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Income Tax - Case Laws
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2024 (3) TMI 716 - ITAT MUMBAI
Revision u/s 263 - Deemed rental value - income from house property - applicability of provisions u/sec. 23(5) - CIT has passed the revision order with a directions to assessing officer to examine and verify on two aspects (i) annual rental value of unsold flats in respect of completed projects determined under the provisions of section 23(5) and (ii) method of accounting adopted for revenue recognition of the project - HELD THAT:- We on perusal of the information and correspondence of the assessee in the assessment proceedings, found that there is no discussion on the provisions of section 23(5) of the Act. Whereas the AO has called for the information with respect to various inventories and the details of flats as referred in the order u/sec. 143(3) of the order but there is no specific query raised or dealt on the applicability of provisions u/sec. 23(5) of the Act in the proceedings.
The provisions are applicable from A.Y 2018-19 and the AO should have made enquiries on these facts and in the correspondence of the assessee there is a general information with respect to unsold flats but not on determination of deemed rent on the flats as per the provisions of section 23(5) of the Act. Whereas in the A.Y 2017-18, the A.O has made addition of the notional rent on the projects of Chaturbhuj and Yashvawin and passed order u/sec. 143(3) r.w.s 263 r.w.s 144B of the Act and the appeal is pending before the CIT(A). Further the assessee has not challenged the revision order u/s 263 of the Act and the AO has passed the order u/sec. 143(3) r.w.s 263 of the Act. DR submissions are that the Pr.CIT has dealt on these facts which proves that the A.O. has not applied his mind and the A.O has not made enquiries on the specific issue.
We find the A.O has called for the information, but there is no examination and verification of the facts or findings by the A.O on the determination of deemed rental income - matter needs to be verified and reasons for claim should be justified by the assessee as discussed above. No infirmity in the order of the Pr.CIT on the directions to A.O. on the determination of deemed rental value u/sec. 23(5) of the Act and we up hold the same and dismiss this ground of appeal of the assessee.
Method of accounting adopted for revenue recognition of the project - The assessee has applied the method of accounting consistently from earlier years and was accepted by the revenue authorities and the assessee has offered the income on adopting project completion method and the income was offered in the A.Y 2019-20 which is not disputed. We find the assessee has filed the information incompliance to the notices issued and clarifications are filed over a period of time in the assessment proceedings.
AR emphasized that the assessee has been fallowing project completion method from the earlier years and was being accepted by the revenue and it cannot be disturbed.
AO has applied the mind and has accepted the assessee’s project completion method, were the assessee has been consistently fallowing the policy of revenue recognition as per Accounting Standards. Whereas the assessee has diligently complied with the provisions of Act, and maintained the facts /details in the books of accounts and fallowed the method of accounting. Accordingly we find that the AO has applied his mind on method of accounting and the information and took a possible view considering the information of offering of income for the A.Y 2019-20. Therefore we are of the opinion that the directions of the Pr.CIT order in respect method of accounting of revenue recognition cannot be sustained and we set aside the order of the Pr. CIT on this directions and allow this ground of appeal in favour of the assessee.
Appeal filed by the assessee is partly allowed.
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2024 (2) TMI 1234 - ITAT CHENNAI
Addition of income declared by assessee under Voluntary Disclosure of Income Scheme, 1997 (VDIS, 1997’) - Relevant year of assessment - HELD THAT:- The fact that VDIS-97 of the assessee was not considered due to the fact that payment was made beyond the time limit prescribed under the scheme. Question in addition of the investment would arise the year of liability is to be determined included investments/purchases/ expenditure for the financial year 1997-98 relevant to assessment year 1998-99 for invoking the provisions of Section 68 of the Act.
We noted none of the authorities below have brought out anywhere in the orders that the investments are made in financial year 1997-98 relevant to assessment year 1998-99, whereas assessee has tried to establish the fact that the investments related to earlier assessment years i.e from 1991-92 to 1997-98.
We do not agree with the findings of the lower authorities that investments/ purchases/ expenditure were made in the financial year 1997-98 relevant to assessment year 1998-99 except amount declared under VDIS 97 on 26.12.1997. Assessee already tried to establish the fact that these investments were pertaining to previous assessments years 1991-92 to 1997-98. Hence, in our view addition made in the assessment year 1998- 1999 cannot be sustained and accordingly, we delete the addition. This issue of the assessee is allowed.
Assessment of income from house property - ALV determination - CIT(A) has given directions to the assessee as well as the AO to adopt annual letting value on the basis of Municipal valuation adopted by Chennai Corporation for rising the rental value - HELD THAT:- We find no infirmity in the findings of the ld. CIT(A) and further direct the AO to adopt the municipal value adopted by Chennai Corporation for assessing rental value. This issue raised by the assessee is dismissed as per above direction.
Charging of interest u/s. 234A, 234B and 234C - We find no infirmity in the order of the ld. CIT(A) and direct the AO to charge interest as per the provisions of the Act. This issue raised by the assessee stands dismissed.
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2024 (2) TMI 526 - ITAT HYDERABAD
Income from house property - determination of annual letting value (ALV) of the of the vacant portion of the property situated at 2nd, 3rd and 4th floors of the premises of the assessee - HELD THAT:- Admittedly, the assessee is the owner of Nithin Complex, which is a commercial property, consisting of the ground and four floors, having the total vacant area of 24000 sft and out of the said 24000 sft, 9000 sft was let out by the assessee and the remaining area of 15,000 sft was lying vacant during the year under consideration. Out of the said 15000 sft, 12000 sft was on the 3rd and 4th floors wherein 3000 sft was on the first floor and 2nd floor. In our opinion, the area which was situated on the 1st and 2nd floors being situated on the same floor, the adjoining floors are required to fetch the similar rent which are being received by the assessee on the adjoining properties situated at ground, 1st and 2nd floors.
In our view, the ALV of 3000 sft of the area lying vacant on 1st and 2nd floors are required to be determined by applying the rate of Rs. 38/- per sft.
Remaining area of 12000 sft situated at 3rd and 4th floors of the property - As seen Municipal Rental Value (MRV) as claimed by the assessee was in the range of Rs. 5/- per sft whereas assessee has let out the portion to the Girls hostel @ Rs. 10/- per sft and the AO has claimed ALV @ Rs. 38/- per sft. Properties situated on 3rd and 4th floors of the property will definitely fetch less rent when compared with ground and 1st floors of the property because 3rd and 4th floors are not connected with lift and the occupants have to climb three stairs to reach the point and even the 3rd and 4th floors of the property are not in use for so many years and are lying vacant for many years and therefore, the ALV taken by the AO and confirmed by the CIT(A) are, in our view, was on the higher side and are required to be estimated.
Since the property of the assessee is situated in a remote area of Anantapuram, it cannot be possible for the Assessing Officer to find out comparable premises which is situated at 3rd and 4th floors - we have to estimate the ALV taking the question of the lettable value as taken by the municipal rental value of the Girls hostel and also the rent which was fetched by the assessee from the ground and 1st floor.
Having observed the above, it came to our notice that the ld.CIT(A) had noted that the assessee was asked to furnish the rejoinder to the comments of the Assessing Officer. However, the assessee has not given any reply to the rejoinder and only submitted that the appeal for A.Y. 2012-13 is pending for adjudication, raising the identical issue before the Tribunal and fixed for hearing on 25.07.2023.
In our view, once the appeal of the assessee for A.Y. 2012-13 has been dismissed by the Tribunal for the reasons mentioned therein, we do not find any reason to give relief to the assessee on the grounds raised before us. In case, the Tribunal while hearing the M.A. filed by the assessee, recalls the order then the assessee may file the application to recall the present order on this issue. In view of the above, the grounds raised by the assessee are dismissed.
Unexplained cash deposits u/s 68 - Onus to prove - HELD THAT:- AO made addition the in the hands of the assessee for the cash deposited in her account. However, in the appellate proceedings and in the remand report, it was admitted by the Assessing Officer that the assessee had withdrawn the amount from the firm, and deposited the said amount in her bank account. Thus, the assessee was able to demonstrate the availability of cash and the source thereof.
