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2015 (11) TMI 534 - ITAT VISAKHAPATNAMAddition on interest paid to HDFC Bank - CIT(A) deleted the addition - Held that:- It is undisputed fact that the assessee has invested ₹ 50 lakhs in the partnership firm and as a result of this investment, it has earned remuneration of ₹ 6 lakhs and share of income of ₹ 32,48,000/- from the firm. Unless this investment is being made, the assessee would not have earned these two incomes. The A.O. disallowed the interest paid on loan on the sole ground that the income from the partnership firm is exempt in the hands of the assessee and the remuneration received from the firm is for the services rendered by him to the firm. Therefore, there is no nexus between investments and income earned from the firm. We do not agree with the stand of the A.O., for the simple reason that there is a nexus between investment and income earned. As a result of investment in the firm, the assessee has earned these two incomes, i.e. ₹ 6,00,000/- remuneration, which is taxable in the hands of the assesse and also share of profit of ₹ 32.48 lacs, which is exempt, as it has already suffered tax in the hands of the firm. Therefore, expenditure incurred on the borrowed funds for investments in share capital of firm should be allowed as business expenditure. - Decided in favour of assessee. Disallowance of standard deduction and interest paid on housing loan - Held that:- The property so let out is consisting of land and building. The assessee has acquired the said property in the year 2004 by borrowing a loan from commercial bank and assessed the income under the head income from house property right from the beginning. The department accepts the stand of the assessee in the earlier years, cannot dispute now under the same set of facts. The AO was of the view that the property was predominantly was a vacant site and having a small building cannot be considered as a house property to assess the income from said property under income from house property. We do not agree with the contention of the Assessing Officer, for the reason that the annual vale of any buildings or land appurtenant thereto of which the assessee is a owner, income from such property is chargeable under the head income from house property. Further, Once the income is assessable under the head house property, consequent deductions being standard deduction u/s 24(a) and interest paid on borrowed capital u/s 24(b) should be allowed while computing the income from house property. The CIT(A), has rightly deleted the additions made by the Assessing Officer. - Decided in favour of assessee. Estimated income from the house property - CIT(A) deleted the addition - Held that:- The two properties are different in the sense that assessee’s property is a residential property situated in a residential locality of Nallakunta area, Hyderabad, whereas assessee wife property which is situated at Himayatnagar, a posh commercial locality. To arrive at an annual value one has to refer to section 22 of the Act. The said section prescribes the mode of computation of annual value which is the higher of the gross annual value received by the assessee, municipal valuation and fair market value of the property. In the present case, the municipal valuation of the said property as per the assessee’s claim is ₹ 10,544/- and the assessee has received annual rent of ₹ 96,000/-. Further, the fair market value of the property cannot be ascertained from the same locality as the relevant materials are not available on record. So, from the above, it is very clear that the gross rent received by the assessee is higher of these three. The assessee has rightly adopted the gross annual value of ₹ 96,000/-, whereas the assessing officer without bringing on record any comparable cases, simply compared the property, which is situated in a different locality and estimated the income. The CIT(A), after examining the details of the property deleted the additions made by the A.O. Therefore, for the reasons stated above, we do not find any infirmity in the order of the CIT(A) and accordingly delete the additions made by the A.O. and dismiss the ground raised by the revenue. - Decided in favour of assessee. Disallowance of Advertisement charges u/s 40a(ia) - Held that:- The issue is squarely covered in favour of the assessee by the decision of this coordinate bench in the case of Merilyn Shipping & Transport Vs. ACIT (2012 (4) TMI 290 - ITAT VISAKHAPATNAM). By respectfully following the decision cited supra, we delete the additions made by the assessing officer and accordingly ground raised by the revenue is dismissed.- Decided in favour of assessee. Notional interest on investment in firms - Held that:- There was no provision in the Income-Tax Act empowering the Income-Tax authorities to include the interest income which was not due or not collected, See3F Industries Ltd. Versus Joint Commissioner of Income-tax, Rajamundry Range [2014 (9) TMI 311 - ITAT VISAKHAPATNAM ] - Decided in favour of assessee. Notional Interest of Investments in Company - Held that:- A.O. cannot estimate notional interest without establishing that either interest is received or accrued to the assessee. Unless, there is contractual obligation to charge interest, the question of income accrue or arise does not arise. The A.O., cannot sit in the place of a businessman and decide how to conduct business. Every prudent businessman makes investment with the intention to earn income. But, the fact is that all investments may not yield income. The A.O. has not given any cogent reason to establish that such legal right to receive the income has arisen to the assessee. There is no evidence with the A.O., to show that the assessee has received any interest income. Therefore, the A.O., is not correct in estimating the income. The CIT(A), rightly deleted the addition after considering the facts.- Decided in favour of assessee.
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