2017 (10) TMI 1077 - AT - Income Tax

Income from house property - Held that - FMV of the properties under construction and property/shop used by assessee for business purpose admittedly cannot be determined u/s 23(1). AO is thus directed to exclude the ALV of the two properties which were under construction and also the property which was used by the assessee for his own business/profession purposes. Regarding one property which was already on rent, the Assessing Officer should take the actual rent received by the assessee and cannot resort to any determination of ALV on some hypothetical market rate. ALV in such cases has to be taken as per clause (b) of section 23(1). Lastly, with regard to the properties which were vacant, we agree with the contention of the Assessing Officer that ALV should have been shown in the terms of section 23(1)(a). However, if the properties were lying vacant and there is no material brought on record by the Assessing Officer for determining the fair market rent, then AO can take municipal ratable value of lease flats/shops for the purpose of determining the ALV. This principle has been upheld by the Full Bench of Hon ble Delhi High Court in the case of ACIT vs. Moni Kumar Subba 2011 (3) TMI 497 - DELHI HIGH COURT . Thus, AO is directed to compute the ALV of the vacant flats/shops as per municipal ratable value in terms of ratio laid down by the Hon ble Delhi High Court with this direction the appeal treated as partly allowed. Addition on account of marriage expenditure added u/s 69C - Held that - AO has simply made an estimate of ₹ 25 lakhs simply on the ground that the assessee comes from affluent family and has big stature. Before the Learned CIT (Appeals) the entire break up and source of expenditure has been given, which has been accepted by him at ₹ 21,71,130/-. Once that is so, then there was no point to presume that marriage expenditure would be ₹ 25 lakhs only and therefore, balance amount should be confirmed. There is no enquiry or material information on record to remotely suggest that marriage expenses shown must have been more. Such a reasoning of lower authorities is devoid of any logic and accordingly, we delete the addition of ₹ 3,28,830/-. Addition towards household expenditure - Held that - It is seen that the Assessing Officer has made an addition of ₹ 10 lacs on estimate basis mainly on the ground that the family of assessee consists of wife and four children and therefore, the household expenditure should be at ₹ 10 lacs. Before the Learned CIT (Appeals), the assessee submitted that the expenditure of the family members shown were ₹ 7,59,723/- and assessee since was living in joint family set up, therefore, contribution by other members should be taken into consideration. We find that both the authorities have resorted to estimate only. The assessee had stated that he is living in a joint family set up and the entire expenditure shown for the entire joint family was at ₹ 7,59,723/-. However the amount of house hold expenditure declared at ₹ 7,59,723/- appears to be on a lower side looking to the fact that over all family members in a joint family setup would be more. Thus, under the facts and circumstances of the case, addition of ₹ 3 lakhs over and above the sum of ₹ 7,59,723/- as disclosed by the assessee would be sufficient and reasonable. Accordingly, addition of ₹ 3,00,000 is sustained and the assessee gets a part relief on this score. We find that there is a specific finding by the Assessing Officer that the assessee has failed to demonstrate that expenditure incurred was for the purpose of earning interest income from DLF Commercial Complex. The payment of commission and brokerage is no way can be linked to earning of such interest income.

Summary

Issues Involved:
1. Confirmation of addition on account of income from house property.
2. Determination of Annual Letting Value (ALV) of properties.
3. Addition on account of marriage expenditure under Section 69C.
4. Addition towards household expenditure from unexplained sources.
5. Disallowance of interest paid to DLF Commercial Complexes.

Detailed Analysis:

Issue 1: Confirmation of Addition on Account of Income from House Property
The assessee contested the confirmation of ?31,75,800/- as income from house property. The properties in question included both vacant and under-construction properties, as well as properties used for business purposes. The Assessing Officer (AO) computed the Annual Letting Value (ALV) of these properties without specifying the basis for such determination. The CIT (Appeals) upheld the AO’s computation.

Issue 2: Determination of Annual Letting Value (ALV) of Properties
The AO did not provide any basis for determining the ALV and included properties under construction and those used for business purposes. The Tribunal noted that properties under construction and those used for business should not be included in the ALV computation. For vacant properties, the AO should use the municipal ratable value as per the Delhi High Court's ruling in ACIT vs. Moni Kumar Subba. The Tribunal directed the AO to exclude under-construction properties and business-use properties from the ALV computation and to use the municipal ratable value for vacant properties.

Issue 3: Addition on Account of Marriage Expenditure Under Section 69C
The AO added ?3,28,870/- to the declared marriage expenditure of ?9,58,130/-, estimating the total expenditure at ?25 lakhs based on the assessee's stature. The CIT (Appeals) partially upheld this, allowing ?21,71,130/- as declared by the assessee but confirming the addition of ?3,28,870/-. The Tribunal found no basis for the AO's estimate and deleted the addition, noting that the declared expenditure was substantiated.

Issue 4: Addition Towards Household Expenditure from Unexplained Sources
The AO estimated household expenditure at ?10 lakhs, while the assessee declared ?7,59,723/-. The CIT (Appeals) estimated household expenditure at ?1 lakh per month and confirmed an addition of ?4,40,277/-. The Tribunal found the assessee's declared expenditure to be on the lower side but reduced the addition to ?3 lakhs, considering the joint family setup.

Issue 5: Disallowance of Interest Paid to DLF Commercial Complexes
The AO disallowed ?2,88,797/- claimed as interest paid to DLF Commercial Complexes, stating that the assessee failed to demonstrate that the expenditure was for earning interest income. The CIT (Appeals) upheld this disallowance. The Tribunal affirmed the disallowance, agreeing with the AO that the payment of commission and brokerage could not be linked to earning interest income.

Conclusion:
The Tribunal partially allowed the appeal, directing the AO to recompute the ALV of properties excluding under-construction and business-use properties and using municipal ratable values for vacant properties. The Tribunal deleted the addition on account of marriage expenditure and reduced the addition towards household expenditure. The disallowance of interest paid to DLF Commercial Complexes was affirmed.