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2017 (9) TMI 514 - AT - Income TaxAddition towards interest paid on borrowed capital - assessee’s main activity is renting out properties - Held that:- On verification of financial statements filed by the assessee for the relevant assessment year, the assessee’s assets represent investment in purchase of property which was substantially financed by loan borrowed from UCO Bank and M/s TCG Urban Infrastructure Holdings Ltd. The assessee’s main source of income is from lease rentals from the said properties. Except letting out of properties, the assessee has not carried out any other business activity. Therefore, the AO was erred in holding that loan borrowed from M/s TCG Urban Infrastructure Holdings Ltd is for the working capital requirements ignoring all evidences which proves that the said loan was borrowed for acquisition of property. Therefore, we are of the considered view that the assessee has proved nexus between purchase of property and borrowed capital and hence rightly eligible for deduction towards interest paid on loan u/s 24(b) of the Income-tax Act, 1961. The CIT(A), after considering relevant provisions has rightly deleted additions made by the AO. We do not find any error in the order of CIT(A). Hence, we uphold the order of CIT(A) on this issue and reject ground raised by the revenue. Determination of Annual Letting Value - AO has determined annual letting value of the property by estimating notional interest on interest free security deposit - Held that:- In this case, on perusal of the facts available on record, we find that the assessee’s actual rent received is more than the standard rent or municipal value of the property. We further observe that in the case of CIT vs J.K. Investors (Bom) Ltd (2000 (6) TMI 9 - BOMBAY High Court) has observed that if the actual rent received by the assessee is more than the fair rent, then the notional interest cannot form part of the actual rent as contemplated in section 23(1)(b) of the Act. In this case, the actual rent received by the assessee is more than the fair rent of the property. The assessee has let out its property for a monthly rent of Ras.50 per sq.ft. Therefore, we are of the considered view that the AO was erred in estimating notional interest on security deposit by following the decision in the case of Fizz Drinks vs DCIT [2003 (5) TMI 213 - ITAT DELHI-D ] which was totally rendered under different set of facts. Hence, considering the facts and circumstances of the case and also following the decision of Hon’ble Bombay High Court in the case of CIT vs J.K. Investors (Bom) Ltd (supra), we are of the view that notional interest on security deposit cannot be included in the actual rent received or receivable from the property, if the actual rent received is more than the fair rent of the property. Addition towards rent accrued but not due - provision made towards rent accrued but not due by following AS-19 issued by ICAI - Held that:- We find force in the arguments of the assessee for the reason that the ALV of the property is rent received or receivable in respect of property let out, but does not include rent accrued but not due. In this case, rent accrued but not due is not accrued to the assessee for the relevant financial year. The assessee has made a provision for proportionate rent of part of the month by following the accounting standard which is due in the next financial year. Therefore, we are of the view that the AO was erred in including rent accrued but not due for the purpose of determination of ALV of the property. The CIT(A), after considering the relevant submissions has rightly deleted additions made by the AO. We do not find any error in the order of CIT(A). Hence, we are inclined to uphold the order of CIT(A) and reject the ground raised by the revenue. Appeal filed by the revenue is dismissed.
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