessee s income - HELD THAT - It is only the valuation as determined under the unamended Rule 11UA(1)(c)(b), as applicable to the year under consideration, which has to be considered for applying the mandate of section 56(2)(viia) - In that view of the matter it is crystal clear that the benchmark for the application of this provision is the value so determined as per the rule and not the value as computed by the assessee under DCF method or the value as taken note of by the AO being, higher purchase price of shares from India bulls vis- -vis that from ABIL. Since the mandate of Rule 11UA, which is obligatory for section 56(2)(viia), has not been considered, we are of the opinion that it would be just and fair if the impugned order on this score is set-aside and the matter is restored to the file of the AO. We order accordingly and direct him to compute the fair market value of equity shares of Diana under Rule 11UA(1)(c)(b) and thereafter consider the applicability of section 56(2)(viia) to that extent. It goes without saying that the assessee will be allowed reasonable opportunity of hearing in such fresh application of section 56(2)(viia) of the Act. Disallowance u/s. 14A r.w. rule 8D - HELD THAT - The investment in Equity shares of Diana needs to be excluded both from the opening and closing balances of investments for working out the average value of investments to find out the amount of interest to be disallowed under Rule 8D(2)(ii). Similar is the position regarding the applicability of Rule 8D(2)(iii), which talks of making disallowance at 0.5% of the average of the value of investments, income from which does not form part of total income. AO has again considered investment in shares of Diana also for computing the average value of investments for the purpose of making disallowance under clause (iii) of Rule 8D(2). In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of the AO for recomputing the disallowance under Rule 8D(2)(ii) and (iii) by considering only such investments in calculating the average value of investments, which yielded exempt income during the year. Disallowance u/s. 32 towards depreciation on the fixed assets - HELD THAT - Both the sides are in agreement that this is a recurring issue and the Tribunal for the immediately preceding assessment year and earlier years has sent the matter back to the file of the AO for deciding in conformity with the decision taken in earlier years. We also follow the same. Addition towards notional rent in respect of one vacant unit at the 10th floor having area of 2520 sq.ft. - HELD THAT - AR submitted that this unit was also let out in the earlier years and hence the AO erred in determining the annual value of this property u/s. 23(1)(a). It was also conceded that the factum of such unit having been let out in the earlier years was not brought to the notice of AO, as is the case for the immediately preceding A.Y. 2016-17. Following the view taken hereinabove, we set-aside the impugned order on this score and remit the matter to the file of the AO for deciding it in the light of directions given in our above order for the A.Y. 2016-17.
Issues Involved:
1. Disallowance of expenses towards Repair and Maintenance. 2. Addition of notional rent on self-occupied units. 3. Addition under section 56(2)(viia) of the Income-tax Act. 4. Disallowance under section 14A read with Rule 8D. 5. Disallowance of depreciation on fixed assets. Summary: 1. Disallowance of Expenses towards Repair and Maintenance: The assessee contested the disallowance of Rs. 4,38,87,662/- claimed as Repair and Maintenance expenses. The AO capitalized part of the expenses and disallowed Rs. 49,16,804/- due to lack of supporting vouchers. The Tribunal observed that the AO did not specifically refer to the unsupported amount and remitted the matter back to the AO to allow the assessee to provide the necessary evidence. If the evidence is satisfactory, the amount should be capitalized and depreciated; otherwise, the disallowance is to be confirmed. 2. Addition of Notional Rent on Self-Occupied Units: The AO added Rs. 1,15,13,136/- as notional rent for vacant units. The Tribunal noted that the 7th floor was let out in previous years and remained vacant during the year under consideration. The Tribunal remitted the matter back to the AO to verify the assessee's claim that the 7th floor was previously let out. If verified, no notional rent should be added. For the 5th floor, which was never let out, the Tribunal directed the AO to recompute the annual letting value as per the Bombay High Court's decision in Smt. Kokilaben D. Ambani vs. CIT. 3. Addition under Section 56(2)(viia): The AO added Rs. 3,00,87,960/- under section 56(2)(viia) for shares acquired at a lower price from a related concern. The Tribunal noted that the fair market value should be determined as per Rule 11UA and not based on the purchase price from different parties. The matter was remitted back to the AO to compute the fair market value as per Rule 11UA and then consider the applicability of section 56(2)(viia). 4. Disallowance under Section 14A read with Rule 8D: The AO disallowed Rs. 1,52,29,448/- under section 14A read with Rule 8D. The Tribunal directed the AO to recompute the disallowance by considering only those investments that yielded exempt income during the year, excluding investments in shares of Diana that did not yield exempt income. 5. Disallowance of Depreciation on Fixed Assets: The issue of disallowance of depreciation on fixed assets purchased in earlier years was remitted back to the AO for fresh consideration in line with the Tribunal's directions for earlier years. For A.Y. 2017-18: The Tribunal remitted the issue of notional rent for a vacant unit on the 10th floor back to the AO for verification, similar to the directions for A.Y. 2016-17. The issue of disallowance of depreciation on fixed assets was also sent back to the AO for fresh consideration. Conclusion: The appeal for A.Y. 2016-17 was partly allowed, and the appeal for A.Y. 2017-18 was allowed for statistical purposes.
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