AO has not doubted the availability of the cash or its source. Therefore, in our view, no addition can be made in the hands of the assessee, more particularly, when the assessee has withdrawn the amount from the partnership firm in which she was a partner and deposited the withdrawn amount on the same date in her bank account. Assessee was able to discharge her onus. - Decided in favour of assessee.
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2024 (2) TMI 388 - ITAT MUMBAI
Income from house property - Determining the ALV of flats disclosed in the stock in trade as per the Accounting standards and policies being fallowed consistently by the assessee - scope of amendment in the finance Act 2017 under section 23(5) - AR contentions are the amendment in finance Act 2017, in respect of provisions u/sec 23 (5) of the Act is applicable to unsold inventory of flats disclosed under stock in trade is effective from A.Y.2018-19 and not to the present A.Y. 2012-13, therefore, there is no provision to assess notional rent/ALV of unsold flats u/sec 22 of the Income Tax Act in the year under consideration
HELD THAT:- We consider it appropriate to refer to the observations in case of NMS Enterprises [2023 (1) TMI 1345 - ITAT MUMBAI] though in the context of revision u/sec. 263 of the Act has dealt on the applicability of provisions of section 23(5) of the Act prospectively and granted relief
We considering the facts, circumstances and the amendment, the annual value of unsold flats held as stock in trade has to considered as per the amendment in the finance Act 2017 under section 23(5) of the Act is applicable from A.Y 2018-19 and the present case is A.Y. 2012-13. Accordingly we fallow the judicial precedence and rely on the ratio of the legal decisions and the applicability of amendment u/sec 23(5) of the act and we set aside the order of the CIT(A) and direct the assessing officer to delete the addition of annual let out value ( ALV) of the unsold flats and allow the grounds of appeal in favour of the assessee.
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2024 (1) TMI 840 - ITAT COCHIN
Income from House property - Allowance of interest u/s. 24(1)(b) in computing the income from house property, being rent on a multi-storied building - assessee’s claim stands denied by the assessing authority, admitting the interest on capital borrowed to be for constructing a house property, income from which is assessable u/s. 22 rws. 23, for want of evidence - HELD THAT:- The first appellate authority allowed relief for the said years on the basis that the claim could not be denied on that basis where a claim had been in fact preferred; the footnote in the returns being explained to an inadvertent carry-over of the said remark in the returns for the earlier years where no such claim was, for that reason, i.e., non-payment, made. The non-claim and, consequently, non-allowance for the earlier years, would therefore be of no consequence; the disallowance by AO under such circumstances being in fact perverse inasmuch as he ‘disallows’ interest which he claims has not been paid in the face of accounts reflecting the payment.
There has accordingly been no adjudication on the merits of the claim for any of the preceding years; the disallowance of interest – since reversed in first appeal, for the two preceding years being on account of a misconception as to non-payment of interest by the assessee, which fact did not obtain. The assessee has before us relied on the relevant parts of the balance-sheet for the earlier years, i.e., the schedule of fixed assets, as well as it’s face, reflecting the source and application of funds, to substantiate that the building was financed primarily from secured (from bank) and unsecured (from directors) borrowings. On the basis of the ‘Grounds of Appeal’ before the first appellate authority, also filed physically (copy on record), it is also shown that the same were also adduced before the AO - we only consider it fit and proper that the matter is restored back, which we do at the request of Ms. Ammal, to the file of the AO, for determination afresh, setting aside the impugned order.
Annual value how determined - Computation of annual value (AV) u/s. 23 whether with or without reckoning the non-receipt of any rent for the seventh (top) floor of the building inasmuch as no rent was received for the same, either during the current year or even the preceding years - HELD THAT:- A property, whether let or not, is liable to be assessed at it’s annual value, defined as the rent reasonably expected on being let from year to year (s. 23(1)(a)). Sections 23(1)(b) and (c) provide for adjustment to the said value on account of actual rent, received or receivable, being either higher or lower, the latter being on account of vacancy. And which would, where so, obtain instead of a notional rent expected on a year-to-year letting contemplated u/s. 23(1)(a) as the ‘annual value’, at which income from a house property is to be otherwise assessed. That is, in case of actual letting, precedence is to be given to the real state of affairs.
Vacancy can only follow a state of actual letting, envisaged u/ss. 23(1)(b)/(c). Reduction due to vacancy u/s. 23(1)(c) would accordingly follow a condition of actual letting, absent in the instant case for the top floor of the building. A part of the property referred to therein is one which admits of an actual and separate letting. The AV of the 7th floor would therefore be computed u/s. 23(1)(a), while that for other floors, being let, u/s. 23(1)(a) r/w ss. 23(1)(b)/(c). We decide accordingly, remitting the matter back to the file of the AO to do the needful after hearing the assessee.
Assessee’s appeal is partly allowed.
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2024 (1) TMI 742 - ITAT MUMBAI
Deemed income from house property - Addition made by the AO being the estimated ALV on unsold stock @ 8.5% after deducting 30%, as income from house property - CIT(A) deleted addition - HELD THAT:- With the insertion of section 23(5) of the Act by Finance Act, 2017 w.e.f. 01.04.2018 it becomes clear that computing of annual value of property held in stock in trade certain moratorium period has been given for such treatment, however, newly inserted provisions contained under section 23(5) of the Act are to be applicable w.e.f. A.Y. 2018-19 and not to the case at hand. So the Ld. CIT(A) has rightly decided that the assessee is not entitled for taking benefit of the amended provisions contained under section 23(5) of the Act.
However, the issue in question has already been decided in favour of the assessee by the co-ordinate Benches of the Tribunal in case of Bengal Shapoorji Housing Development Pvt. Ltd. [2021 (5) TMI 636 - ITAT MUMBAI] and Sheth Developers Pvt. Ltd [2022 (6) TMI 1271 - ITAT MUMBAI] by holding that “deemed notional rental income with regard to unsold flats held as stock in trade cannot be taxed. The co-ordinate Bench of the Tribunal in case of Pegasus Properties Pvt. Ltd [2021 (12) TMI 1210 - ITAT MUMBAI] by considering the decision rendered by the Hon’ble Delhi High Court in case of Ansal Housing Finance & Leasing Co. Pvt. Ltd. [2012 (11) TMI 323 - DELHI HIGH COURT] held that such addition is not sustainable up to 2017-18.
Thus we are of the considered view that the Ld. CIT(A) has rightly deleted the addition made by the AO on account of deemed rental income qua the unsold stock of flats held in stock in stock in trade up to A.Y 2017-18.
Addition u/s 43CA being the excess value of the fair market value than the sale consideration value taken by the assessee - difference of 1.67% in the sale consideration vis-à-vis stamp duty valuation - HELD THAT:- The co-ordinate Bench of the Tribunal in case of Sai Bhargavanath Infra [2022 (8) TMI 799 - ITAT PUNE] held that first proviso to section 43CA inserted by Finance Act, 2020 with effect from 01.04.2021 is applicable retrospectively and thus where difference recorded between sale value of flats sold by assessee and stamp value of such flats was within 10% margin, no addition to be made. In the instant case the difference between the sale value and stamp value is 1.67% and as such within the threshold limit of 10%, so following the order passed in case of Sai Bhargavanath Infra [2022 (8) TMI 799 - ITAT PUNE] we are of the considered view that the Ld. CIT(A) has erred in confirming this addition which is ordered to be deleted. So ground No.1 raised by the assessee in its cross objections is hereby allowed.
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2023 (11) TMI 985 - ITAT MUMBAI
Income from house property - Interest paid on loans borrowed for purchase of Surat Property which was given on Rent - claim rejected by the AO on the ground that the assessee did not produce the interest certificate in support of his claim as per proviso to section 24(b) and so, he disallowed the claim and added it under the head “income from the house property” - HELD THAT:- As per sub-clause (b) of section 24 of the Act, assessee in order to succeed on this issue has to prove by adducing evidence to show that the property in question (Surat) has been acquired with borrowed capital and the interest claimed by him was in respect of such borrowed capital.
