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2005 (7) TMI 576 - ITAT MUMBAIDetermination of annual value of the property - cost of acquisition of the flat - Business income Or Income from house property - Loans and advances - disallowance u/s 40A(2). HELD THAT:- For the purpose of determining the annual value of the property recourse is to be made to section 23. The provisions and the applicability of the Bombay Municipal Corporation Act and the determination of rateable value has been elaborately considered by their Lordships of Calcutta High Court in the case of Prabhavati Bansali [1981 (9) TMI 21 - CALCUTTA HIGH COURT] wherein the provisions of Bombay Municipal Corporation Act has been deliberated upon as the property in question is situated in Mumbai and it has been held that for determining the annual value of the property reference is to be made to the rateable value as determined by the Municipal Corporation. Their Lordships of Hon’ble Bombay High Court in the case of M.V. Sonawala [1988 (12) TMI 82 - BOMBAY HIGH COURT], following decision of Hon’ble Calcutta High Court and also Hon’ble Supreme Court in the case of Dewan Daulat Rai Kapoor v. New Delhi Municipal Committee[1979 (12) TMI 3 - SUPREME COURT] and Dr. Balbir Singh v. M.C.D.[1984 (12) TMI 64 - SUPREME COURT] held that :"the income from house property has to be computed on the basis of the sum for which the property might reasonably be let from year to year or the annual municipal rateable value." Thus, we agree that for determining the annual value of property, the adoption of Municipal Rateable Value is the correct method and in cases where the actual rent received is higher than the Municipal Rateable Value, the rent so received is to be adopted as Annual Letting Value of the property. In the circumstances we direct the Assessing Officer to verify the annual rateable value of the flat as per the Bombay Municipal Corporation Act and adopt the annual letting value of the said flat being the actual rent received by the assessee or the Municipal Rateable Value whichever is higher. This ground of appeal raised by the revenue for the assessment years 1991-92, 1992-93 and 1993-94 stands rejected. Loans and advances - disallowance u/s 40A(2) - There is direct nexus between the borrowings made at higher rate of interest and advanced at lower rate of interest has not been established during the assessment proceedings. Similarly the fact that certain borrowings were made at the rate of 30 per cent and also advanced at the same rate has not been verified by the Assessing Officer. Therefore, in the light of principles of natural justice we deem it fit to restore the matter to the file of the Assessing Officer to verify the contentions of the assessee w.r.t. borrowings and advances made during the year under consideration. In case of establishment of direct nexus between the borrowings at higher rate of interest and advances at lower rate of interest the proportionate interest is to be disallowed. In case the borrowings and advances bear the same rate of interest or the advances are not out of such borrowings at high rate of interest, no interest is to be disallowed and the same may be verified by the Assessing Officer after affording a fair and proper opportunity to the assessee. Therefore, this ground of appeal of the revenue is allowed. In the result, the appeal for assessment year 1991-92 is dismissed and that of assessment years 1992-93 and 1993-94 is partly allowed.
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