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2015 (6) TMI 670 - AT - Income TaxAddition on account of deemed income from the house property - Held that - There is no dispute about the elementary position that neither any rent was received in the relevant previous years, no is anything on record to suggest that rent was first payable and then foregone. The assessee had used the premises for the purposes of the business in which he was a partner. In these circumstances, the annual value is to be determined as per the provisions of section 23(1)(a) being applicable for self-occupied property, in any case, rent received in preceding years anyway has no direct relevance in computation of annual value - The expression the sum for which the property might be expected to be let out from year to year , as is judicially well settled does not mean the rent received in preceding years but the rent receivable in the perfect market conditions which is best indicated by the municipal valuation. The action of the authorities below, as the appellant pleads, is indeed unsustainable in law. We, therefore, direct the Assessing Officer to delete the impugned additions and compute the income from house property under section 23(1)(a) of the Act. The assessee gets the relief accordingly. Even if the Ld. DR argued that the property is in question was different in A.Ys. 2003-04 to 2005-06 but as per the Tribunal s order description of the property is the same as mentioned by the Assessing Officer. Moreover the Tribunal has, on principle, decided this issue by directing the Assessing Officer that the municipal ratable valuation may be adopted. We, accordingly, remit the issue to the file of the Assessing Officer for the limited purpose to work out the annual value of the property u/s. 23(1)(a) as per the municipal valuation submitted by the assessee - Decided in favour of assessee. Disallowance u/s. 14A - professional fees and interest - Held that - We fail to understand if any expenditure is claimed against the taxable income how the same can be disallowed by invoking the provisions of Sec. 14A. Admittedly, the assessee has declared the interest income to the extent of ₹ 7,863,257/-. In fact the Assessing Officer could have verified the said claimed u/s. 57(iii) and not u/s. 14A. The assessee has also filed the certificate that the interest bearing loans taken by him were not utilized for investment in any of the firms , but used for investment in the house property and advances of the loans to others. The issue of computation of the income under the head income from other sources is not before us. We, therefore, hold that there is no justification for the Ld. CIT(A) to sustain the disallowance u/s. 14A in respect of interest expenditure of ₹ 500,461/- and accordingly same is deleted. So far as professional fees paid by the assessee is concerned nothing has been placed before us to verify the nature. We, accordingly, confirm the order of the Ld. CIT(A) on said amount. - Decided partly on favour of assessee. Disallowance u/s. 14A r.w. Rule 8D - CIT(A) restricting the disallowance to the extent of expenditure actually claimed by the assessee - Held that - The principles laid down in the case of Gillette Group India (P) Ltd. (2012 (6) TMI 406 - ITAT DELHI ) are squarely applicable to the assessee s case. We, therefore, confirm the order of the Ld. CIT(A) by holding that disallowance u/s. 14A r.w. Rule 8D cannot be more than the expenditure claimed by the assessee - Decided against revenue.
Issues Involved:
1. Addition of Rs. 7,69,457/- on account of deemed income from house property. 2. Disallowance confirmed by the CIT(A) under Section 14A of Rs. 5,23,074/- (including professional fees and interest). 3. Relief given by the CIT(A) to the assessee in respect of disallowance made by the Assessing Officer invoking the provisions of Section 14A read with Rule 8D. Issue-Wise Detailed Analysis: 1. Addition of Rs. 7,69,457/- on Account of Deemed Income from House Property: The first issue concerns the addition of Rs. 7,69,457/- as deemed income from house property. The assessee owns multiple properties used by the firm in which he is a partner and declared an annual value of Rs. 15,208/- as per Section 23(1)(a) of the Income-tax Act. The Assessing Officer (AO) did not accept this valuation and used data from the website magicbricks.com to determine the Annual Lettable Value (ALV) of the properties, resulting in a deemed income calculation of Rs. 7,84,665/-. After setting off the declared ALV, the AO added Rs. 7,69,457/- to the assessee's income. The CIT(A) upheld this addition. The Tribunal noted that the properties in question were the same as those considered in the assessee's own case for A.Ys. 2003-04 to 2005-06, where the Tribunal had directed the AO to use municipal valuation for determining ALV. The Tribunal found no justification for using website data over municipal valuation and remitted the issue back to the AO to work out the annual value as per municipal valuation, thereby allowing the assessee's appeal on this ground. 2. Disallowance Confirmed by the CIT(A) under Section 14A of Rs. 5,23,074/-: The second issue involves disallowance under Section 14A of Rs. 5,23,074/-, including professional fees of Rs. 22,613/- and interest of Rs. 5,00,461/-. The AO observed that the assessee had claimed exempt income but no expenditure related to such income. The AO made a disallowance of Rs. 16,67,798/- as per Rule 8D, which was reduced by the CIT(A) to Rs. 5,23,074/- based on the actual expenditure claimed by the assessee. The Tribunal examined the computation statement and found that the interest expenditure was claimed against taxable income under the head 'income from other sources' and not related to exempt income. Therefore, the disallowance of interest expenditure under Section 14A was unjustified and was deleted. However, the professional fees disallowance was upheld due to lack of evidence regarding its nature. Thus, the assessee's appeal on this ground was partly allowed. 3. Relief Given by the CIT(A) to the Assessee in Respect of Disallowance Made by the AO Invoking the Provisions of Section 14A Read with Rule 8D: The Revenue's appeal contested the CIT(A)'s decision to restrict the disallowance under Section 14A read with Rule 8D to the actual expenditure claimed by the assessee. The Tribunal upheld the CIT(A)'s decision, referencing the case of Gillette Group India (P) Ltd. vs. ACIT, where it was held that disallowance under Section 14A cannot exceed the expenditure actually claimed by the assessee. The Tribunal confirmed that the disallowance should be limited to the expenditure of Rs. 5,23,074/- claimed by the assessee, dismissing the Revenue's grounds. Conclusion: The assessee's appeal was partly allowed, with the Tribunal directing the AO to use municipal valuation for determining the ALV of properties and deleting the disallowance of interest expenditure under Section 14A. The Revenue's appeal was dismissed, affirming the CIT(A)'s decision to limit the disallowance to the actual expenditure claimed by the assessee.
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