DR submitted that assessee has borrowed un-secured loan from several persons and has incurred interest expenses, but failed to satisfy before AO that the interest claimed as deduction was for capital borrowed for acquiring/construction/re-construction of the shop at Surat. Be that as it may, it is admitted fact that the relevant documents were not filed before the AO/Ld. CIT(A) and for the first time some additional evidences has been filed. Therefore, this issue is restored back to the file of the AO for denovo adjudication to consider to whether, the deduction claimed u/s 24(b) of the Act is allowable or not.
Addition on account of deemed rent of the flat at Borivali - assessee replied that his employees are occupying the flat - AO noted assessee that he had more than one house property and he is not offering the deemed lettable value (ALU) of this property - AO noted that the assessee failed to produce any supportive evidences which proves that house was occupied by his employees and he further noted that assessee has not debited any expenses in Profit and Loss account for perquisite in the form of rent- free accommodation provided to the employees and also assessee has failed to establish employer-employee relationship about the person who was supposed to be residing in that apartment - HELD THAT:- AO found that assessee has not debited any expenses in P & L for perquisites provided to employee. So, AO computed the ALV of the house property. On appeal, the Ld. CIT(A) observed that only one property can be claimed by assessee as self-property under the Act and noted that assessee’s claim that flat was occupied by employees was not accepted by AO because the assessee failed to prove the fact by filing any supporting evidence. The action of AO/Ld. CIT(A) cannot be faulted because before this Tribunal also the assessee failed to produce any evidence to substantiate that Star Apartment was occupied by the employee of the assessee. And since the ALV computed by AO has not assailed, in the absence of any evidence as discussed, the impugned action of Ld. CIT(A) is confirmed and this ground of appeal of assessee is dismissed.
Disallowance of business expenses as personal expenses - AO’s reason for disallowance was that in the entire year assessee has only transacted once in bullion on a single day and has claimed expenses of telephone, mobile, conveyance, car etc for entire year, which according to him was unreasonable; and that expenses are not incurred wholly and exclusively for business purpose - HELD THAT:- One of the reason given by AO/Ld. CIT(A) to disallow the expenditure cannot be countenanced for the simple reason that expenditure in course of the trade which is un-remunerative is a proper deduction, if wholly and exclusively made for the purpose of the business [Refer Hon’ble Supreme Court decision in CIT Vs. Rajendra Prasad Moody [1978 (10) TMI 133 - SUPREME COURT]. However, assessee is a proprietor of a proprietary concern, so personnel element in expenses claimed by assessee viz telephone, mobile, conveyance etc cannot be ruled out in the absence of evidence to show that the expenditure claimed was incurred wholly and exclusively for the purpose of business. So out of expenses listed out taking into consideration the fact that the personal expenditure may have been incurred for the aforesaid expenses, the disallowance made by the AO is restricted to 20% of such expenses. Balance amount is directed to be deleted and assessee’s ground is partly allowed.
Disallowing of interest paid on unsecured loan - assessee failed to prove the nexus of borrowing with earning from amenities & FD, therefore, he disallowed the interest claim - HELD THAT:- The assessee before this Tribunal could not demonstrate by adducing any evidence to show that the borrowing from the aforesaid three (3) persons were laid out or expended wholly and exclusively for the purpose of making or earning of “income other sources” i.e. amenity charges and FD interest. Unless assessee shows that purpose of borrowing from three persons was for making or earning amenity income or interest from FD, the claim of interest expenses to these persons cannot be allowed and so it is confirmed.
Alternate contention assessee that since the AO in the assessments made u/s 147/143(3) of the Act for earlier years ie. AY. 2008-09 and AY. 2009-10 has accepted the interest deduction u/s 57(iii) of the Act and as per Rule of consistency the claim should be allowed, cannot be accepted for the reasons that in those orders [passed by the AO u/s 147/143(3) of the Act] which were re-assessments made after re-opening the assessment pursuant to the search happening in premises of Mukesh Chokshi, and the AO had looked into the accommodation entry in the form of purchase of shares of M/s. Alchemist Ltd. From perusal of the order, it is not discernable as to whether the AO has scrutinized the deduction claimed u/s 57(iii) of the Act and unless the AO had securitized the claim which fact assessee failed to demonstrate before this Tribunal, such a contention of the assessee cannot be accepted. Therefore, ground nos. 4 & 5 are dismissed.
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2023 (11) TMI 939 - ITAT MUMBAI
Validity of assessment u/s 153A - date of expiry of time limit for issuance of notice under section 143 (2) - HELD THAT:- We hold that assessment year 2010 – 11 to assessment year 2014 – 15 are unabated assessment years, which has been disturbed by the learned assessing officer, based on the incriminating material found during the course of search. For all these unabated assessment years, the addition is made with respect to the undisclosed income, income from house property and bogus long-term capital gain which are all based on the independent incriminating material found during the course of search relevant to those assessment years. Assessment year 2015 – 16 is not a concluded assessment year and therefore shall abate and assessing officer can make addition even in absence of incriminating material found during the course of search. Accordingly, we dismiss ground no 1 of the appeal.
No notice u/s 143 (2) was issued by the new incumbent AO i.e. Deputy Commissioner of Income Tax Central Circle – 5 (2) within the permitted time - transfer u/s 127 - HELD THAT:- No provision of law was shown to us by the learned authorized representative. We drew attention of the learned authorized representative to the provisions of section 129 of the income tax act which provided that Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor. AR referred to his written submission and the various judicial precedents cited. We find that the provisions of section 129 of the act is clear in this case and there is no scope for taking the interpretation as pointed out before us by the learned authorized representative. It is not the case of the assessee that he has not been heard by the new incumbent prior to making the assessment order. Therefore, the argument of the learned authorized representative is in clear violation of the provisions of section 129 of the income tax act and therefore it is dismissed. Accordingly, ground number 5 of the appeal is dismissed.
Levy of interest u/s 234B - claim of the learned authorized representative is that no continuity of hearing was given by the assessing officer before the levy of interest and no interest can be levied in special assessment proceedings u/s 153A - HELD THAT:- Levy of interest u/s 234B of the income tax act is chargeable in special assessment under section 153A of the act, as no judicial precedents are shown that in such proceedings, no interest is chargeable. There is no provision in the income tax act to grant an opportunity of hearing before charging of interest u/s 234B of the income tax act. It is not the case of the assessee that no interest can be charged under section 234B of the income tax act or no opportunity is given for hearing during assessment proceedings. Accordingly, ground of the appeal of the assessee is dismissed.
Determination of the total income - argument of the assessee is that assessee was assessed at ₹ 335,486,417/– against the returned income of ₹ 24,438,590 by making an addition of ₹ 311,047,827 - HELD THAT:- We find that this ground is general, no arguments were advanced by the learned authorized representative, and hence, it is dismissed.
Violation of the natural justice - No summons under section 131 or notices under section 133 (6) to the various parties whose statements have been relied upon issued - addition with respect to the denial of exemption u/s10 (38) of the act has been denied on the stated statement of Mr. Vipul Bhatt who has retracted the statement, therefore such statement cannot be relied upon - AO has also relied upon the appraisal report for making an addition and that too without making any enquiry whatsoever to ascertain the reliability or veracity of such a report and to examine the evidences produced by the assessee. The copy of the appraisal report was not furnished to the assessee in spite of the specific request made - HELD THAT:- With respect to the claim of the assessee that assessee requested for issue of summons under section 131 or notices under section 133 (6) to the various parties whose statements have been relied upon by the learned assessing officer, fact clearly shows that the assessing officer has referred to the statement of Mr. Bhatt, which was in the knowledge of the assessee. Therefore, the assessee produced the retraction statement and affidavit of the same person. Therefore so far as the cross examination of Mr. Bhatt is concerned, when assessee is aware about his retraction statement and his statement originally given implicating the assessee, the assessee could have himself produced Mr. Bhatt. Even otherwise, there is a statement recorded of that person during the course of assessment proceedings, which is also known to the assessee. The assessee does not make any request for cross-examination when his statement was recorded. Later on assessee makes a request for his cross-examination. Therefore there is no violation of principle of natural justice in not giving the cross examination of Mr. Vipul Bhatt.
