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2016 (12) TMI 1082 - AT - Income TaxDetermining Fair Market Value in terms of Section 23(1)(a) - addition of notional interest @ 7% on interest-free deposit - Annual value understatement - Held that - In the present case, AO has not brought on record any material to demonstrate that the actual rent charged by the assessee is less than the fair market value or the interest free security deposit has affected the rent charged by the assessee. We cannot support the mode of additions made by the AO on estimate basis in the absence of any evidence on record. Thus the decision taken by the CIT (A) in deleting the addition made by the AO is fair and reasonable and it does not call for any interference. Accordingly, grounds raised by the Revenue in both the appeals are dismissed. Deemed dividend u/s 2(22) - Held that - We are fully in agreement with the submissions of the ld. AR that since substantive addition has been deleted in the hands of M/s.BIEPL and thus, the protective addition be set aside and the matter be restored to the file of the AO. Accordingly, we set aside the order of the ld.CIT(A) and restore this matter to the file for AO for fresh examination of the matter and decide the same in accordance with law after being providing necessary opportunity of being heard to the assessee. This ground is allowed for statistical purposes.
Issues Involved:
1. Determination of Annual Letting Value (ALV) and notional interest on interest-free deposit. 2. Addition under section 2(22)(e) of the Act on account of advances. Detailed Analysis: 1. Determination of Annual Letting Value (ALV) and Notional Interest: The primary issue under consideration was whether the Assessing Officer (AO) was justified in determining the Fair Market Value (FMV) by adding notional interest at 7% on an interest-free deposit of ?1,20,50,000/- to the actual rent received by the assessee. The AO had noted that the assessee received an interest-free refundable deposit and estimated the ALV by adding notional interest to the actual rent. The CIT(A) deleted the addition made by the AO, holding that the addition of notional interest under the head income from house property was not permissible. The Tribunal upheld the CIT(A)'s decision, referencing a previous decision in the assessee's own case where it was held that the AO could not disturb the ALV by considering notional interest on deposits and should adopt the municipal ratable value as the ALV. The Tribunal found no new material evidence provided by the AO to justify the addition and dismissed the revenue's appeal. 2. Addition under Section 2(22)(e) of the Act on Account of Advances: The second issue involved the addition of ?19 lakhs under section 2(22)(e) of the Act, which pertains to deemed dividends. The AO observed that the assessee was a beneficial owner in two companies and made an addition on a protective basis in the hands of the assessee, while making a substantive addition in the hands of the company, M/s Bharat Infrastructure and Engineering Pvt Ltd. (BIEPL). The CIT(A) upheld the AO's decision, rejecting the assessee's claim that the amount was an inter-corporate deposit and not a loan or advance. However, the Tribunal noted that the jurisdictional Tribunal had deleted the substantive addition in the hands of BIEPL. Consequently, the Tribunal set aside the protective addition in the assessee's case and remanded the matter back to the AO for fresh examination and decision in accordance with the law, providing the assessee an opportunity to be heard. Other Appeals: The issues in ITA Nos. 2888/Mum/2011 and 2883/Mum/2011 were identical to those in ITA No. 2887/Mum/2011, and the Tribunal's decision in ITA No. 2887/Mum/2011 applied mutatis mutandis to these appeals. The Tribunal restored these matters to the AO for de novo assessment after hearing the assessee. Conclusion: The Tribunal dismissed the revenue's appeal for the assessment year 2006-07 and allowed the remaining appeals for statistical purposes, directing the AO to reassess the matters in accordance with the law after providing the assessee an opportunity to be heard. The order was pronounced in the open court on 20th Dec, 2016.
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