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2023 (7) TMI 1253 - AT - Income TaxIncome from House property - deemed rental income - treating the property of the assessee held as fixed assets, as being eligible for being subjected to tax under section 22 of the Act, on the deemed rental income earned thereon as per the provisions of said section - HELD THAT - On going through order of the AO, we find that he has rightly interpreted the provision of section 22 and applied it to the facts of the present case. The AO has rightly referred to provision of section 22 as specifying that property consisting of any building or land appurtenant thereto of which the assessee is the owner, other than the property which he occupies for the purpose of any business or profession, to be chargeable to tax under the head income from house property. AO has noted that all the properties, held as fixed assets by the assessee, who is in the business of real estate, are eligible for taxing their ALV as per section 22since the assessee is not carrying out any business from these properties. Assessee has been unable to controvert this finding of the authorities below. Therefore, the arguments of assessee that the properties held by it as fixed assets were for the purpose of business of the assessee, and their ALV was to be excluded for taxation under section 22 of the Act, is rejected as untenable in law. Since the properties were vacant throughout the year, the assessee is entitled to vacancy allowance, and accordingly, the ALV of the property would therefore be NIL - AO, we find, has rejected this contention of the assessee noting that the sub-clause(c) of sub-section (1) of section 23 which deals with providing vacancy allowance allows the same only when the property is actually let out and not based on the intention of letting out. The ld. counsel for the assessee was unable to controvert this finding of the AO. No reason to interfere in the order of the ld.CIT(A) holding that the property held as fixed assets qualified for the ALV thereon being subjected to tax as income from house property as per the provisions of section 22 of the Act. Whether interest paid by the assessee qualified for deduction against the ALV of the properties in terms of section 24 of the Act while computing the income from house property? - As assessee was unable to point out how it had been demonstrated to the CIT(A) that all interest expenses qualified for deduction under section 24 of the Act. In view of the above, we see no merit in the ground no.4 raised by the assessee in its CO seeking allowance of claim of interest expenses u/s 24 of the Act. CIT(A), we have noted, has been fair enough, in allowing the assessee another opportunity to bring out the facts of its case, and claim allowance of interest expenditure after verifying of the facts by the AO and determining amount allowable as per law. In this view of the matter, ground no.4 of the CO is also dismissed. Deemed rent on stock in trade - CIT(A) deleted the addition - HELD THAT - CIT(A) deleted the addition following decision of the Hon ble jurisdictional High Court in the case of Neha Builders 2006 (8) TMI 105 - GUJARAT HIGH COURT holding that property held as stock-in-trade did not qualify for ALV thereto being subject to tax in terms of section 22 - DR was unable to distinguish the said case before us. Inview of the same, we see no reason to interfere in the order of the ld.CIT(A) deleting the addition made on account of deemed rental income amounting to Rs. 28,85,598/- on property held as stock-in-trade by the assessee. Disallowance of interest u/s. 36(i)(iii) - CIT(A) noted that the assessee was in the business of real estate and had made investment in property only, which were classified as fixed assets or as stock-in-trade, thus directed allowance of the claim of interest against such properties, as per section 24 - HELD THAT - Since the disallowance made by the AO was in relation to property held as fixed assets, and since these very same properties have been subjected to tax on account of deemed rental income under the head income from house property , CIT(A) has we hold rightly held that the assessee is entitled to claim interest expenses against the same, as per section 24 of the Act. DR was unable to point out any infirmity in the finding of the ld.CIT(A) in this regard, therefore, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance made under section 36(1)(iii) of the Act. Addition u/s 14A - Addition to book profit u/s. 115JB on account of disallowance u/s. 14A - CIT(A) deleted the addition - H ELD THAT - No infirmity in the order of the ld.CIT(A) vis- -vis legal proposition followed by it while restricting the disallowance to the extent of exempt income earned. In view thereof, we see no reason to interfere in the order of the ld. CIT(A) restricting the disallowance of expenditure under section 14A MAT addition - As we see no reason to interfere in the order of ld.CIT(A) deleting the adjustment made to the book profits of the assessee on account of expenses disallowed under section 14A of the Act as relying on TORRENT CABLE LTD. case 2017 (1) TMI 564 - ITAT AHMEDABAD .
Issues Involved:
1. Deemed rental income on properties. 2. Disallowance of interest expenditure. 3. Disallowance under section 14A for earning exempt income. 4. Adjustment to book profits under section 115JB. Detailed Analysis: 1. Deemed Rental Income on Properties: The assessee, engaged in real estate development, classified properties into "inventories" and "fixed assets." The AO added Rs. 1,59,30,256/- as deemed rental income under section 23 of the Act for properties not rented out. The CIT(A) upheld the addition for fixed assets but excluded properties held as stock-in-trade, following the jurisdictional High Court's ruling in Neha Builders. The Tribunal confirmed the CIT(A)'s decision, emphasizing that properties held as fixed assets should be taxed under section 22, rejecting the assessee's contention of vacancy allowance as it applies only to actually let-out properties. 2. Disallowance of Interest Expenditure: The AO disallowed interest expenditure of Rs. 4,83,25,510/- under section 36(1)(iii) and Rs. 1,47,03,909/- under section 24, reasoning that borrowings were not used for business purposes but for acquiring fixed assets. The CIT(A) found that the AO did not issue a show-cause notice and restored the issue for verification, directing the AO to allow interest expenses as per law. The Tribunal upheld the CIT(A)'s decision, noting that properties were subjected to tax on deemed rental income, thus qualifying for interest deduction under section 24. 3. Disallowance under Section 14A: The AO disallowed Rs. 67,64,567/- for expenses related to earning exempt income, invoking Rule 8D. The CIT(A) restricted the disallowance to the extent of exempt income earned (Rs. 14 lakhs), following the jurisdictional High Court's decision in Corrtech Energy P. Ltd. The Tribunal upheld this restriction, finding no infirmity in the CIT(A)'s application of the legal proposition. 4. Adjustment to Book Profits under Section 115JB: The AO adjusted the book profits by adding disallowance under section 14A. The CIT(A) deleted this adjustment, relying on the ITAT's decision in Torrent Cable Ltd., which held that such disallowance cannot be added to book profits under section 115JB. The Tribunal affirmed the CIT(A)'s decision, noting the reliance on relevant jurisprudence. Conclusion: The Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s findings on all issues, including the tax treatment of deemed rental income, interest expenditure, disallowance under section 14A, and adjustments to book profits under section 115JB.
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