There is no provision in the income tax act to give an internal communication to the assessee such as appraisal report. Therefore, we reject this argument also. However while deciding the issue on the merits of the case; we will deal the same once again. Accordingly ground of the appeal to that extent stated above, is dismissed.
Addition of annual value with respect to the house properties - HELD THAT:- As there is no change in the facts and circumstances of the case of the assessee and the daughter of the assessee except the amount of taxation determined with respect to each of the property, we following the decision in case of Mrs. Priya Gurnani [2023 (11) TMI 822 - ITAT MUMBAI] direct the learned assessing officer to grant deduction of standard deduction at the rate of 30% of annual value under section 24 of the act and upheld the action of the learned assessing officer in taxing the income of the above properties on all other issues
Bogus LTCG - Addition u/s 68 on account of sale proceeds of shares - Exemption claimed u/s 10(38) denied - statement given by the accommodation entry provider and his retraction later on - HELD THAT:- We find that identical issue has been dealt with by the coordinate bench in case of the daughter of the assessee Mrs. Priya Gurnani [2023 (11) TMI 822 - ITAT MUMBAI] set-aside ground of the appeal back to the file of the learned assessing officer with a direction to the assessee to show the genuineness of the trade and unsecured loan with respect to the documents found as stated in the statement of various parties, exit entry providers details, Demat agencies and the cash trail found. It is also the duty of the assessee to produce before the AO of her chartered accountant (who statement is not retracted), Ms. Rukhsana who is stated to have been involved in transferring the cash for the long-term capital gain and conversion of loan entries, for further examination. It is also the duty of assessee to produce Mr. Vipul Bhatt before the ld AO to be examined specifically with respect to documents in annexure 1 to 17 , his each of the reference in 90 questions referring to Moraj Group. The learned assessing officer on appraisal of all the details furnished by the assessee may carry out further enquiry with respect to the observation made above and decide the issue afresh considering the standard operating procedure of investigation of penny stock. The LD AO may also consider the inquiry pending before him from BSE etc. LD AO may carry out the inquiries with respect to exit providers looking at date and time stamp of trades executed and sources of the fund of the exit providers tearing the layering where it is stated that in some of the case funds are out of RTGS made by assessee for repayment of loan.
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2023 (11) TMI 928 - ITAT MUMBAI
Addition u/s 43CA - agreement price is lower than the stamp duty value on the first date of payment made by purchaser by any other mode other than cash - HELD THAT:- Assessee’s sale price and market value does not exceed in this case more than 10% hence no addition against the transaction with Gaurav Samruddhi, Flat No. SAM/A/103 can be made. Same is the situation for Flat No. EXC/3/204, Serial No. 4, Table-2, Project Name “Gaurav Excellency”, No addition can be made
The view of the High Court of Punjab & Haryana in Chandani Bhuchar [2010 (1) TMI 731 - PUNJAB AND HARYANA HIGH COURT] with respect to the deeming provision of section 50C of the Act is that onus of proof lies on the Department/Revenue to bring on record any evidence to the effect that higher amount of sale consideration had passed on to the seller from the buyer in addition to the amount of sale consideration recorded in the deed. The amount at which valuation has been done by the stamp authorities could not be taken as actual sale consideration and the value shown in the sale deed has to be accepted. The circle rates as stipulated u/s 50C of the Act cannot be sole concluding reason to hold that there is an understatement of sale consideration and adopt the valuation done for the purpose of stamp duty.
In view of above discussions revenue has failed to discharge its burden of proof that higher amount of sale consideration had passed on to the seller from the buyer in addition to the amount of sale consideration recorded in the deed. On the other hand, it is also found that assessee also did not come forward with relevant documents which can help in establishing the fact that no cash payment element is involved to take the advantage of position as provided in section 43CA (3) r.w.s. 43CA (4) of the Act. In view of this, we store the matter back to the file of Jurisdictional AO for verification of balance transactions of Table-2 at Page No.6, i.e., at serial no. 1, 2, 3, 5, and 6. Ground Nos. 1, 2, 3, 4 and 5 are partly allowed for statistical purposes.
Taxability of deemed rent u/s. 22 r.w.s. 23 of the Act. AO by deputing an Income Tax Inspector determined ALV as prescribed in section 23 of the Act for the purposes of section 22 - HELD THAT:- As per this sub-section, any property which has been held as stock in trade and has not been let-out during the year, then the Annual Value of such property shall be taken as Nil up to a period of one year from the end of the financial year in which the certificate of completion of construction is obtained. The appellant has submitted that the said amendment is applicable w.e.f. A.Y. 2018-19 and therefore the income can be charged only from A.Y. 2018-19 onwards.
CIT (A) and AO relied upon following case laws to substantiate their view on the taxability of deemed rent on unsold stock of flats hold by assessee as relying on ANSAL HOUSING & CONSTRUCTION LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX [2018 (1) TMI 805 - DELHI HIGH COURT], M/S ANSAL HOUSING AND CONSTRUCTION [2016 (11) TMI 208 - DELHI HIGH COURT] and M/S. SANE & DOSHI ENTERPRISES [2015 (4) TMI 882 - BOMBAY HIGH COURT] - As assessee was liable to pay income tax on the annual letting value of unsold flats owned by it under the head 'income from house property' - Decided against assessee.
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2023 (11) TMI 690 - ITAT MUMBAI
Revision u/s 263 - Claim of interest against rental income - Proof of availing loan for acquisition or construction of property - CIT mentioned that assessee has claimed deduction u/s. 24(b) and assessee has not furnished documentary evidences in support of its claim during the assessment proceedings - HELD THAT:- As in our considered view proviso of section 24(b) states that “where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital”; however, we observe that this proviso is directly linked to the 1st and 2nd proviso.
The first proviso, states that in respect the property referred to in sub section (2) of section 23, which is the property consists of house or part of house which is in the occupation of the owner for the purpose of his own residence or it cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him. In such situation, the annual value of such house shall be taken to be NIL.
The first proviso has specifically relates to the situation discussed in section 23 sub-section 2 of the Act, where the individual can claim deduction not exceeding ₹ 30,000/-.
The second Proviso is also in relation to first proviso, wherein the above said individual has acquired a constructed with the borrowed capital [within five years from the end of the Financial Year in which capital was borrowed] the amount of deduction shall not exceed two lakhs rupees.
The third proviso is also closely linked to the proviso 1 and 2 and gives certain contingencies in order to claim the deduction mentioned in proviso 1 and 2 therefore all the proviso mentioned in section 24(b) are relation to an individual who intend to claim deduction u/s. 23(2) of the Act.
Therefore, the proviso contained in section 24(b) is not applicable to assessee who borrows the capital for the purpose of earing income by letting out the property under the head “income from house property”. Therefore, the interpretation of third proviso to 24(b) in isolation is not proper and we are not inclined to agree with the findings of the CIT u/s. 263 of the Act.
As per the facts on record, we observe that assessee is in business of construction and letting of the property as well as maintenance of the property, in such combined business, it is normal in the construction business to borrow the capital for the overall business and apportion the same based on the head of income. It is not in dispute that assessee has paid the relevant interest to the bank.
We observe from the record that AO has collected the information from the assessee and as per the assessment records there is no evidences to show that AO has verified the same in detail.
Assessee has submitted all the relevant information, the basis of allocation before the AO. Even otherwise if we consider that Assessing Officer has not verified the claim made by the assessee it can be considered as erroneous order. However, in order to invoke provisions of section 263 of the Act, both conditions has to be satisfied, not just erroneous, even the condition, prejudicial to the revenue.
