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2014 (7) TMI 510 - AT - Income TaxEnhancement of fair rental value Let out property u/s 23(1)(a) of the Act - The rent shown to be received by the assessee is supported by the evidence in the shape of lease deeds, copy of which was duly filed before AO and is forming part of the paper book - The rent shown to have been received by the assessee is mentioned in the lease deed - assessee has been able to show that the ratable value in respect of Malabar Hill flat was less than the actual rent received by the assessee and according to the facts of the present case the annual ratable value of Malabar Hill flat is much less than the actual rent received by the assessee - any addition to actual rent will be contrary to the provisions of the Act. - No addition can be made in respect of Malabar Hill Flat In respect of Andheri Flat - if the AO is able to bring on record the evidence that annual ratable value of the Andheri flat is more than the actual rent received by the assessee, then he will be entitled to take annual ratable value in place of actual rent received by the assessee Decided in favour of Assessee. Disallowance of interest Held that - Assessee could not establish nexus between the interest bearing funds and interest free advances - Relying upon CIT vs. Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY - if there were funds available both interest free and over draft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company, if interest free funds were sufficient to meet the investment - Revenue was not able to point out that how the shareholder funds was utilized for the purpose of fixed assets as profit and loss account and balance sheet would not show whether the shareholder funds have been utilized for investment Decided in favour of Assessee. Capital gain on sale of flat LTCG or STCG period of holding - from the date of allotment or from the date of last payment of installments - Held that - As it has been held in CIT vs. Jindas Panchand Gandhi 2005 (9) TMI 69 - GUJARAT High Court that the assessee will be considered to be owner of the flat on the date of allotment - facts are supported by documentary evidence filed by the assessee with the letter in the shape of possession letter, details of payments made and sale deed - the gain was assessable as long term capital gain - It could not be assessed as short term capital gain simply on the basis of so called offer by the assessee - Even the writing in the letter dated 6/12/2010 would not suggest that it was offered by the assessee - AO has insisted the assessee to write such words Decided in favour of Assessee.
Issues Involved:
1. Enhancement of fair rental value of let-out properties. 2. Disallowance of interest on loans. 3. Classification of capital gain on sale of flat as short-term or long-term. Issue-Wise Analysis: 1. Enhancement of Fair Rental Value: The assessee owned two flats, one in Andheri and another in Malabar Hill, rented out for Rs. 24,000 and Rs. 60,000 respectively. The Assessing Officer (AO) deemed these amounts too low and estimated fair rents at Rs. 1,80,000 and Rs. 6,00,000 respectively. The CIT(A) upheld this enhancement. The Tribunal noted that the AO did not provide comparables or clear evidence for the estimated rents. The assessee had lease agreements supporting the declared rents and municipal ratable values were lower than the actual rents received. The Tribunal held that the actual rent received, supported by lease deeds, should be considered unless proven otherwise. The Tribunal allowed the appeal for Malabar Hill flat and directed the AO to reassess the Andheri flat only if evidence showed the ratable value exceeded the actual rent. 2. Disallowance of Interest on Loans: The AO disallowed Rs. 6,30,949 as interest on loans, arguing the assessee used interest-bearing funds for interest-free loans. The CIT(A) upheld this disallowance, stating the assessee did not maintain separate accounts for capital and loans. The Tribunal, referencing the Bombay High Court decision in CIT vs. Reliance Utilities & Power Ltd., held that if the assessee had sufficient interest-free funds, it should be presumed these were used for interest-free loans. The assessee's capital and interest-free loans exceeded the interest-free advances. Thus, the Tribunal found no justification for the disallowance and allowed the appeal. 3. Classification of Capital Gain on Sale of Flat: The AO classified the gain from the sale of a flat as short-term capital gain based on the assessee's letter agreeing to this classification. The assessee argued the gain should be long-term, as the right to the flat was acquired in 1995, with allotment in 2003, and sale in 2007. The Tribunal referenced multiple cases, including CIT vs. Jindas Panchand Gandhi, supporting the view that ownership dates back to the allotment date. The Tribunal found the gain should be classified as long-term capital gain, noting the assessee's letter did not constitute a binding offer, and there is no estoppel against law. The Tribunal allowed the appeal, classifying the gain as long-term. Conclusion: The Tribunal allowed the appeal, ruling in favor of the assessee on all grounds: 1. No addition to the rental income for Malabar Hill flat; reassessment for Andheri flat only if evidence supports higher ratable value. 2. Deletion of interest disallowance due to sufficient interest-free funds. 3. Classification of the capital gain on the sale of the flat as long-term.
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