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TMI Blog2023 (7) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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] . - ITA No.1386/Ahd/2019 with Cross Objection No.191/Ahd/2019 - - - Dated:- 6-3-2023 - SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER For the Appellant : Shri S.N. Soparkar, Sr. Advocate and Shri Parin Shah, AR For the Respondent : Shri A.P. Singh, CIT ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER These are Revenue s appeal and the assessee s Cross-Objection against order passed by the Ld. Commissioner of Income-Tax (Appeals)-8, Ahmedabad (hereinafter referred to as ld.CIT(A) ) dated 13.6.2019 under section 250(6) of the Income Tax Act, 1961 ( the Act for short) pertaining to Assessment Year 2016-17. 2. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and inventories, the assessee had not returned rental income on the same, though, it was required to return deemed rental income as per section 23 of the Act. Therefore, addition was made of Rs. 1,59,30,256/- on account of deemed rental income of properties as per section 23 of the Act. The same was computed at the rate of 8% of the investment made in properties and standard deduction at the rate of 30% was allowed against the same. ii) Interest expenditure incurred for acquiring property as per section 24 of the Act was disallowed by the AO both relating to that actually claimed by the assessee amounting to Rs. 1,47,03,909/- as also relating to claim of interest expenditure against the deemed rental income on property held as fixed assets by the assessee as computed by the AO, thus effecting a disallowance of interest expenditure of Rs. 1,47,03,909/- claimed by the assessee under section 24 while computing its income from house property. iii) With respect to the properties held as fixed assets, the AO noted that no depreciation was claimed on the same, he therefore inferred that they were not put to use for the purpose of business of the assessee. Further taking note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred for the purpose of earning rental income as per section 24 of the Act, theld.CIT(A) found that the AO had not appreciated the facts of the case correctly He noted that the AO had found that no interest had been paid for acquiring the properties, but on the other hand, borrowings had been made against the properties kept as security. The assessee produced certain evidences before the Ld.CIT(A) showing that borrowings had been made for acquiring properties. Appreciating the same, the ld.CIT(A) held that as per provision of section 24 of the Act, the assessee is entitled to claim interest expenses incurred on borrowing made for acquiring properties on which rental income was liable to tax and he directed the AO to reconsider the evidences produced by the assessee, and allow interest expense as per law after verifying the same. 9. With regard to disallowance of interest expenses made under section 36(1)(iii) of the Act, the ld.CIT(A) noted that the business of the assessee was purchase and sale of properties, and letting out property on land only. All properties therefore he held had been acquired for the said purpose, whether classified as fixed assets or classified as in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has erred in law and on facts in deleting the addition of Rs. 3,55,26,367/- made on account of disallowance of interest u/s. 36(i)(iii) of the Act. ii) That the Ld. GIT(A) has erred in law and on facts in deleting the addition of Rs 28,85,598/- made on account of deemed rent on stock in trade of Rs. 5,15,28,528/-. iii) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs 53,64,567/- made u/s. 14A rwr 8D of the Act. iv) That the Ld. CIT(A) has erred in law and on facts in deleting the addition to book profit u/s. 115JB of the Act on account of disallowance of Rs. 67,64,567/~ made u/s. 14A of the Act. 12. On the other hand, the assessee has filed cross-objection agitating confirmation of addition made on account of deemed rental income on property held as fixed assets by the assessee, and against direction of the ld.CIT(A) to verify the details of interest expenses for the purpose of claiming the same as per section 24 of the Act and allow income from house property. The grounds raised by the assessee are as under: 1. Ld. CIT (A) erred in law and on facts confirming invocation of Sec. 22 23 of the Act by AO to make addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in real estate business. 3. Ld. CIT (A) erred in law and on facts to hold that properties not held as stock in trade but fixed assets were clearly in the nature of investments on which deeming provisions of Sec. 23(a) were applicable. 14. Though the facts relating to the issue have been dealt with briefly by us, as above, it is pertinent to bring out relevant facts relating to the issue in detail. 