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2021 (1) TMI 294 - AT - Income TaxDisallowance of rental expenses u/s 40A(2)(b) - adopting the annual rental value fixed by the BBMP is not be correct in the context of the provisions of section 40A(2)(b) - HELD THAT:- What is important under the relevant provision is the excessiveness of expenditure having regard to the fair market value. Since neither the AO nor the CIT(A) has examined the fair market value of rent of the building in question, we are of the view that the issue needs to be remanded to the AO for consideration afresh. The assessee will furnish evidence to establish the fair market value of the rent for the building in question and the AO will examine the claim in accordance with law, after affording assessee opportunity of being heard. This issue is accordingly set aside to the AO for fresh consideration. Disallowance of expenses under section 14A - suo moto disallowance - non recording of satisfaction - HELD THAT:- Assessee on his own has made the disallowance as expenditure incurred in earning exempt income. AO, without rejecting the basis of disallowance made by the AO, applied the provisions of Rule 8D(2) and made a disallowance under section 14A. Under section 14A(2) of the Act, the AO has recorded the satisfaction that the disallowance of expenses made by assessee suo-moto under section 14A of the Act is not correct. Without recording such a finding, he cannot make disallowance under section 14A of the Act by resorting to Rule 8D of the Income Tax Rules, 1962. As relying on RADHA MADHAV INVESTMENTS LTD [2019 (1) TMI 1213 - BOMBAY HIGH COURT]we are of the view that the disallowance under section 14A of the Act should be restricted to a sum of ₹ 72,000/- as claimed by the assessee and the addition made by the Revenue authorities is directed to be deleted.
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