2014 (4) TMI 1269 - AT - Income Tax

Enhancement of the income taxable under the head income from house property by CIT-A - decision of the Ld.CIT(A) directing the AO to compute the annual value by taking 8.5% of the total investment of the property for the purpose of calculating the income from house property - HELD THAT - Sub section 2 of section 251 require that Commissioner (Appeals) shall not enhance the assessment or a penalty or reduce the amount of free fund unless the appellant has reasonable opportunity to show cause against such enhancement. In the present case it is observed that the requirement of the said sub section is not fulfilled by the Ld.CIT(A) by not providing necessary opportunity to the assessee. Therefore in the interest of justice we are of the opinion that it is just and fair that the case may be re-adjudicated by the Ld.CIT(A) by providing a reasonable opportunity of being heard to the assessee. Accordingly Grounds No. 1 to 3 are allowed for statistical purpose. Disallowance of 10% of telephone expenses and disallowance of 10% of vehicle expenses - Addition as partly confirmed by the Ld.CIT(A) on the 20% disallowance made by the AO on the said expenses - HELD THAT - As observed that the said ad hoc disallowances have been made by the AO which has been partly confirmed by the Ld.CIT(A) is on account of involvement of personal use. Considering the entirety of facts we are of the opinion that the said ad hoc disallowances may be restricted to 5% of the telephone expenses vehicle expenses respectively which would justify the case of the assessee. We direct and order accordingly. Accordingly Grounds No. 4 and 5 are partly allowed.

Summary

Issues:
1. Enhancement of income from house property without providing a reasonable opportunity to the assessee.
2. Calculation of annual value of property for income from house property.
3. Disallowance of telephone and vehicle expenses.

Issue 1:
The assessee challenged the enhancement of income from house property by the Ld.CIT(A) without providing a reasonable opportunity to be heard. The AO had calculated the notional rental value of the properties based on their value and location, while the Ld.CIT(A) directed the AO to compute the annual value by taking 8.5% of the total investment in the property. The Tribunal noted that the Ld.CIT(A) did not fulfill the requirement of providing a reasonable opportunity to the assessee as mandated by sub-section 2 of section 251. Consequently, the Tribunal allowed Grounds No. 1 to 3 for statistical purposes and ordered the case to be re-adjudicated by the Ld.CIT(A) after providing the necessary opportunity for the assessee to be heard.

Issue 2:
Regarding the disallowance of 10% of telephone expenses and vehicle expenses, which was partly confirmed by the Ld.CIT(A), the Tribunal observed that these ad hoc disallowances were made due to personal use. After considering all facts, the Tribunal decided to restrict the disallowances to 5% of the telephone and vehicle expenses, respectively, which was deemed justifiable in the case of the assessee. Consequently, Grounds No. 4 and 5 were partly allowed, and the Tribunal directed the adjustments accordingly.

In conclusion, the appeal filed by the assessee was allowed based on the above decisions regarding the issues raised. The order was pronounced in open court on April 16, 2014.