But as per the discussion in the above paragraph we do not agree with the Ld. Pr.CIT that the condition of prejudicial to the interest of the Revenue is satisfied. Therefore, twin conditions as per provisions of section 263 are not satisfied in this case. Hence the order passed u/s. 263 is set aside.
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2023 (11) TMI 540 - ITAT MUMBAI
Revision u/s 263 - Deemed rent - ALV of the unsold stock (held as stock in trade) farming part of the inventory - PCIT has taken the view that since this project has been developed on ownership basis assessee company was owner of the property till it is sold and the annual letting value (ALV) of the unsold stock (held as stock in trade) farming part of the inventory should have been brought to tax as deemed rent under section 23(1)(a) whereas the assessee has neither offered deemed rent of unsold flats nor the AO brought the same to tax - HELD THAT:- AO has duly conducted the investigation by examining the detail facts regarding the unsold flats which was held as stock in trade by not determining ALV by following the guidelines given in the CBDT circular No.2/2018 dated 15.02.2018.
Moreover Hon'ble Supreme Court in case of Chennai Properties & Investments Ltd. vs CIT [2015 (5) TMI 46 - SUPREME COURT] held that unsold flats which are in stock in trade should be assessed under the head "business income" and there is no justification in estimating the rental value from those flats and notionally computing annual letting value under section 263 of the Act. Therefore invoking the jurisdiction u/s 263 by Ld. PCIT is not sustainable in the eyes of law, hence impugned order passed under section 263 is ordered to be set aside. Appeal filed by the assessee is allowed.
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2023 (11) TMI 498 - ITAT PATNA
Notional addition towards rent receivable w.e.f. 28.07.2012 as per the order passed by the Court of Home Controller, Patna - assessee is co-owner of ½ of the property which was rented to Krishna Niketan at the market rate for a period from December 2008 to November. 2038 however rental value of the property has increased considerably over a period and the assessee started pressing for the higher rent - HELD THAT:- Rent Controller vide order dated 28.07.2012 held that monthly rent would be Rs. 4,44,230/- thus deciding the issue of increase in rent in favour of the assessee. Accordingly,a revised rent agreement was executed between the assessee and the tenant fixing the rent at Rs. 4,44,230/- per month and return of income was filed accordingly.
However, according to the AO rent should have been charged as per the order of Rent Controller order from the date of the order. We note that in the case of other co-owner the addition made by the AO on account of notional rent was deleted by the Ld. CIT(A).
We observe that the assessee has received rental of Rs. 60,000/- per month from 30.11.2012 which has been accepted by the Ld. CIT(A) in the case of other co-owner and which has not been challenged before the tribunal. Accordingly following the same, we hold that the addition confirmed by the Ld. CIT(A) on account of notional income is not sustainable and accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. The appeal of the assessee is allowed.
Rectification of mistake u/s 154 - AO stated that in the assessment order section and sub-section under which the assessment was framed, was wrongly mentioned as “section 143(3) r.w.s 147” instead of “section 144 r.w.s 147 of the Act” - As per CIT(A) assessee has complied to notice u/s 142(1) and it is an admitted fact that no notice u/s 143(2) of the Act has been issued by the AO, hence, the assessment made cannot be said to have been made u/s 144 of the Act not being as per the provision of section 154 - HELD THAT:- in the present case the assessment has been framed u/s 143(3) read with Section 147 of the Act after calling for various details from the assessee by issuing notice u/s 142(1) of the Act during the assessment proceedings. We note that notice u/s 142(1) of the Act was duly given to the assessee on 13.11.2019 which was also replied on 27.11.2019. In the said reply, the assessee submitted that capital gain has not been shown in the return of income filed by the assessee as the sale deed has been cancelled as per agreed terms and condition between the assessee and the buyer of the property.
In our opinion, the assessment order has rightly been framed u/s 143(3) r.w.s 147 of the Act. In the present case we observe that the AO has resorted to the provisions of section 154 only to correct the anomaly of non issuance of mandatory notice u/s 143(2) - the provisions of Sections 144 of the Act are applicable only when the assessee does cooperate and does not furnish any details/information and then it does not require to issue any notice u/s 143(2) of the Act but the facts in the instant case are different. No infirmity in the order of Ld. CIT(A) and accordingly same is upheld by dismissing the appeal of the revenue.
Validity of reassessment proceedings - No notice u/s 143(2) was served to the assessee before completing assessment proceedings - HELD THAT:- As no notice has been issued and served on the assessee. In our opinion where no notice u/s 143(2) is issued, the assessment so framed by the AO is null and void in law. The case of the assessee finds support from the decision of Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT] wherein the Hon’ble Apex Court has held that no assessment can be made without issuing notice u/s 143(2) and this decision has been relied on the First Appellate Authority while allowing the appeal of the assessee.
Addition of Capital Gains - As sale proceeds for sale of land has not materialized as the cheque issued by the said party were not honoured and therefore sale deed became invalid and was cancelled and consequently no capital gain was shown in the return of income. Therefore even on merit the revenue has no case and Ld. CIT(A) has rightly allowed the appeal of the assessee.
Addition u/s 68 - assessee failed to substantiate the loans before the First Appellate Authority resulting into confirmation of the said addition - HELD THAT:- The provisions of Section 68 of the Act are not applicable to the loans/cash credits received in earlier years and only the cash credits which have been credited in the books of account of the assessee during the year are liable to be added u/s 68, in case, the assessee failed to satisfy with three ingredients of the said section. The case of the assessee finds support from the several decisions as discussed hereinafter. In the case of ACIT vs. ATS Promoters & Builders (P) Ltd [2014 (11) TMI 323 - ALLAHABAD HIGH COURT] has held that the provisions of section 68 are not applicable where the sum is not even credited in the books of account during the year.
In the present case these loans were received in FY 2013-14 and therefore the provisions of Section 68 cannot be invoked. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Accordingly the appeal of the assessee is allowed.
Deduction u/s 54F and u/s 54EC - HELD THAT:- CIT(A) has held that the AO has failed to appreciate that transaction could not happen in Ay 2012-13 due to non-payment of sale consideration. Finally the Ld. CIT(A) allowed the deduction u/s 54F and 54EC by holding that there was no income from long term capital gain as the assessee realized the sale consideration during the year. After perusing the facts on record we find that the Ld. CIT(A) has taken a correct view in the matter and therefore we are inclined to uphold the same by dismissing the ground nos. 1 and 2 of the revenue’s appeal.
Estimation of profit - HELD THAT:- We note that the AO has not brought on record any material or evidence to substantiate that the assessee has earned income these two concerns apart from declared income from M/S kumar Enterprises and therefore, the addition was made on suspicion, surmises and conjecture which is not permissible under the law. The Ld. CIT(A) after rightly appreciating the facts of the case deleted the addition.
As decided in Ashok Weaving Works [2015 (9) TMI 183 - ITAT AHMEDABAD] wherein it was held that unless defect is pointed out in books of assessee, no addition could be made by the AO on ad-hoc basis.
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2023 (11) TMI 334 - ITAT PUNE
Characterization of receipts - treating the extent of sale consideration received on transfer of shares as Business income chargeable u/s 28 - terms and conditions of Share Sale and Purchase Agreement (SSPA) between the assessee and the foreign company - As per AO receipt for handing over the management and control of the Indian company and hence charged to tax as Business income as against capital gains shown - agreement talks of some specified negative covenants - Is entire consideration only for transfer of shares? - HELD THAT:- Liability of the assessee to indemnify the Purchaser for violation of the negative covenants contained in Article 7 of the SSPA can extend up to a maximum of Rs. 40.00 crore (Rs. 150 million + Rs. 150 million + Rs. 100 million). No person will undertake the liability to indemnify the foreign company for a sum up to Rs. 40.00 crore for violation of the negative covenants without receiving any consideration there against in the first instance. Had the consideration of Rs. 85.79 crore been exclusively towards sale of shares, there was no question of the assessee accepting the obligation of indemnifying the buyer up to a sum of Rs. 40.00 crore for the violation of the negative covenants. It is thus graphically glaring that even though there is no separate mention of the consideration for the negative covenants, but they, forming an essential and integral part of the SSPA, do carry value, which is embedded in total consideration. It is the substance rather than the form of the SSPA, which should be looked into. It is ergo held that the consideration of Rs. 85.79 crore was not only for transfer of shares but also for accepting the negative covenants. We, therefore, jettison the contention advanced on behalf of the assessee that the entire consideration was towards transfer of shares.