15. During assessment proceedings, the AO noted from the details filed before him that the assessee had not offered deemed rental income on constructed properties as per the provision of section 22 read with section 23 of the Act on the following properties: i) Property shown as inventory : Rs. 5,15,28,528/- ii) Property shown as fixed assets : Rs. 23,87,09,477/- 16. The assessee was show-caused as to why deemed rental income should not be computed and brought to tax vis- -vis aforestated properties. The assessee contended that being in the business of buying and selling of immovable properties, plots, building etc., these were business assets of the assessee, and hence were outside the purview of provision of section 22 of the Act for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee all the conditions are satisfied for chargeability of income form house property. The section clearly makes out for property consisting of any building or lands appurtenant thereto of which assessee is owner. Hence, what is important is the ownership of the property of any building or land appurtenant thereto. The assessee has itself stated that no depreciation is claimed on the fixed assets. No depreciation is claimed because the assets are not used for the purpose of business. Therefore the assessee is not using the said property for the purpose of carrying on business or profession. The section does not differentiate what the assessee intends to do with the property. As long as the property is owned by the assessee and not used by it for carrying on the business or profession, the provisions of the section shall apply. iii) As per section 22 of the Act, the annual value of building or land appurtenant thereto has to be taxed under the head 'Income From House Property. The only condition required to tax the property consisting of building is; that the person/entity should be the owner of property and the exception from this taxation is only available when the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly calculated income from house property at Rs. 1,59,30,256/-. 18. The ld.CIT(A) upheld order of the AO, but at the same time held that determination of ALV by the AO at 8% of the investment made by the assessee was very high and without any basis. Taking note of the decision of the ITAT, Ahmedabad Bench in the case of Shanti Exports P. Ltd., ITA No.640/Ahd/2018 wherein the provision relating to the estimation of rent on vacant property as envisaged in the provisions of section 23 of the Act was discussed, the ld.CIT(A) directed the AO to ascertain fair market rent of the properties under consideration on the basis of rent received in the same area in which the present property is situated, and adopt such rent as deemed income from the house property, on the property held as fixed assets. 19. With respect to the property held as stock-in-trade, theld.CIT(A) held that deemed rental income under section 23 cannot be computed on property held as stock in-trade relying upon the judgment of Hon ble jurisdictional High Court in the case of Neha Builders, (2008) 296 ITR 661 and on the decision of the ld.CIT(A) in the case of assessee itself in the preceding for assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er shall, not include, subject to such rules as may be made in this behalf, the amount of rent which the owner cannot realise. (2) Where the property consists of a house or part of a house which- (a) is in the occupation of the owner for the purposes of his own residence; or (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, the annual value of such house or part of the house shall be taken to be nil. (3) The provisions of sub-section (2) shall not apply if- (a) the house or part of the house is actually let during the whole or any part of the previous year; or (b) any other benefit therefrom is derived by the owner. (4) Where the property referred to in sub-section (2) consists of more than [one house] (a) the provisions of that sub-section shall apply only in respect of [one] of such houses, which the assessee may, at his option, specify in this behalf; (b) the annual value of the house or houses, [other than the house] in respect of the assessee has exercised an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the annual value of a property. ii) Municipal Value:- This is the value as determined by the Municipal authorities for levying Municipal taxes on house property. Municipal authorities normally charge house tax/Municipal taxes on the basis of annual letting value of such house property. iii) Fair rent of the property:- Fair rent is the rent which a similar property can fetch in the same or similar locality if it is let out for a year. The DVO can also find out such value: iv) Standard Rent:- The standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control 7.3.2 In the case at hand AO has not specified any basis of adopting the deemed rental value of the @8% of the value of the property which is not correct and without any authority of law. Accordingly, AO is directed to ascertain the fair market rent of the properties under consideration on the basis of the rentals received by similar properties in the area in which these properties are located as prescribed by Hon'ble ITAT in the case of Shanti Exports (supra) and adopt such rate of rent as deemed income from house property on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re in orders of the Revenue authorities holding the property held as fixed assets to be eligible for taxation of deemed rental income from there under section 22 of the Act. 