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Facts
The assessee filed his return for AY 2016-17 declaring a loss. The Assessing Officer completed the assessment at a high income, making disallowances under Section 14A, Section 36(1)(iii), and Section 23(4) for notional rent. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that Rs. 5,000/- should be considered as expenses for earning dividend income under Section 14A. For disallowance of interest expenses under Section 36(1)(iii), it was held that no notional interest is chargeable as the assessee had sufficient capital. For notional rent under Section 23(4), it was determined at Rs. 50,000/- per month, aligning with the CIT(A)'s earlier year order.
Key Issues
Whether the disallowances made by the Assessing Officer under Section 14A, Section 36(1)(iii) and Section 23(4) are justified, considering the facts of the case and the assessee's own funds.
Sections Cited
14A, 36(1)(iii), 23(4), 250, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMARSHRI T.R. SENTHIL KUMAR
(Assessment Year: 2016-17) Ashishkumar Shashikant Doshi, Vs. The Deputy Commissioner of Swastik Building, Main Road, Near Income Tax, City Police Station, Palanpur, Circle, Gandhinagar Gujarat-385535 [PAN No. AFQPS 1238 F] (Appellant) .. (Respondent) Appellant by : Shri Parin S. Shah, AR Respondent by: Shri S.K. Agal, Sr DR Date of Hearing 24.04.2025 Date of Pronouncement 01.05.2025 O R D E R PER: DR. B.R.R. KUMAR, VICE PRESIDENT:
This appeal has been filed by the assessee against the order passed by the Ld. Commissioner of Income-Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 18.06.2024, passed u/s 250 of the Income-tax Act, 1961, (hereinafter referred to as "the Act" for short) for the Assessment Year (AY) 2016-17.
In this case, the assessee has filed his return of income for the year under consideration on 16.10.2016 declaring total income of Rs.(-)8,15,407/-. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer thereafter completed the assessment u/s 143(3) of the Act on 27.12.2018, assessing the total income of the assessee at Rs.7,54,580/-, by making following additions/disallowances :-
i. Disallowance u/s 14A of the Act - Rs.3,15,860/- ii. Disallowance of interest expenses u/s 36(1)(iii) of the Act - Rs. 54,130/- iii. Addition on account of notional rent u/s 23(4) of the Act - Rs.12,00,000/-
Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A) who dismissed the appeal of the assessee.
Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
We have heard both the parties and perused the material available on record.
Disallowance u/s 14A:-
The assessee has earned dividend of Rs.2,83,383/- against which the Assessing Officer made disallowance of Rs.3,15,860/-. The assessee submitted that this dividend is out of investment in shares earlier and no amount was spent in earning the exempt income. It was submitted that the assessee had own funds to the tune of Rs.7.11 crores which is sufficient to make investments. Having gone through the facts on record, we hold that an amount of Rs.5000/- shall be considered as the expenses incurred for earning the dividend income. Appeal of the assessee on Ground Nos. 2, 3, 4 & 5 are hereby allowed.
Disallowance u/s 36(1)(iii)
During the year the assessee has advanced loan of Rs.1.63 crores and has not charged the interest on the amount of loan of Rs.11.62 lakhs. The Assessing Officer made addition of Rs.54,130/- on account of interest received. The assessee had own capital of Rs.7.11 crores. Since the assessee has sufficient capital to advance loan of Rs.11.62 lakhs, we hold that no notional interest is chargeable nor disallowable.
Appeal of the assessee on Ground No. 6 is hereby allowed.
Addition u/s 23(4) of the Act
The Assessing Officer determined notional rent @ Rs.1 lakh per month, amounting to Rs.12 lakhs per annum. The Ld. CIT(A) earlier determined the same at Rs.50,000/- per month which the Revenue has not disputed. Hence, keeping in view the order of the Ld. CIT(A) in earlier year, the notional rent is determined at Rs.50,000/- per month.
Appeal of the assessee on Ground No.7 is partly allowed.
In the result, the appeal of the assessee is partly allowed.
This Order pronounced in Open Court on 01.05.2025