How it is taxable? - We find that para 14.5 of the JVA deals with the situation in which a shareholder agrees to purchase the shares of the company from another shareholder. This para states that: “In the event the Shareholders agree to purchase the shares but do not agree to the price at which the same are offered for sale, then the sale shall take place at the net sale value of the shares to be determined by'. Obviously, this para is referring to the situation of transfer of shares between the shareholders post the JV agreement, as is instantly prevailing. The Valuer did not value the shares under the Net asset value method, leave aside the determination of the value under this method.
AO treated full sale consideration of Rs. 85.79 crore as attributable to the transfer of business, leaving no scope for finding out separate consideration towards the transfer of shares for the computation of capital gains.
CIT(A) also did not go deep into the part of the consideration relatable to transfer of shares. He simply applied the magic wand and held that 10% of the consideration was towards non-compete and termination of role of the assessee in management. No reason or rationale has been given for the ad hoc figure of 10%.
Under these circumstances, we are satisfied that the exercise of attributing sale consideration to the shares and the negative covenants is required to be done afresh by the AO. We order accordingly and direct him to segregate the consideration relatable to sale of shares and then accordingly compute the capital gains on transfer of such shares; and the remaining amount towards negative covenants should be taxed as business income u/s 28(va).
Disallowance u/s 14A - HELD THAT:- As seen that the AO made the disallowance only towards rule 8D(2)(iii), which is 0.5% of the average value of investments. It is further borne out from para 30 of the assessment order that the average value of investments was computed by the AO considering only those securities which yielded exempt income and not all the investments. Considering the fact that the assessee had own capital more than the amount invested in securities yielding exempt income, the AO did not make any disallowance towards interest. In our opinion, no exception can be taken to the disallowance made and sustained u/s 14A. We, therefore, dismiss this ground of appeal.
Addition towards deemed rent on vacant property - HELD THAT:- It is found as an admitted position that the vacant property, in respect of which deemed rent was calculated by the AO, was stock in trade of the assessee. The Pune Bench of Tribunal in M/s Cosmopolis Construction [2018 (9) TMI 1621 - ITAT PUNE] has held that no income from house property can result in respect of unsold flats held by the builder as stock in trade at the year-end. Insertion of sub-clause (5) to section 23 by the Finance Act, 2017 w.e.f. 01.04.2018, requiring determination of the ALV in respect of building and land appurtenant thereto which is held as stock in trade, is prospective and cannot apply to the assessment year 2015-16 under consideration. We, therefore, uphold the impugned order on this score.
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2023 (10) TMI 842 - ITAT MUMBAI
Income from house property - consider the Ambey Valley property as self-occupied property - AO rejected claim as it was not made in the original return of income - CIT(A) denied the claim as the claim was made during the assessment proceedings and not part of the return of income - HELD THAT:- We find that during the course of assessment proceedings the assessee has revised computation of income where by the claim of the assessee was changed by withdrawing the amount offered under the income of house property and claiming Ambey Valley property as self-occupied property.
AO held that as there was no claim by filling revised income, it was not entertained. On appeal before ld. CIT (A) the issue arose about allowbility of same claim but CIT(A) has held that the ground no. 1 of the appeal of the assessee is partly allowed. Ground no. 1.1 and 1.2 are with respect to considering Ambey Valley property as self occupied property and ground no. 1.3 is determining deemed annual value of the house property at the rate of 7%.
CIT(A) has upheld that the 7% of cost of property as annual value taxable u/s 23, against the assessee and therefore only others ground are which are allowed by him. There is no reason given by him. Therefore, we restore ground back to the file of Ld. CIT(A) to give clear cut reason and finding that whether the claim of the assessee of considering Ambey Valley property as self-occupied property u/s 23(2) of the Act is allowable or not.
Addition u/s 68 - claim of the assessee is that in the original return of income sale consideration was wrongly shown of ₹150,40,800/- whereas it is claimed by the assessee that property is sold at ₹ 78 lacs only, the market value of the property was stated to be ₹ 94,43,000/- - HELD THAT:- As the sale agreement produced before us along with the revised computation shows that the sale consideration of the flat as Rs. 78 lacs whereas market value of flat is Rs. 94,43,000/-.
We set aside this issue to the file of the Ld. CIT(A) also where the assessee is directed to substantiate that actual sale consideration received in his books of account is only ₹ 78 lacs and there is no credit of ₹ 1,15,00,000/- as mentioned in the computation of total income filed with original return of income and thus there cannot be any addition u/s 68 of the Act as above sum was not mentioned in books of account. Accordingly, the ground no.3 of the appeal is allowed with above direction.
Appeal filed by the assessee is partly allowed for statistical purposes
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2023 (10) TMI 837 - ITAT MUMBAI
Unexplained expenditure u/s 69C - AO in the course of assessment had made enquiries from the vendors u/s 133(6) and since none of them responded to the same doubted genuineness of the transactions - whether the documents/evidences furnished by the assessee/vendor were sufficient to substantiate the genuineness of the payments? - HELD THAT:- There were no immediate cash withdrawals from the bank account, which would otherwise raise suspicion. As far as non-compliance of summons is concerned, we note that, the documents furnished by the vendor clearly showed that their registered office was at Delhi and that they did not have any corporate/branch office in Bangalore. We thus find force in the Ld. AR’s contention that the AO/DDIT had erred in sending notices / conducting field enquiry at their erstwhile site office at Bangalore, which had since been shut down after completion of the hotel project. On these given facts therefore, we find that the reasons for non-service of notice issued to the vendor’s Bangalore site office stood explained. For the reasons as discussed in the foregoing, we accordingly hold that the lower authorities were unjustified in doubting the genuineness of the payments so made by the assessee.
We hold that the payments made by the assessee to the six (6) vendors in question were genuine and the disallowances u/s 69C made by the AO in this regard is held to be unsustainable.
Disallowance u/s 14A r/with Rule 8D both while computing income under normal provisions and book profit u/s 115JB - HELD THAT:- As relying own case [2021 (1) TMI 1134 - ITAT MUMBAI] since the assessee did not earn any exempt income during the relevant year, we do not see any infirmity in the action of the Ld. CIT(A) in having deleted the disallowance made under Section 14A read with Rule 8D(2).
Thus as the assessee did not earn any exempt income during the relevant year, we uphold the action of Ld. CIT(A) deleting the disallowance made by the AO u/s 14A of the Act, both while computing income under normal provisions and book profit u/s 115JB of the Act.
Deemed rental income - taxed by the AO under the head ‘Income from House Property’ in relation to the unsold units held - HELD THAT:- AO is noted to have estimated the notional income by relying on the decision of the CIT vs Ansal Housing Finance and Leasing Company Limited [2012 (11) TMI 323 - DELHI HIGH COURT] We note that the coordinate Bench in the case of DCIT v. M/s. Inorbit Malls Pvt. Ltd. [2022 (10) TMI 1150 - ITAT MUMBAI] has recently examined this particular issue and after considering the jurisprudence available on this subject [which was also relied upon by the Ld. CIT(A) and the assessee before us], has departed from the earlier position and answered the same in favour of the Revenue.
Thus we uphold the action of the AO seeking to tax the notional rental income in relation to the vacant unsold units lying as stock-in-trade with the assessee at the end of the relevant AY. Hence, the order of the Ld. CIT(A) to that extent is reversed.
