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TMI Blog2023 (9) TMI 1115X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the matter is restored to the file of the AO. Addition towards notional rent in respect of its self-occupied units - assessee had two units under the Business plaza, which remained vacant throughout the year - As argued no disallowance be made as the assessee was making attempts for letting out the property - as not convinced, the AO computed the annual rental value from these two floors by arriving at reasonable rent - After allowing standard deduction @30%, he made the addition -No relief was allowed in the first appeal - HELD THAT:- Though the assessee kept on making attempts for leasing out this property, but could not find a suitable lessee. This shows that the 7th floor was fully let out in the earlier three years, but was fully vacant from November, 2014 covering the full year under consideration. In this scenario, the annual value of 7th floor in terms of section 23(1)(c) has to be taken as Nil, provided the contention of the assessee that it was let out in the past, is correct. It is seen that no such contention was taken before the AO. In such circumstances, we deem it necessary to set aside the impugned order and remit the matter to the AO for examining the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order on this score is set-aside and the matter is restored to the file of the AO. We order accordingly and direct him to compute the fair market value of equity shares of Diana under Rule 11UA(1)(c)(b) and thereafter consider the applicability of section 56(2)(viia) to that extent. It goes without saying that the assessee will be allowed reasonable opportunity of hearing in such fresh application of section 56(2)(viia) of the Act. Disallowance u/s. 14A r.w. rule 8D - HELD THAT:- The investment in Equity shares of Diana needs to be excluded both from the opening and closing balances of investments for working out the average value of investments to find out the amount of interest to be disallowed under Rule 8D(2)(ii). Similar is the position regarding the applicability of Rule 8D(2)(iii), which talks of making disallowance at 0.5% of the average of the value of investments, income from which does not form part of total income. AO has again considered investment in shares of Diana also for computing the average value of investments for the purpose of making disallowance under clause (iii) of Rule 8D(2). In view of the afore referred precedents, we set aside the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of capital assets. The AO opined that such amount was required to be capitalized as it was in respect of renovation of buildings. The assessee, on requisition, furnished the details. The AO, on their perusal, observed that some of such expenses claimed were not supported by any vouchers/bills. He segregated such total of expenses into two parts, viz., one part which he capitalized and granted depreciation and the other part was ignored from capitalization for which no vouchers were available. Such total disallowance worked out to Rs. 4,38,87,662/- comprising of two components, namely, Rs. 3,89,70,818/- which was the net amount capitalized by the AO after depreciation and the remaining amount of Rs. 49,16,804/- which was not capitalized for lack of necessary evidence. The assessee remained unsuccessful before the ld. CIT(A). 4. We have heard the rival submissions and gone through the relevant material on record. It is seen that the total gross amount of disallowance is in respect of capital expenses of buildings, which was treated by the assessee as revenue. The AO held such gross amount to be capital expenditure not eligible for deduction as revenue. The assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting out the property, Not convinced, the AO computed the annual rental value from these two floors by arriving at reasonable rent of Rs. 1,64,47,337/-. After allowing standard deduction @30%, he made the addition of Rs. 1,15,13,136/-. No relief was allowed in the first appeal. 6. We have heard the rival submissions and gone through the relevant material on record. It is undisputed that the two floors of the Business plaza were capital assets of the assessee, which remained vacant fully/partly throughout the year. Section 23(1)(a) provides for the determination of the Annual Value of any property, being, the sum for which the property might reasonably be expected to let from year to year. Clause (c) of section 23(1) provides that where the property or any part of it is let and remains vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner is less than the sum referred to in clause ( a ), the amount so received or receivable shall be taken as annual value of the property. This provision mandates that, firstly, the property should have been let out in the past and secondly, in the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case where the standard rent has not been fixed, the AO shall determine the same in accordance with the relevant Rent Control Legislation. If the fixed rate is less than the standard rent, then the fair rent shall be taken as Annual Letting value. Turning to the facts of the case, we find that the necessary details as to whether the property was subject to Rent Control Legislation or the amount of standard rent etc. are not available on record. In such circumstances, we set-aside the impugned order on this score and remit the matter to the file of the AO for re-computing the annual letting value of the 5th floor u/s. 23(1)(a) in the hue of the above decision of the Hon ble Bombay High Court. Needless to say, the assessee will be allowed reasonable opportunity of hearing. 9. Ground No.3 is against the confirmation of addition of Rs. 3,00,87,960/- made by the AO u/s. 56(2)(viia) of the Act. The facts anent to this issue are that the assessee purchased 1,00,000 Equity shares of Diana Buildwell Limited (Diana) from Indiabulls Real Estate Pvt. Ltd. holding 66% Equity shares and ABIL Hospitality Pvt. Ltd. (ABIL) (a related concern) holding 34% Equity shares of Diana. Total share ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 56(2) defines the fair market value of a property other than immovable property to mean: `the value determined in accordance with the method as may be prescribed . The method has been prescribed in Rules 11U and 11UA. Rule 11UA(1) deals with valuation of various types of assets. Insofar as the valuation of unlisted equity shares and securities is concerned, clause (c) of Rule 11UA(1) is applicable. Clause (c), in turn, has two sub-clauses. We are concerned with the sub-clause (b) of Rule 11UA(1)(c), which deals with the fair market value of unquoted equity shares. A mechanism has been provided in this rule to determine the fair market value on the valuation date. The relevant part of rule, which is applicable to the year under consideration, provides for determining the fair market value of unquoted Equity shares by dividing (A-L) by (PE) and then multiplying it with (PV). The narrations have been given for the alphabets used in the rule, namely, A, L, PE PV. It is only the valuation as determined under the unamended Rule 11UA(1)(c)(b), as applicable to the year under consideration, which has to be considered for applying the mandate of section 56(2)(viia) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken the average value of total investments by considering both, the investment in Equity shares of Diana that did not yield any exempt income and also investment in partnership firm that resulted into exempt income during the year under consideration. The Hon'ble Delhi High Court in ACB India Ltd. vs. CIT (2015) 374 ITR 108 (Del) has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB) . The ratio of these decisions apply directly to rule 8D(2)(ii) as well. In that view of the matter, the investment in Equity shares of Diana needs to be excluded both from the opening and closing balances of investments for working out the average value of investments to find out the amount of interest to be disallowed under Rule 8D(2)(ii). Similar is the position regarding the applicability of Rule 8D(2)(iii), which talks of making disallowance at 0.5% of the average of the value of investments, inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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