2022 (8) TMI 359 - AT - Income Tax

Deduction of interest expenses paid for commercial property given on lease rent against income assessable under the head Income from House Property - Addition by merely stating that the possession of the space is not handed over to the appellant till 31.03.2011 - Validity of directions given by the Ld CIT(A), without considering the fact that the appellant is a beneficial owner of the said property - HELD THAT - When income of commercial property they accepted and even allowed applicable standard deduction on the same, then how they can take a reverse view while dealing with allowability of interest. Secondly, legally also the action of Ld. CIT (A) is not tenable as per law. So, on both the grounds action of Ld. CIT(A) is not sustainable. In the result, ground no.1 of assessee be allowed and action of Ld. CIT (A) is reversed. Addition u/s 14A r.w.r. 8D - HELD THAT - We are of the considered view that technically the action of AO was wrong and in defiance of the conditions prescribed in section 14A read with Rule 8D. Moreover, referring the decision of Jurisdictional ITAT 2018 (1) TMI 782 - ITAT MUMBAI as has been held there that Ld. CIT(A) is not empowered to remove the deficiency in the order of AO. Alternatively also we hold that section 14A is not applicable in the present case as argued by the assessee vide para-12 above. Section 14A of the Act is applicable only those income which are prescribed in chapter-III. Any income which are part of total income but ultimately not chargeable to tax by virtue of chapter 6A or as in the instant case section 67, section 86 read with section 167B of the Act. As section 14A is not applicable in the case of assessee, hence, there is no question of suo moto disallowance by assessee on interest on TDS - As directed to the AO, for accepting revised computation to be filed by the assessee reversing suo moto disallowances made in anticipation of applicability of section 14A.

Issues Involved:

1. Disallowance of interest expenses against income from house property.
2. Netting of interest received and interest paid for disallowance under section 14A.
3. Calculation of disallowance under section 14A based on capital balance.
4. Deduction under section 57(iii) from the interest income.
5. Disallowance of interest on TDS.
6. Suo moto disallowance under section 14A in respect of share income from AOP.

Detailed Analysis:

1. Disallowance of Interest Expenses Against Income from House Property:

The assessee declared income under the head "Income from House Property" amounting to Rs. 1,76,36,246/- from commercial property allocated under a Joint Venture Agreement. The Ld. CIT(A) disallowed the interest on the ground that possession was given on the last day of the year, hence, interest was not allowable for the whole year. However, the tribunal found that the assessee had received six months' rent and charged service tax thereon, and it was only the accounting entry passed on the last day of the accounting year. The tribunal held that the action of Ld. CIT(A) was not sustainable both on merits and legally, as no notice for enhancement of income was issued to the assessee. Therefore, the tribunal allowed the ground of appeal and reversed the action of Ld. CIT(A).

2. Netting of Interest Received and Interest Paid for Disallowance under Section 14A:

The assessee argued that share income from JV is not exempt and hence section 14A is not applicable. The tribunal noted that the AO had not recorded any satisfaction as per the mandate of section 14A(2) read with Rule 8D(1) before making the disallowance. The tribunal followed the directions of the Jurisdictional Tribunal in the assessee's own case and held that the AO's action was wrong and in defiance of the prescribed conditions. The tribunal also held that section 14A is not applicable in the present case, as the income in question forms part of the total income but is not chargeable to tax by virtue of sections 67, 86, and 167B of the Act. Therefore, the tribunal allowed the ground of appeal.

3. Calculation of Disallowance under Section 14A Based on Capital Balance:

The tribunal found that the action of the AO in calculating the disallowance under section 14A based on the capital balance was not tenable. The tribunal reiterated that section 14A is not applicable to the share income from AOP and hence, no disallowance under this section should be made. Therefore, the tribunal allowed the ground of appeal.

4. Deduction under Section 57(iii) from the Interest Income:

The tribunal noted that this ground of appeal became infructuous as the interest amounting to Rs. 1,76,36,246/- was already allowed in light of the findings given in the earlier paragraphs. Therefore, no separate adjudication was required for this ground.

5. Disallowance of Interest on TDS:

The tribunal held that since section 14A is not applicable in the case of the assessee, there is no question of suo moto disallowance by the assessee on interest on TDS of Rs. 2,55,738/-. Therefore, the tribunal allowed this ground of appeal and directed the AO to accept the revised computation to be filed by the assessee.

6. Suo Moto Disallowance under Section 14A in Respect of Share Income from AOP:

The tribunal held that the suo moto disallowance under section 14A made by the assessee in the computation was not warranted as section 14A is not applicable. Therefore, the tribunal allowed this ground of appeal and directed the AO to accept the revised computation reversing the suo moto disallowances made by the assessee.

Conclusion:

In the result, the appeal filed by the assessee was fully allowed. The tribunal directed the AO to accept the revised computation to be filed by the assessee, reversing the suo moto disallowances made in anticipation of the applicability of section 14A of the Act. The order was pronounced in the open court on 5th August 2022.

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