Manner of computation of ALV for arriving at the notional rental income assessable u/s 22 & 23 - HELD THAT:- We agree with the Ld. AR that the economics of real-estate sector, demography, people’s lifestyle, infrastructure in urban areas, overall economic scenario was vastly different and hence the estimation exercise undertaken in these decisions cannot be considered as a comparable barometer for the years in question before us. Instead, having regard to the research / survey reports cited by the AR, we find force in the assessee’s plea that the rental yield of 8.5% estimated by the AO on the value of the vacant inventory was excessive in today’s scenario. As noted from these market research reports, the rental yield of immovable properties in metro cities are generally in the range of 2-3% of the value of investment. We note that, this Tribunal in the case of DCIT Vs Rustomjee Evershine Joint Venture [2023 (7) TMI 1305 - ITAT MUMBAI] has also countenanced the Revenue’s action of estimating rental yield at 2% of the value of unsold inventory.
Having regard to the comparative details of a luxuriously furnished flat, fully furnished flat and bare-shell flat (unsold inventory), we find sufficient force in the Ld. AR’s plea that the fair rental rate of the unsold inventories, which were bare-shell accommodation, would indeed be lower than the rental rate of a fully furnished flat i.e. Rs. 147 per sq ft. We find it fit to allow further discount of 40% to the comparative rental rate of a fully furnished flat. According to us, therefore, the fair annual lettable value of the unsold properties for FY 2017-18 would work out to Rs. 88.20 per sq ft [147 X 60%]. We agree with the Ld. AR that this rate has to be further adjusted for inflation/escalation.
AO is thus directed to re-compute and assess the gross annual lettable value of the unsold inventory as laid down in the table above. Needless to say, the same shall be further subjected to standard deduction u/s 24(b) of the Act. With these directions, this ground of appeal stands disposed.
Revised claim made by the assessee in the return filed u/s 153A - HELD THAT:- Fresh/modified claim in the returns filed u/s 153A of the Act in relation to the abated assessment years Allowed. See ACIT Vs Gigaplex Estate Pvt Ltd [2023 (1) TMI 1301 - ITAT MUMBAI] - We uphold the order of the Ld. CIT(A) allowing the revised/modified claim raised by the assessee regarding claim for set-off of brought forward correct losses from AY 2016-17. Coming to the issue of quantification of the brought forward short term capital loss of AY 2016-17 eligible for set-off in AY 2017-18, the AO is directed to re-compute and allow the loss, as finally quantified and allowed to be carried forward in AY 2016-17 upon giving effect to the appellate order/s, in accordance with law.
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2023 (10) TMI 394 - ITAT MUMBAI
Addition of rent receipt - properties sub-letted to sister concerns - Fair rental value u/s 23(1)(a) - assessee has received rent from unrelated entity at a higher rate vis-à-vis rent received from its related sister concern lesser than the rent collected from unrelated parities - as per AO assessee has given 23 flats to its sister concerns which is nothing but a colorable devise and shifted its additional rental income to its sister concern - HELD THAT:- We observe from the record that assessee has not submitted any information regarding the cost involved in furnishing of above flats to the tax authorities.
We also observe that during the hearing bench has asked the assessee to submit the balance sheet of assessee company as well as sister concern but no such information was submitted subsequently and till date. Since assessee has not submitted any information related to furnishing of flats which was leased out to unrelated parties and assessee has leased out majority of the flats i.e., 23 flats to its sister concern at ₹.25,000/- per month.
In absence of any information we are not able to determine the expenditure of furnishing made by the assessee in furnishing of flats leased out to M/s.Hover India Automotive and M/s.Anmol rice Mills Pvt. Ltd., and we also observe that the carpet area of all the flats are more or less similar and from the record we observe that Assessing Officer has made an addition per month for each flat.
We observe that assessee has leased out ₹.1,50,000/- and ₹.60,000/- respectively to the unrelated parties the average comes to ₹.1,05,000/-. Since Assessing Officer has determined the monthly rent of ₹.69,790/- which is less than ₹.1,05,000/-, in our considered view which seems to be proper in absence of any information of furnishing of flats. The case of relative on which Ld. AR relied heavily are distinguishable as it is relating to individual and held only few flats. Whereas in this case, the assessee itself a company and the business carried on by the LLP can also be carried on by the assessee itself. Therefore, we are inclined to sustain the additions made by the Assessing Officer and accordingly, Ground No.1 raised by the assessee is dismissed.
Municipal tax receipts - CIT(A) / AO denied the deduction due to the fact that the name of the assessee is not mentioned in the tax receipt - HELD THAT:- We observe from the record that the municipal tax receipts are issued in the name of the land lord and the ownership of the flats are with Society. The taxes are borne by the society and collects the proportionate taxes from the flat owners. Accordingly, the assessee has paid the proportionate tax to the society. This system of collection of municipal taxes are common in the housing societies where the ownership of the building is with the society and the land belongs to 3rd parties as land owners.
What is relevant is, whether the assessee has owned up the relevant taxes and remitted the same; in this case, the assessee has borned and paid the same through banking channels to the society. Therefore, the municipality register or receipt will not have the name of the flat owners, but the name of the land owners. Accordingly claim of the assessee is proper in this case and we direct the AO to allow the claim after verification. Accordingly, ground raised by the assessee is allowed.
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2023 (10) TMI 260 - ITAT DELHI
Income from house property - disallowance of interest paid on housing loan (borrowed capital) referring to the third proviso to section 24 for the reason that the assessee failed to furnish certificate for interest - assessee claimed TDS on the advance rent received but not reflected in the return of income for this assessment year - CIT (A) directed AO to allow 30% of ALV on advance rent as allowance u/s 24(a) having taxed in the current assessment year - HELD THAT:- For the interest on borrowed capital we see no valid reason for disallowing the interest paid on borrowed capital to the banks. The evidences furnished by the assessee in the form of statement of accounts and certificates issued by the banks, sanctioning and disbursing the housing loan to the assessee actually goes to show that the assessee has obtained loans from banks for acquiring the property and the property was let out and the rental income was offered to tax and, therefore, AO should have allowed interest paid on borrowed capital while computing the income under the head income from house property.
The observations of the CIT (Appeals) that the interest claimed in the computation has already been allowed by the AO is totally misplaced as AO has not allowed the assessee to carry forward the loss under the head income from house property which is mainly paid on borrowed capital. Thus we direct AO to allow interest on borrowed capital as claimed by the assessee and the same shall be carried forward under the head income from house property.
Notional interest on interest free security deposit - As various Courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in Asian Hotels Limited [2007 (12) TMI 274 - DELHI HIGH COURT] - Ratio of the decisions squarely applies to the facts of the assessee’s case. Thus, we reverse the findings of the ld. CIT (Appeals) on this issue and hold that no notional interest on interest free security deposit can be added to the ALV of the property while computing income from house property.
Appeal of assessee allowed.
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2023 (10) TMI 254 - ITAT CHENNAI
Determine the nature of loss arising on forward contracts cancelled by the assessee prior to the date of settlement - HELD THAT:- It could be seen that the assessee has entered into forward contract to safeguard against the foreign exchange fluctuation on its revenue receipts from foreign parties. These transactions, being in the nature of hedging transactions, would fall under exempted category of speculative transactions u/s 43(5)(a). Another finding is that the quantum of hedging was reasonable having regard to the export turnover of the assessee. It is actual loss which had arisen on account of cancellation of the forward contracts entered into with the banks to safeguard realization of export proceeds.
CIT(A) has relied on the binding decision of Celebrity Fashions Ltd. [2020 (9) TMI 1022 - MADRAS HIGH COURT] wherein such loss was allowed as a business loss. It could thus be seen that the adjudication of CIT(A) is in line with the correct position of law and backed by binding judicial precedents. No contrary decision has been shown to us. Therefore, the adjudication rendered in the impugned order could not be faulted with. In the result, the revenue’s appeal stands dismissed.
Nature of income - Forfeiture of security deposit - termination of certain lease agreement - ‘income from house property’ or 'income from other sources' - HELD THAT:- The amount waived by one party would be the income of the other party. The amount waived should only be considered as ‘income from other sources’. It is not correct on the part of the assessee that there is extinguishment of right to rent. Right to rent is not transferred to anyone. Right to rent had not extinguished also as the assessee can very well rent the property to any other person as it wishes immediately after the forfeiture of the deposit also. The right to rent the property was very much with the assessee even after the forfeiture and hence, it could not be treated as transfer. Therefore, assessee's claim that there was extinguishment of right could not be accepted.
