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TMI Blog2018 (7) TMI 1754X X X X Extracts X X X X X X X X Extracts X X X X ..... se of business - AO disallowed expenses incurred on the ground that once standard deduction as provided u/s. 24 is allowed against rental income/ALV, then no other expenses/expenditure incurred on the said property is allowable - Held that:- Assessing Officer has allowed Standard Deduction u/s. 24 of the Income tax Act, 1961, against ALV determined from the property to compute ‘Income from House Property’. Once standard deduction is allowed, then no further deductions can be allowed towards any expenditure incurred on said property, whether or not such expenses are incurred in the course of carrying out business of the assessee. The expenses, we are of the considered view that the Assessing Officer was right in disallowing expenses towards property. The learned CIT(A) after considering relevant submissions has upheld the additions made by the Assessing Officer. We do not find any error in the order of the CIT(A), hence we are inclined to affirm the findings of the CIT(A) and reject the ground taken by the assessee. Exclusion of investments in 'Mutual Funds Growth Option' while calculation the disallowance u/s 14A r.w.r. 8D - being investment yielding taxable income - Held that:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. During the course of assessment proceedings, the Assessing Officer noticed that as per the Wealth Tax return filed for A.Y. 2012-13, the assessee has shown residential flat at Prabhadevi valuing ₹ 1,73,76,753/- as a taxable asset u/s. 2(ea) of Wealth Tax Act, 1957. However, it had not offered any income from it under the head Income from House Property . Therefore, the assessee was asked to explain as to why the Annual Letting Value (ALV) of this property should not be assessed as per the provisions of section 22 of the Income tax Act, 1961. In response to notice, the assessee vide letter dated 01.12.2014, submitted that the said property is used for the purpose of business in the form of guest house, wherein the outstation Directors can come and stay for the Board meetings held by the assessee as per the statutory requirements for deciding day to day business issues. Since the property is used for business purpose, it was under the bona fide belief that the ALV of the property need not be computed as per the provisions of section 22 of the Income tax Act, 1961. The Assessing Officer after considering the relevant submissions of the assessee observed that the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose accommodating their Directors/employees stationed outside and visiting Mumbai for Board meetings. Even if the assessee used the residential property for commercial purpose, which has been shown as taxable asset u/s 2(ea) of the Wealth Tax Act, attract ALV to be assessed as Income from House Property . The Assessing Officer, considering the location and the area, has taken a conservative estimate of ALV @8% of the cost of the property and, therefore, there is no reason to interfere with the determination of the ALV by the Assessing Officer. The CIT(A) further held that since the Assessing Officer has determined the ALV of the property and computed income after allowing standard deduction as provided u/s. 24 of the Income tax Act, no further expenses/expenditure incurred on the said property is allowable and, therefore, the Assessing Officer has rightly disallowed the expenses claimed on the said property to the extent of ₹ 5,75,550/-. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. 5. The learned AR for the assessee submitted that the CIT(A) erred in confirming the additions made by the Assessing Officer towards determination of ALV of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer brought out clear facts to the effect that the assessee has not filed any evidence to prove the maintenance of guest house for its business purpose in the said residential property, therefore, he has rightly computed ALV of the property to be taxed under the head Income from House Property . The order of the CIT(A) should therefore, be upheld. 7. We have heard both the parties and perused the material available on record. The fact with regard to ownership of residential property at Prabhadevi, Mumbai, is not disputed by the assessee. It is also an admitted fact that the assessee has included the said flat within the meaning of asset as defined u/s. 2(ea) of the Wealth Tax Act, 1957, which is taxable under the Wealth Tax Act. The Assessing Officer computed ALV of the property @8% of total investment in the property on the ground that the assessee owns a residential property but not computed ALV as per the provisions of section 22 of the Income tax Act, 1961. According to the Assessing Officer, the assessee itself has admitted the fact that residential property is taxable u/s. 2(ea) of the Wealth Tax Act, 1957. If at all the said property has been used as guest house for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to him the ALV determined by the assessee of ₹ 4,776/- is not acceptable, therefore, he proceeded on to determine the property on adhoc basis by estimating 8% of the total cost of the asset. It is the contention of the assessee that in case of deemed let out properties, the annual value shall be determined on the basis of some for which the property might reasonably be expected to let from year to year or where the property or any part of the property is let and the actual rent received or receivable by the assessee in respect thereof is in excess of the sum referred to in clause (a), it is the amount so received or receivable. Since the property has not been let out, the ALV of the property should be determined based on the fair rent of the property, whereas the Assessing Officer has determined ALV of the property on adhoc basis, which is incorrect. The Assessing Officer has determined the ALV of the property @ 8% of the cost of the asset without assigning any reasons for not considering fair rent of the property. The Assessing Officer also has not given any reasons as to how the ALV determined @8% reflects the fair rent considering the location and area of the flat. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness of the assessee. The expenses, we are of the considered view that the Assessing Officer was right in disallowing expenses towards property. The learned CIT(A) after considering relevant submissions has upheld the additions made by the Assessing Officer. We do not find any error in the order of the CIT(A), hence we are inclined to affirm the findings of the CIT(A) and reject the ground taken by the assessee. Thus, the appeal filed by the assessee is partly allowed for statistical purposes. 11. We shall now take up the Revenue s appeal in ITA No. 1129/Mum/2017, wherein, following grounds have been raised: 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing the exclusion of investments in 'Mutual Funds Growth Option' while calculation the disallowance u/s 14A r.w.r. 8D - being investment yielding taxable income - without appreciating the fact that the 'Mutual Funds - Growth Option' generate Long Term Capital Gain (STT paid), which is also exempt from tax. 12. At the time of hearing, the learned AR for the assessee submitted that the issue is squarely covered in favour of the assessee by the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there are certain investments which are generating taxable income and therefore, these investments should be removed from the working of the average investment under formula prescribed under Rule 8D(2)(iii). The details of the investment considered for disallowance and also the investment which are generating taxable income were given in the following manner:- Particulars As on 31.03.2010 As on 31.03.2009 Total Investments ₹ 2,22, 51,04, 146 ₹ 1,21,57,53,656 Less: Investments generating taxable Income Schedule(l) ₹ 40,60,85,329 ₹ 25,65,26,626 Investment considered for Sec 14A Disallowance ₹ 1,81,90,18,817 ₹ 95,92,27,030 Sch. 1: Investment generating taxable income Particulars 31.03.2010 31.03.2009 In Rs. In Rs. Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same should not be the part of the working of average value of the investment. Thus, we direct the Assessing Officer to remove the investments, which are either generating taxable income or capable of earning taxable income. The disallowance under Rule 8D(2)(iii) thus, should be worked out after removing such investments. The grounds raised by the assessee are accordingly treated as allowed 6. We, therefore, maintaining the consistency with the earlier year order of the Tribunal in assessee s own case, hold that the disallowance made under rule 8D(2)(iii) has to be worked out after excluding the investments which are capable of earning of taxable income. Accordingly, the appeal of the assessee is allowed. 14. Facts remain unchanged. The Revenue fails to bring on record any contrary decision to counter the findings of fact recorded by the ITAT. Therefore, being consistency with the view taken by the co-ordinate bench, we direct the Assessing Officer to exclude investment in Mutual Fund Growth Option for the purpose of determining of average value of investments. Further, the assessee has filed a working of disallowance u/s. 14A as per which suo moto disallowance made ..... X X X X Extracts X X X X X X X X Extracts X X X X
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