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2017 (2) TMI 1191 - AT - Income TaxDisallowance of salary expenses - increase in salary is manyfold, but there is decrease in turnover during the year - Held that:- CIT (Appeals) considering the submissions of the assessee and the findings of the assessing officer deleted the addition observing that assessing officer has not doubted the fact of payment of salary and that there was no allegation that these employees are relatives of assessee or they are covered under 40A(2)(b) of the Act, the assessing officer has only disallowed these expenses observing that there was no commensurate increase in turnover. Before the ld. CIT (Appeals), the assessee relied on the decision of Supreme Court in the case of CIT Vs. Walchand and Co.(P) Ltd. [1967 (3) TMI 2 - SUPREME Court] as held that the rule that increased remuneration can only be justified if there is corresponding increase in the profits of the employer was erroneous. It is the finding of the ld. CIT (Appeals) that the assessee has demonstrated that these expenses were actually incurred which are evidenced from the bank statement and the confirmations from the employees and even the assessing officer has not doubted the fact of incurring of expenses. In the circumstances, we do not see any valid reason to disallow the said expenses. We agree with the view of the ld. CIT (Appeals).- Decided against revenue Assessability of rental income - income from letting out of the properties - income from house property OR income from other sources - Held that:- The issue has been considered by the tribunal in the assessment year 2008-09 and it was held that lease rent in respect of the property situated in Village Kolkhe, Taluk Panvel, District Raigad (within the limits of gram panchayat Kolkhe) should be assessed under the head Income from House Property. Thus we direct the assessing officer to assess the rental income in respect of the said properties under the head Income from House Property. The grounds raised by the revenue on this issue are rejected. Restricting the notional income from house properties on the unoccupied house properties - Held that:- From the perusal of the assessment order, we find that the assessing officer said to have estimated the rental values for the vacant properties looking at the location and area of the property. However, assessing officer did not cite any instances of similar properties deriving rent where the rental income is similar to the estimated value in respect of the properties of the assessee. We find that the ld. CIT (Appeals) has estimated the rental value of the current assessment year based on actual rent received by the assessee during the assessment year 2015-16. The ld. CIT (Appeals) has taken similar values of rental income of the assessment year 2015-16 for the current assessment year i.e.2010-11 and arrived at the rental value at ₹ 7,79,658/- which in our opinion is reasonable and has some basis. Therefore, we sustain the valuation arrived at by the ld. CIT(Appeals). The grounds raised by the revenue on this issue are rejected. Notional interest from security deposit while computing the rental income - Held that:- Hon’ble Bombay High Court in the case of JK Investors (2000 (6) TMI 9 - BOMBAY High Court ) held that section 23(1)(b) of the I.T. Act provides that when actual rent received is more than the fair rent the actual rent would be the annual value and therefore the notional interest would not form part of actual rent received or receivable under section 23(1)(b) of I.T.Act. Therefore respectfully following the decision of the jurisdictional High Court we hold that notional interest should not form part of annual value. This ground of the revenue is rejected.
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