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2022 (12) TMI 172 - AT - Income TaxIncome from house property - deduction (Vacancy allowance) - property remain vacant - Annual value how determined - Addition on account of annual lettable value (ALV) as income from house property - AO observed that the assessee had shown income from house property from various properties in different years, however, in some of the years, income from some of the properties were not shown/ shown at Nil - HELD THAT - As assessee has submitted that the properties under question were let out in earlier years, but due to reasons beyond the control of the assessee, the same could not be let out during the year under consideration. The counsel for the assessee placed on record various documents in support of the contention that the assessee had made substantial efforts by way of newspaper advertisements etc. to lease out the properties, however, despite best efforts, the properties could not be let out during the year under consideration. Thus the provisions of section 23(1)(a) of the Act cannot be invoked in case the properties have been let out in some earlier year, however, the same were lying vacant for the entire year under consideration, despite efforts being made by the assessee. The provisions of section 23(1)(a) of the Act can be invoked in the event the properties are lying vacant all throughout and have not been let out either in the prior or succeeding assessment years and also the assessee has made no effort to let out the same. Notably the words used in section 23(1)(c) of the Act are the property is let and was vacant during the whole of the year , which necessarily implies that the same property cannot be let out and yet remain vacant during the same assessment year. Therefore, as noted above, the reasonable construction/interpretation of section 23(1)(c) would be that if the property has been let out in any of the previous years, but the same could not be let out despite the best efforts by the assessee, the assessee would be entitled to avail the benefits of section 23(1)(c) of the Act. Accordingly, in our considered view, the Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee s appeal on this issue. Disallowance of Interest Expenditure - AO observed that in respect of amounts taken from individuals/HUF/companies, the assessee has not furnished any documentary evidence to show that the same interest bearing borrowed amount had been given as loan to third party to earn interest - CIY-A deleted the addition - HELD THAT - CIT(Appeals) has granted relief to the assessee on the basis firstly that income under section 56 is more than the expenses claimed under section 57 and secondly, on identical facts Ld. CIT(Appeals) has granted relief to the previous assessment years AY 2010-11 and AY 2012-13. However, there is no discussion in the order regarding the interest expenditure claimed by the assessee and how and where such interest-bearing funds were utilised for earning interest income. CIT(Appeals) has not discussed how the facts in earlier years were identical/applicable to the facts of the present year i.e. no enquiry/ discussion is done with respect to parties from whom the interest bearing loan was taken and to which parties, the loan was given on interest to earn interest income. Further, Ld. CIT(Appeals) has not controverted the specific findings made by AO in the assessment order under consideration. In view of the above facts, in the interest of justice, we are restoring the file to Ld. CIT(Appeals) so as to conduct an acceptable enquiry into the nexus between the interest-bearing loans and how the same were utilised to earn interest income, so as to examine the eligibility of claim made by the assessee - Department s appeal is allowed for statistical purposes.
Issues Involved:
1. Addition on account of Annual Lettable Value (ALV) as income from house property. 2. Disallowance of interest expenditure. Issue-wise Detailed Analysis: 1. Addition on account of Annual Lettable Value (ALV) as income from house property: Assessment Year 2013-14: - Facts: The AO observed that the assessee had shown "income from house property" from various properties in different years, but some properties were shown at "Nil" for the assessment year 2013-14. The AO applied section 23(1)(a) of the Act, adding notional ALV of Rs. 63,37,765/- to the total income. - Assessee's Argument: The properties were not capable of being let out due to lack of parking space, global recession, and non-availability of tenants despite best efforts. The assessee relied on case laws to argue that section 23(1)(a) should not apply if the property could not be let out for reasons beyond control. - CIT(A)'s Decision: Accepted the assessee's arguments and deleted the addition, stating that if the property remained vacant and was not let out, the ALV should be considered NIL under section 23(1)(c). - Department's Argument: The CIT(A) did not verify the facts or ascertain reasons for the properties lying vacant. Relied on judicial precedents indicating that section 23(1)(c) does not apply to properties that remained vacant throughout the year. - Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that if properties were let out in previous years but remained vacant despite best efforts, the assessee could avail benefits under section 23(1)(c). The Tribunal dismissed Ground No. 1 of the Department's appeal. Assessment Year 2014-15: - Facts and Issues: Similar to the assessment year 2013-14. - Tribunal's Decision: Applied the same findings as the assessment year 2013-14 and dismissed Ground No. 1 of the Department's appeal. 2. Disallowance of Interest Expenditure: Assessment Year 2013-14: - Facts: The assessee claimed interest expenditure of Rs. 1,42,98,568/-. The AO disallowed Rs. 99,21,084/- due to the failure to establish a direct nexus between the interest expenses and loans taken for earning interest. - CIT(A)'s Decision: Allowed the appeal, stating that the income under section 56 was more than the expenses claimed under section 57. Relied on previous CIT(A) decisions for earlier years. - Department's Argument: The CIT(A) passed a cryptic order without verifying the nexus between interest-bearing loans and interest income. - Tribunal's Decision: The Tribunal found that the CIT(A) did not clearly establish the nexus or discuss how interest-bearing funds were used to earn interest income. The matter was restored to the CIT(A) for a detailed enquiry. Ground No. 2 of the Department's appeal was allowed for statistical purposes. Assessment Year 2014-15: - Facts and Issues: Similar to the assessment year 2013-14. - Tribunal's Decision: Applied the same findings as the assessment year 2013-14 and allowed Ground No. 2 for statistical purposes. Conclusion: - Assessment Year 2013-14: The appeal of the Department was partly allowed for statistical purposes. - Assessment Year 2014-15: The appeal of the Department was partly allowed for statistical purposes. - Combined Result: Both appeals filed by the Revenue were partly allowed for statistical purposes. Order pronounced in the open court on 10-11-2022.
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