2025 (5) TMI 1560 - AT - Income Tax

Disallowance u/s 14A - HELD THAT - As submitted that the assessee had own funds to the tune of Rs. 7.11 crores which is sufficient to make investments. Having gone through the facts on record we hold that an amount of Rs. 5, 000/- shall be considered as the expenses incurred for earning the dividend income. Disallowance of interest expenses u/s 36(1)(iii) - Assessee has advanced loan of Rs. 1.63 crores and has not charged the interest on the amount of loan of Rs. 11.62 lakhs - AO made addition of Rs. 54, 130/- on account of interest received. The assessee had own capital of Rs. 7.11 crores. Since the assessee has sufficient capital to advance loan of Rs. 11.62 lakhs we hold that no notional interest is chargeable nor disallowable. Addition on account of notional rent u/s 23(4) - AO determined notional rent @ Rs. 1 lakh per month - CIT(A) earlier determined the same at Rs. 50, 000/- per month which the Revenue has not disputed. keeping in view the order of the Ld. CIT(A) in earlier year the notional rent is determined at Rs. 50, 000/- per month.

Summary

The Appellate Tribunal (ITAT Ahmedabad) heard the assessee's appeal against the CIT(A)'s order under section 250 of the Income-tax Act, 1961, for AY 2016-17. The Assessing Officer had made additions/disallowances including: disallowance under section 14A (Rs. 3,15,860), disallowance of interest expenses under section 36(1)(iii) (Rs. 54,130), and addition of notional rent under section 23(4) (Rs. 12,00,000).Key holdings:- **Disallowance u/s 14A:** The Tribunal held that since the dividend income (Rs. 2,83,383) was from earlier investments and the assessee had sufficient own funds (Rs. 7.11 crores), only Rs. 5,000 was a reasonable expense for earning exempt income. The Tribunal allowed the appeal on Grounds 2-5.- **Disallowance u/s 36(1)(iii):** The assessee advanced a loan of Rs. 1.63 crores without charging interest on Rs. 11.62 lakhs. Given sufficient own capital, the Tribunal held "no notional interest is chargeable nor disallowable," allowing Ground 6.- **Addition u/s 23(4):** The Assessing Officer's notional rent of Rs. 1 lakh/month was reduced by CIT(A) to Rs. 50,000/month, which was not disputed by Revenue. The Tribunal upheld Rs. 50,000/month, partly allowing Ground 7.Result: The appeal was partly allowed, reducing the disallowances and additions made by the Assessing Officer.