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Facts
The assessee filed a return declaring NIL income for AY 2012-13, which was selected for scrutiny. The Assessing Officer (AO) made three additions: (1) a disallowance of Rs. 35,25,784/- under Section 14A read with Rule 8D, which the CIT(A) restricted to the exempt income of Rs. 5,94,013/-; (2) an addition of Rs. 2,38,000/- for notional rent under Section 23 for a bungalow and a shop, which the CIT(A) deleted as the properties were self-occupied or used for business; and (3) an addition of Rs. 16,58,56,095/- under Section 41(1) for cessation of liability, which the CIT(A) also deleted, classifying it as loans/advances.
Held
The Tribunal upheld the CIT(A)'s decision to restrict the Section 14A disallowance to the amount of exempt income, relying on the precedent set by PCIT v. Caraf Builders. It also confirmed the deletion of the notional rent addition under Section 23, affirming that the bungalow was self-occupied and the shop was used for business. Furthermore, the Tribunal dismissed the revenue's ground regarding Section 41(1), concluding that the liability was towards loans/advances and had not ceased.
Key Issues
1. Whether the disallowance under Section 14A read with Rule 8D should be restricted to the amount of exempt income. 2. Whether notional rent under Section 23 applies to a self-occupied bungalow and a shop used for business. 3. Whether a long-standing liability for loans/advances constitutes cessation of liability under Section 41(1).
Sections Cited
143(1), 14A, 8D, 23, 23(4)(a), 23(4)(b), 41(1), 250(4)
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Income Tax Appellate Tribunal, F BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI NARENDRA KUMAR BILLAIYA, HONBLEI.T.A. No. 1479/Mum/2025
सुनवाई की तारीख/Date of Hearing : 28/07/2025 घोषणा की तारीख / Date of Pronouncement: 31/07/2025 आदेश/ORDER PER NARENDRA KUMAR BILLAIYA, AM:
1. This appeal by the revenue is preferred against the order dated 30/12/2024 by NFAC, Delhi [hereinafter the 'ld. CIT(A)'] pertaining to AY 2012-13.
The grievance of the revenue reads as under:-
"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the onus of discharging the existence of liability by both parties has not been conclusively proved?
2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in holding that there is no case of remission of liability without conducting any verification vested in him calling for report of verification from Assessing Officer under Section 250(4) of the I.T. Act ?"
3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of 2,38,000/ made under Section 23 of the Act, on account of notional rent in respect of two premises, without appreciating the fact that the assessee has exercised an option under Section 23(4)(b) of the Act, when assessee possessed more than one house?
4. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary,
5. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance on account of cessation of liability under Section 41(1) of the Act amounting to 16,58,56,095/-, in the absence of necessary supporting evidences against the claim of loan and only a part as trading liability?"
Briefly stated the facts of the case are that the assessee filed his return of income on 30/09/2012 declaring income at Rs. Nil. The return was processed under Section 143(1) of the Act and subsequently selected for scrutiny assessment by CASS and accordingly statutory notices were issued and served upon the assessee. During the course of the assessment, the AO noticed that assessee has shown income exempt from tax but has not disallowed any expenditure under Section 14A read with Rule 8D. The AO proceeded by computing the disallowance under Section 14A read with Rule 8D and disallowed Rs.35,25,784/-.
3. 1. The assessee challenged the addition before the ld. CIT(A) and strongly contended that the exempt income of the assessee is Rs.5,94,013/- and, therefore, the disallowance should not exceed the amount of exempt income. The ld. CIT(A) was convinced with the explanation of the assessee and directed the AO to restrict the disallowance to the extent of exempt income i.e., Rs.5,94,013/-.
We have carefully considered the findings of the ld. CIT(A). The findings of the ld. CIT(A) is in line with the decision of the Hon'ble Delhi High Court in the case of PCIT v. Caraf Builders and Constructions Pvt. Ltd. (2019) 414 ITR 122 (Del.). Respectfully following the same, we decline to interfere.
5. Proceeding further the AO noticed that the assessee owns a bungalow at Deolali and a shop at Ahmedabad and found that the assessee has not offered income from house property regarding the same. Invoking the provisions of Section 23(4)(b) of the Act, the AO was of the firm belief that the annual value of the house or houses other than the house in respect of which the assessee has exercised an option under Section 23(4)(a) of the Act, shall be determined under sub-section (1) as such house or houses had been let out. The AO accordingly computed the notional ALV of bungalow at Deolali at Rs.1,68,000/- and shop at Ahmedabad at Rs.70,000/- and made addition of Rs.2,38,000/-.
1. The additions were challenged before the ld. CIT(A) and it was strongly contended that the house at Deolali is jointly owned by the assessee with his mother and is a self-occupied property and the shop at Ahmedabad is used for business. Therefore, the provisions of Section 23 of the Act do not apply on the facts of the case. The ld. CIT(A) found that on identical facts similar additions were deleted by his predecessor in the earlier years and drawing support from them the additions were deleted.
The fact that the house at Deolali is a self-occupied property and the shop at Ahmedabad is used by the assessee for his business are not controverted by the revenue. Therefore, we do not find any error or infirmity in the findings of the ld. CIT(A). This ground is accordingly dismissed.
7. The next issue relates to the deletion of disallowance made under Section 41(1) of the Act. The underlying facts in this issue are that, during the course of the assessment proceedings, the assessee was asked to furnish the details of creditors which were provided by the assessee. The AO noticed that the assessee owed Rs.16,58,56,095/- to M/s. Nissan Copper Ltd.. The assessee was asked to explain why payment was not made to sundry creditor. On receiving no plausible reply, the AO treated the liability as cessation of liability and made addition of Rs.16,58,56,095/-.
1. Before the ld. CIT(A), the assessee strongly contended that the liability is existing in the books of accounts of the assessee and has not ceased. It was also argued that the liability is towards loans/advances and, therefore, the same cannot be added under Section 41(1) of the Act. After considering the facts and the submissions, the ld. CIT(A) was of the opinion that merely because a debt has not been paid it would not automatically imply cessation of liability. Therefore, there is no question of invoking provisions of Section 41(1) of the Act and the addition was deleted.
The fact that the impugned amount refers to loans/advances has not been controverted by the revenue. Nor the revenue has brought anything on record to show that in the earlier years, the impugned amount was charged to profit and loss account. Since on facts provisions of Section 41(1) of the Act do not apply, we decline to interfere with the findings of the ld. CIT(A). This ground is also dismissed.
In the result, appeal of the revenue is dismissed.
Order pronounced in the Court on 31st July, 2025 at Mumbai.