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TMI Blog2014 (7) TMI 510X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of interest – Held that:- Assessee could not establish nexus between the interest bearing funds and interest free advances - Relying upon CIT vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - HIGH COURT BOMBAY] - if there were funds available both interest free and over draft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company, if interest free funds were sufficient to meet the investment - Revenue was not able to point out that how the shareholder funds was utilized for the purpose of fixed assets as profit and loss account and balance sheet would not show whether the shareholder funds have been utilized for investment – Decided in favour of Assessee. Capital gain on sale of flat – LTCG or STCG – period of holding - from the date of allotment or from the date of last payment of installments - Held that:- As it has been held in CIT vs. Jindas Panchand Gandhi [2005 (9) TMI 69 - GUJARAT High Court] that the assessee will be considered to be owner of the flat on the date of allotment - facts are supported by documentary evidence filed by the assessee with the letter in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some additional rental income. However, the offer made by the assessee was not accepted by the AO and he estimated fair rent of ₹ 1,80,000/- and ₹ 6.00 lacs in respect of Andheri and Malabar Hill flats respectively. The position has been summarized in the shape of a chart in the order of Ld. CIT(A) as per para 3.2 and the chart is reproduced below: S.No. Name of the Property Gross Rental Income shown as per return Fair rent offered in course of assessment Fair rent estimated by the AO. 1. Flat at Andheri 24,000 36,000 1,80,000 2. Flat at Malabar Hill 60,000 90,000 6,00,000 Total 84,000 1,26,000 7,80,000 2.1 The assessee submitted before the AO that Andheri flat was used by the labourers from Rajasthan, who used to do office work upto late night. Though the flat was located at Lokhandwala, Andheri, but it could not fetch good rent because of bad smell of fish and antisocial activities in that locality. In respect of Malabar Hill Flat it was submitted that there was a dispute between the brothers over the property and flat was not properly maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee. He submitted that Municipal ratable value of these flats is much below than the actual rent received by the assessee. He submitted that though assessee could not obtain annual ratable value in respect of Andheri Flat but annual ratable value certificate was obtained for Malabar Hill Flat and copy of the same was also furnished to the AO vide letter dated 16/3/2012, copy of which is placed at pages 37 to 42 of the paper book and copy of certificate can be found at page 39 of the paper book and the annual ratable value has been mentioned at ₹ 3,595.32. He submitted that annual ratable value in respect of Andheri flat also cannot be more than the actual rent received by the assessee which is ₹ 2,000 per month and ₹ 24,000/- annually. 4.1 Ld. AR referred to the decision of Mumbai ITAT in the case of ITO vs. Makrupa Chemicals Pvt. Ltd., 298 ITR (AT) 189 (Mum), in which it has been held that if actual rent received or receivable was higher than fair rent, then actual rent would be treated as the annual letting value, otherwise the fair rent so determined had to be taken as the annual letting value. He submitted that in the present case actual rent receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operty is in excess of sum referred to in clause (a) then the same will be annual ratable value of the property. In clause (a) of sub-section (1) of section 23 the annual ratable value will be the sum for which the property might reasonably be expected to let from year to year. It has been interpreted in the decision that where a property is let and actual rent received or receivable is in excess of the annual ratable value then actual rent received or receivable by the assessee would be the annual letting value of the property. In the present case assessee has been able to show that the ratable value in respect of Malabar Hill flat was less than the actual rent received by the assessee and according to the facts of the present case the annual ratable value of Malabar Hill flat is much less than the actual rent received by the assessee. Therefore, any addition to actual rent will be contrary to the provisions of the Act. 6.1 For Andheri flat there is no material on record to suggest that the actual rent shown by the assessee is less than the ratable value. Some guidance can be obtained from the ratable rent assessable in respect of Malabar Hill flat and keeping in mind the stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d advanced interest free loans from interest bearing funds. The assessee was required to explain. Vide letter dated 6/12/2010 the details were furnished. The AO observed that assessee did not establish nexus to the extent of ₹ 79,52,725/- between loans advanced and interest free funds available. He worked out interest disallowable at ₹ 6,30,949/-. Ld. CIT(A) has discussed this issue in para -6 of his order. It was submitted that assessee did not divert any interest bearing fund for giving interest free loans. The assessee had substantial capital of ₹ 2,33,09,924/- in the balance sheet and is also having interest free loans of ₹ 51,29,860/-. Interest free advances given by the assessee are covered by sufficient interest free funds available. The interest free loans advanced by the assessee had gone out of his capital account or out of interest free loans taken by him. Ld. CIT(A) did not accept such submission of the assessee on the ground that there is no dispute to the fact that assessee had borrowed funds on interest and a part of it was advanced by the assessee to various concerns of which no interest was charged. Ld. CIT(A) observed that from the facts it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. If these facts are examined in the light of aforementioned decision of Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities Power Ltd.,(supra) wherein it has been held that if there were funds available both interest free and over draft and/or loans taken, then a presumption would arise that investment would be out of interest free funds generated or available with the company, if interest free funds were sufficient to meet the investment. Their Lordships in the said case have also taken into consideration the arguments of the Revenue that the shareholder funds available to the tune of over ₹ 1,72,00,000/- was utilized for the purpose of fixed assets and, therefore, should not be considered to be available to the assessee and their Lordships have turned down this argument of the Revenue on the ground that Revenue was not able to point out that how the shareholder funds was utilized for the purpose of fixed assets as profit and loss account and balance sheet would not show whether the shareholder funds have been utilized for investment. Keeping in view, the aforementioned decision of Hon ble Bombay High Court and the factual position discussed above, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was legally authorized to make explanation/statement/agreement with the AO for certain additions to assessable income so as to bind the assessee and the authorized representative vide his letter dated 6/6/2010 has categorically agreed for treating the receipt on sale of flat under the head short term capital gain . Therefore, Ld. CIT(A) declined to interfere with the order of AO and upheld the action of AO. Assessee is aggrieved, hence, has filed Ground No.2. 12. Ld. AR submitted that vide letter dated 25/9/2012, copy of which is filed at pages 43 to 89 of the paper book, it was submitted before A.O vide para 2.5 that the assessee had acquired the right to obtain the flat in housing society upon becoming a member in 1995. The draw of lots was held at site on 23/03/2003 when a particular flat was allotted to the assessee. However, assessee was making the payments in installments and full consideration was paid over a period from 1995 to 31/3/2007. The ownership of the flat, under the circumstances will date back to 1995 or atleast to 23/03/2003. As the flat was sold on 10/4/2007, it was held for more than 36 months. Therefore, the gain would be assessable as long term capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown earlier as long term capital gain . Short term capital gain works out to ₹ 19,45,004/- He submitted that the said writing cannot be taken as offer by the assessee and even if it is treated as offer, the gain cannot be assessed as short term capital gain as there is no estoppel against law. Reference was made to the decisions which has been discussed above i.e. in the case of Balmukund Acharya vs. DCIT(supra). 13. On the other hand, Ld. DR relied upon the order passed by AO and Ld. CIT(A). He submitted that vide letter dated 6/12/2010 the assessee had offered the said gain as short term capital gain and, therefore, Ld. CIT(A) was right in upholding the action of A.O. 14. We have heard both the parties and their contentions have carefully been considered. The case law which have been discussed above and has relied upon by the assessee before A.O vide letter dated 25/09/2012 supports the case of the assessee. Hon ble Gujarat High Court in the case of CIT vs. Jindas Panchand Gandhi (supra), has held that the assessee will be considered to be owner of the flat on the date of allotment. Similar proposition has been laid down by Hon ble Gujarat High Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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