TMI Blog2010 (10) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... - since there is no such provision in the Act and as such addition made by the AO in this regard on notional basis is deleted – This ground of appeal is allowed In the result, the appeal of the assessee is allowed and the appeal of the Revenue is partly allowed for statistical purposes - ITA No. 3150 & 4230 (MUM.) OF 2008 - - - Dated:- 22-10-2010 - R. V. EASWAR, PRESIDENT AND A.L. GEHLOT, ACCOUNTANT MEMBER V.C. Shah for the Appellant. Abani K. Nayak for the Respondent. ORDER PER A.L. GEHLOT, A.M.: These are the cross appeals directed against the order of CIT(A) IX, Mumbai, dated 03/03/2008 for the assessment year 2004-05. 2. The assessee in this appeal raised only one ground reads as under:- On the facts and in the circumstances of the case and in law the learned CIT(A) erred in sustaining the disallowance of interest amounting to Rs. 24,98,205/- claimed as deduction in computing assessable income from property though it was explained that borrowings in respect of which interest was paid and claimed as deduction were utilized for paying off the amount borrowed for the purpose of construction. It was explained that interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount borrowed from the said M/s Kotak Mahindra bank was used for the purpose of acquisition of property and accordingly the same could not be allowed as deduction u/s 24(1), which reads as under, 24. Deductions from income from house property. Income chargeable under the head income from house property shall be computed after making the following deductions, namely:- a) a sum equal to thirty per cent of the annual value; b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of my interest payable on such capital: Since in the instant case the property has not been acquired out of the borrowed capital the interest thereon cannot be allowed as deduction and as such addition made in this regard is confirmed. This ground of appeal is dismissed. 4. The ld. A.R. submitted that interest on the amount borrowed, for which deduction is claimed, is in respect of borrowing from Kotak Mahindra Bank Ltd., being a loan facility in respect of premises given on lease to ICICI Bank Ltd. He further submitted that the original loan taken from Corporation Bank was utilized for construction of the premises. The ld. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enewed or re-constructed with borrowed capital, the amount of any interest payable on such capital shall be allowed as an admissible deduction in the computation of the income from the said property. 2. A question has been raised whether in a case where a fresh loan has been raised to repay the original loan taken for the above purpose, the interest payable in respect of the second loan would also be admissible as a deduction under s. 24(1)(vi) of the IT Act. 3. The matter has been considered by the Board and it has been decided that if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the ITO, the interest paid on the second loan would also be allowed as a deduction under s. 24(1)(vi). 7. As stated above, that the claim of the assessee is only in respect of a portion of the fresh loan which has been substituted to the original loan utilised for the purpose of construction of the premises is in dispute. From the above CBDT circular we find that the CBDT has clearly instructed the Officers that if the second borrowed amount has really been used merely to repay the original loan, the interest paid to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered the contention of the appellant and find merit in its case. It is not in dispute that the appellant has been following the mercantile system of accounting and that the same has been followed consistently. It is also not disputed by the AO that the monthly rent in the instant case as per the agreement was Rs. 18,55,886/- which on yearly basis works out to Rs. 2,22,70,632/-, the amount which the appellant has offered for tax and therefore merely because the payer has issued certificate for higher amount which relates to the other financial year the same could not be brought to tax in the hands of the appellant company who is required to offer for tax an amount which it has earned in the previous year relating to the assessment year under consideration and therefore in absence of any material brought on record to show that the income as per the certificate did reflect the additional income earned for the year under consideration the AO should not have made any addition as such and therefore addition made by the AO is deleted. Further in consequence to the same the AO is also directed to allow credit for TDS for difference in such amount only in the year in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sm in cases where there could be understatement or where the property other than self - occupied one is not let out, but kept ; idle. Such a mechanism cannot totally obviate the deeming effect of section 23(1)(a). 12.1 After considering the assessee s submissions, the AO held as under : 10. In this view of the matter, the assessee s contention is not found acceptable and the interest at 8% p.a. as is available in the sanction letter of Kotak Mahindra Bank is applied and is deemed to be embedded in the rent negotiated by the assessee with the lessees, ICICI Bank. Thus, 8% of ₹ 1,11,35,315/- being ₹ 8,90,825/- is added to the income of ₹ 2,41,26,518/- declared by the assessee. Therefore, the gross rent of ₹ 2,50,17,343/- is adopted for computation of property income and subject to deduction u/s.24 of the Act. 13. The CIT(A) allowed the ground of appeal of assessee holding as under : 4.3 I have considered the appellant s submission, the AO s contention as well as the judicial pronouncements cited above. According to the AO, the appellant had received huge deposits against the leased property which had an effect of reducing the monthly rent. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23(1)(b) of the Act. The ld. D.R. in support of the case of the AO relied upon a decision of ITAT (Third Member) in the case of ITO vs. Becker Technical Services P. Ltd. in ITA Nos.5262 to 5264/Mum/06 dated 06-07-2009. The ld. D.R. has also relied upon another decision of ITAT in the case of Rita A. Parikh 10 SOT 779. 15. The ld. A.R., on the other hand, relied upon the order of CIT (A). 16. We have heard the ld. Representatives of the parties and record perused. We have also gone through the decisions cited. The brief facts of the issue are that the assessee received deposit without interest against the property let out. The AO calculated annual value of the property by adding notational interest, calculated @ 8% p.a. on the amount of deposit in actual amount of rent received. Under the facts and circumstances, the issue to be examined in this ground of appeal is whether the AO is correct in calculating the annual value of the property which might reasonably be expected to let from year to year as provided under sec. 23(1)(a) of the Act. Before coming to the issue, we would like to state that the decisions cited on behalf of the Revenue are distinguishable on facts which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the circumstances, the value of the notional advantage, like notional interest in this case, will not form part of the actual rent received as contemplated by section 23(1)(b) of the Act. At the cost of repetition it may be mentioned that under section 23(1)(a), the Assessing Officer has to decide the fair rent/annual value of the property. While deciding the fair rent, various factors as discussed above are required to be taken into account. If on comparison of the fair rent with the actual rent received, the Assessing Officer finds that the actual rent received is more than the fair rent determinable as above, then the actual rent shall constitute the annual value under section 23(1)(b) of the Act. If fair rent calculated under section 23(1)(a) is more than the actual rent received, in that case annual value will be fair rent calculated in accordance with section 23(1)(a) of the Act. 17. Here we would like to refer a judgment of jurisdictional High Court in the case of CIT V.J.K. Investors (Bom.) Ltd. 248 ITR 723 (Bom.), against which SLP filed by the Department has been rejected by the Apex Court vide petition(s) for Special Leave to Appeal (Civil) CC 5480/2001 dated 01.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 8,90,825/-, calculated on the basis of notional interest calculated @ 8% on the amount of deposit without considering other aspects of the matter for calculation of annual value as per section 23(1)(a) of the Act as discussed above. Thus we find that merely by mentioning section 23(1)(a) by the Assessing Officer, it cannot be held that section 23(1)(a) has been invoked. In fact the Assessing Officer has invoked section 23(1)(b) of the Act. Merely making addition of notional interest in actual rent received is not calculation of the sum for which the property might reasonably be expected to let from year to year. The action of the Assessing Officer is not in accordance with section 23(1)(a) and also contrary to the judgment of jurisdictional high Court, therefore, the same is liable to be quashed. We accordingly set aside the order of AO and confirm the order of CIT(A) on this issue. 19. Ground of appeal no.3 is as under: On the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 8,07,231/- to business income by way of estimation of profit @ 8% on the contemplated portion of construction . 20. The facts of this ground are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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