There was no transfer of any right which would justify assessment of receipt as capital gains. The deposit was in the nature of revenue only as rent gets adjusted in it. Hence, it could not be treated as capital receipt in the hands of the assessee. It could also not be assessed as advance rent as canvassed by the assessee as the property was not continuing on rent with the same person. Since it was revenue in nature and the same could not be taxed under ‘income from house property’, the same was liable to be taxed as u/s. 56(2). Accordingly, the action of ld. AO was upheld which is the grievance of the assessee.
We find that this issue has rightly been clinched by learned first appellate authority. It is quite clear that from assessee’s point of view, there is no extinguishment of any right. The impugned amount was received as security deposit and a part of the same has been forfeited by the assessee. The security deposit has changed its character upon forfeiture and the same is clearly an income of the assessee. As rightly held, right to rent is not transferred by the assessee to anyone. Neither this right has been extinguished in any manner. Therefore, the aforesaid retained amount could not be assessed as capital gains. The same is also not in the nature of advance rent. Therefore, the same would be assessable under the head ‘income from house property’ only. We order so. The impugned order does not require any interference on our part.
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2023 (9) TMI 1115 - ITAT PUNE
Nature of expenses - disallowance is in respect of capital expenses of buildings, which was treated by the assessee as revenue - AO held such gross amount to be capital expenditure not eligible for deduction as revenue - total gross amount of disallowance is in respect of capital expenses of buildings, which was treated by the assessee as revenue - AO held such gross amount to be capital expenditure not eligible for deduction as revenue - AR submitted that necessary details were furnished before the AO, who failed to examine the same - HELD THAT:- Similar stand was reiterated before the ld. CIT(A) as well. It is observed from the impugned as well as the assessment order that the AO has not specifically referred to the detail, whose supporting bills were not available. In contrast, the ld. AR submitted that all the bills are available, which can be explained before the AO. Considering all it would be in the fitness of things if the impugned order on this issue is set-aside and the matter is restored to the file of the AO.
Addition towards notional rent in respect of its self-occupied units - assessee had two units under the Business plaza, which remained vacant throughout the year - As argued no disallowance be made as the assessee was making attempts for letting out the property - as not convinced, the AO computed the annual rental value from these two floors by arriving at reasonable rent - After allowing standard deduction @30%, he made the addition -No relief was allowed in the first appeal - HELD THAT:- Though the assessee kept on making attempts for leasing out this property, but could not find a suitable lessee. This shows that the 7th floor was fully let out in the earlier three years, but was fully vacant from November, 2014 covering the full year under consideration. In this scenario, the annual value of 7th floor in terms of section 23(1)(c) has to be taken as Nil, provided the contention of the assessee that it was let out in the past, is correct. It is seen that no such contention was taken before the AO. In such circumstances, we deem it necessary to set aside the impugned order and remit the matter to the AO for examining the assessee’s contention about the 7th floor having been let out in the three earlier years. If the contention turns out to be true, then no annual value should be computed for the year under consideration in respect of 7th floor. Needless to say, the assessee will be allowed a reasonable opportunity of hearing for proving its case.
As regards the 5th floor, the ld. AR fairly admitted that the vacant area of 5071 sq.ft., was not let out in the past. The provisions of section 23(1)(a) get triggered without recourse to section 23(1)(c) and as such, the annual value of such property needs to be determined. AO computed the annual value of the 5th floor by considering the rent realized by the assessee from other floors.
Necessary details as to whether the property was subject to Rent Control Legislation or the amount of standard rent etc. are not available on record. We set-aside the impugned order on this score and remit the matter to the file of the AO for re-computing the annual letting value of the 5th floor u/s. 23(1)(a) in the hue of the above decision of Smt. Kokilaben D. Ambani [2014 (9) TMI 763 - BOMBAY HIGH COURT] as held held that while determining the annual value in respect of properties which are subject to Rent Control Legislation and in case where the standard rent has not been fixed, the AO shall determine the same in accordance with the relevant Rent Control Legislation.
Addition u/s. 56(2)(viia) - shares acquired by the assessee from ABIL were undervalued as against the rate of per share charged from Indiabulls - differential amount of Rs. 884.94 per share as applied to 34000 shares, was liable to be added to the assessee’s income - HELD THAT:- It is only the valuation as determined under the unamended Rule 11UA(1)(c)(b), as applicable to the year under consideration, which has to be considered for applying the mandate of section 56(2)(viia) - In that view of the matter it is crystal clear that the benchmark for the application of this provision is the value so determined as per the rule and not the value as computed by the assessee under DCF method or the value as taken note of by the AO being, higher purchase price of shares from India bulls vis-à-vis that from ABIL.
Since the mandate of Rule 11UA, which is obligatory for section 56(2)(viia), has not been considered, we are of the opinion that it would be just and fair if the impugned order on this score is set-aside and the matter is restored to the file of the AO. We order accordingly and direct him to compute the fair market value of equity shares of Diana under Rule 11UA(1)(c)(b) and thereafter consider the applicability of section 56(2)(viia) to that extent. It goes without saying that the assessee will be allowed reasonable opportunity of hearing in such fresh application of section 56(2)(viia) of the Act.
Disallowance u/s. 14A r.w. rule 8D - HELD THAT:- The investment in Equity shares of Diana needs to be excluded both from the opening and closing balances of investments for working out the average value of investments to find out the amount of interest to be disallowed under Rule 8D(2)(ii). Similar is the position regarding the applicability of Rule 8D(2)(iii), which talks of making disallowance at 0.5% of the average of the value of investments, income from which does not form part of total income.
AO has again considered investment in shares of Diana also for computing the average value of investments for the purpose of making disallowance under clause (iii) of Rule 8D(2). In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of the AO for recomputing the disallowance under Rule 8D(2)(ii) and (iii) by considering only such investments in calculating the average value of investments, which yielded exempt income during the year.
Disallowance u/s. 32 towards depreciation on the fixed assets - HELD THAT:- Both the sides are in agreement that this is a recurring issue and the Tribunal for the immediately preceding assessment year and earlier years has sent the matter back to the file of the AO for deciding in conformity with the decision taken in earlier years. We also follow the same.
Addition towards notional rent in respect of one vacant unit at the 10th floor having area of 2520 sq.ft. - HELD THAT:- AR submitted that this unit was also let out in the earlier years and hence the AO erred in determining the annual value of this property u/s. 23(1)(a). It was also conceded that the factum of such unit having been let out in the earlier years was not brought to the notice of AO, as is the case for the immediately preceding A.Y. 2016-17. Following the view taken hereinabove, we set-aside the impugned order on this score and remit the matter to the file of the AO for deciding it in the light of directions given in our above order for the A.Y. 2016-17.
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2023 (9) TMI 426 - ITAT MUMBAI
Income from house property - notional income u/s 22 - income arising from the stock-in-trade of the Appellant - ALV determination - why the deemed rent on unsold stock of completed units as shown in the balance-sheet should not be taxed under the head “Income from house property”? - HELD THAT:- We hold that the assessing officer has correctly charged notional rent on the unsold flats held as stock in Trade.
We also notice that case of Inorbit Malls Pvt Ltd [2022 (10) TMI 1150 - ITAT MUMBAI] while upholding the decision of the assessing officer to levy notional rent, has given certain riders and directions and one such direction is to hold that the assessing officer is not justified in estimating the income at the rate of 8.5% of investment as ALV and that the AO should ascertain the municipal valuation for computing notional rent. In assessee's case also, we notice that the assessing officer has computed the ALV by applying the rate of 8.5% on the cost of construction i.e. investment.
We direct the AO to recompute the notional rent by ascertaining the Municipal rentable value. Appeal of the assessee is dismissed.
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