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. The 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 22 of the Act, since the assessee is not carrying out any business from these properties. The ld. counsel for the assessee has been unable to controvert this finding of the authorities below. Therefore, the arguments of the ld. counsel for the 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 exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Rs. 1,47,03,903/- and interest deduction claimed by the assessee on deemed rental income computed by the AO on properties held as fixed assets by the assessee. The ld.CIT(A) however noted that the AO did not give any show cause notice to the assessee while giving a finding of fact that the interest expenses were found to be not in relation to borrowing made for acquiring properties. He accordingly restored the issue to the AO to verify all the facts, and there after allow the assessee s claim of interest under section24 of the Act in accordance with law. His finding at para 7.6 of the order is as under: 7.6 As per AO appellant was asked to provide the details of loans taken for purchase of the impugned properties however, appellant had provided the details of loan taken against the properties. Appellant in the course of appellate proceedings contended that the entire assets of the appellant are held only in the form of properties and they had provided the details of the funds borrowed for acquisition of the properties however, the table provided by the AO in the notice u/s. 142(1) was misunderstood and by mistake the details of loan taken was against the properties were fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e head income from house property is assessed including the income returned under this head and AO is directed to verify the same if the contention of the appellant is found to be correct allow the interest u/s. 24 of the Act. Ground No.3 4 of the appeal are accordingly partly allowed subject to the verification by the AO as above. 29. The ld. counsel for the assessee was unable to point out how it had been demonstrated to the CIT(A) that all interest expenses qualified for deduction under section24 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. 30. The ld. 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. 31. In effect, the CO of the assessee is dismissed. Now we take up the appeal of the Revenue in ITA No.1386/Ahd/2019. 32. Since in the CO filed by the assessee, we h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-business purpose and in relation to the same, therefore, he disallowed claim of the assessee amounting to Rs. 4,83,25,510/-. The ld. 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. He noted that the property held as fixed assets had also been brought to tax on deemed rental income earned thereon under section 22 of the Act by the AO. He therefore directed allowance of the claim of interest against such properties, as per section 24 of the Act. His finding at page no.14 of the order is as under: After careful consideration of all the facts, assessment order and the submissions made it is seen that appellant has offered the income under the head business and profession and income from house property. Income under both the heads have flown only from the properties held by the appellant. Further, AO has also added deemed rental income u/s. 23 of the Act on the vacant properties held under the head Fixed Assets. Before the AC appellant have furnished complete details of the interest expense incurred. Appellant has in the reply dated 22.10.2018 which has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.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 theld.CIT(A) deleting the disallowance made under section 36(1)(iii) of the Act. Ground no.1 is dismissed. 39. Ground no.3 4 are inter-related, pertaining to the disallowance of expenses made for earning exempt income as per the provisions of section 14A of the Act and adjustment thereto to the book profits of the assessee under section 115JB of the Act. i) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs 53,64,567/- made u/s. 14A rwr 8D of the Act. v) That the Ld. CIT(A) has erred in law and on facts in deleting the addition to book profit u/s. 115JB of the Act on account of disallowance of Rs. 67,64,567/~ made u/s. 14A of the Act. 40. The assessee had earned exempt agricultural income amounting to Rs. 14.00 lakhs during the year, and noting that huge investments made amounting to Rs. 20.76 crores had been made in plots of land by the assessee, out of which such income had been earned, the AO computed the income disallowable under section 14A of the Act pertaining to the exempt inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee relied upon the decision of the ITAT, Ahmedabad Benchin the case of Torrent Cable Ltd. Vs. ACIT, ITA No.3178/Ahd/2010 for holding that no adjustment of the same can be made to the book profits of the assessee. His findings at para-9 of his order are as under: 9. Ground No. 6 of the appeal pertain to addition of disallowance made u/s. 14A of the Act to the Book Profit computed as per the provisions of section 115JB of the act. As regards the addition of disallowances u/s. 14A in the (Dock profits computed under the provision of section 115JB I find that the issue is squarely covered by the judgment of Hon'ble Ahmedabad ITAT in the case of Torrent Cable Ltd v/s ACIT vide ITA no: 3178/Ahd/2011 dated 02/01/2017 wherein it has been held : 6 We have carefully considered the rival submission on the 'issue involved. The assesses has relied upon the Judgment of Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra), The relevant operative para of the order of the Hon'ble Gujarat High Court is reproduced hereunder: 8. Taking into consideration the evidence on the record and; considering the decision of this court in the case of Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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