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Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI R.K.PANDA & SMT BEENA A PILLAI
ORDER PER BEENA A PILLAI, J. M. The present appeal has been filed by assessee against order dated 08/01/15 passed by Ld. CIT (A)-20, New Delhi for Assessment Year 2010-11 on the following grounds of appeal. The learned CIT[A] AO has erred not deleting the entire 1.1 addition of Rs2,66,809 to notional income on account of self occupied house property in place of admitted notional income of Rs 66,099. The learned CIT[A] AO has erred in directing adoption of ALV 1.2 of Rs. 1,94,542 which is double of the ALV admitted by the Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. appellant at Rs. 97,271 in place of which the AO had adopted an arbitrary sum of Rs. 3,84,000 for notional income on account of self occupied house property. 2.1. The learned CIT[A] AO has erred in confirming the an addition of Rs.7,23,090 as notional interest income on the balances recoverable from related persons. 2.2. The law permits for only disallowance of interest paid on borrowings that are diverted for advancing interest free advances to related persons and that too for non-business purposes as well as establishing nexus between borrowings and funds diverted That the above grounds are independent and without 4 prejudice to each other. That the appellant seeks leave to add, amend, alter or 5 abandon any of the above grounds at the time of hearing of the appeal.
Brief facts of the case are as under: Assessee filed her return of income of Rs.2,09,50,500/- on 25/09/10. The case was processed under section 143 (1) of the Income Tax Act, 1961 (the Act) and subsequently was selected for scrutiny. Notice under section 142 (1) and 143 (2) along with questionnaire was issued to assessee, in response to which representative of assessee attended the proceedings from time to time and filed requisite details. 2.1. Ld.AO observed that assessee is dealing in trading of imported goods such as leather cloth, fabric, flock fabric etc in the name and style of M/s Global Overseas. It was observed that during the year under consideration assessee had declared gross Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. turnover of Rs.24.40 crores and net profit of Rs.1.70 crore as compared to gross turnover of Rs.18.38 crore and net profit of Rs.1.22 crore in the immediately preceding Assessment Year. 2.2. Ld.AO observed that assessee owned two residential houses, one which was used for her own self occupation, and the other was used by assessee to keep old records etc. and had not rented it out. Ld.AO observed that assessee had computed notional rent of the vacant house at Rs.97,271/-per annum. Ld.AO observed that the market rent deemed to arise from the vacant property amounted to Rs.3,84,000/-on the basis of an information acquired by him. He accordingly computed the annual let out value of the property at Rs.3,84,000/-. Ld.AO thus computed income from house property at Rs.2,66,809/-. 2.3. Ld.AO during the course of assessment proceedings observed that assessee had shown interest-free loans and advances given to 2 parties amounting to Rs.60,25,756/-. It was observed that though no interest was received by assessee on the loan advanced, assessee was paying an amount of Rs.17,939/-as interest to Sh. Sunil Mahajan on his loan of Rs. 5 Lacs paid by him to M/s Global Overseas (being the proprietary concern of assessee). The Ld.AO computed the rate of interest at 12% on the loan advanced by assessee and made an addition of Rs.7,23,090/-. 2.4. Assessing Officer observed that assessee had claimed certain expenses in respect of staff welfare, depreciation on car, car maintenance, Scooter expenses, telephone expenses which was disallowed on a proportionate basis, amounting to Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. Rs.1,06,658/, by holding the element of personal use by assessee.
Aggrieved by additions made by Ld.AO, assessee preferred appeal before Ld.CIT (A). Ld.CIT (A) directed Ld.AO to reduce the notional rent computed by assessee against the amount computed by Ld.AO. Ld.CIT (A) partly allowed appeal filed by assessee.
Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now.
At the outset it is observed that none had appeared on behalf of assessee. From the records placed before us it is observed that the notice has been issued at the address of assessee indicated in Form 36, by RP A.D. post on 10/05/2018, intimating date of hearing on 20/03/18. As none was present on behalf of assessee, case was adjourned to 27/07/18. Notice from this office was again issued by RP A.D. post on 14/05/18, intimating next date of hearing. Again none was present on 27/05/18, on behalf of assessee. It is observed that no adjournment application was filed either by assessee, or anyone on her behalf.
It is observed that assessee has filed this appeal in the year 2015. Considerable time has passed, and therefore we find it improper to further adjourn the case. Accordingly we are inclined to dispose of the appeal on the basis of the records placed before us as well as the submissions advanced by Ld. Sr.DR.
Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del.
Ground No. 1.1 & 1.2 These grounds deal with computation of notional rent computed by Ld.AO. 7.1. The facts concerning these grounds are that assessee had shown ALV of property held by her which was vacant at Rs.97,271/- p.a. whereas, Assessing Officer computed the ALV at Rs.3,84,000/. It was contended by assessee before Ld.CIT (A) that property falls under Category D, and ALV as per municipal valuation was Rs.60,683/- viz-a-viz, ALV computed by assessee at Rs.97,271/-. It was submitted by assessee before the Ld. CIT (A) that Assessing Officer did not provide the materials based on which market value was computed by Ld.AO at Rs.3,84,000/-. 7.2. Ld. Sr.DR submitted that the market value computed by Ld. AO was after making due enquiries. He placed reliance upon the decision of Sushma Singla vs. CIT reported in 2017-TIOL-170-SC- IT Supreme Court.
We have perused the submissions advanced by Ld.Sr.DR in the light of the records placed before us. 8.1. There is no two view that annual value of every 2nd property owned by an assessee, which remained vacant, would be assessable under section 23(1) (a) of the Act. It is observed that Ld.CIT (A) records that Assessing Officer without any basis took ALV at Rs.3,84,000/-. However Ld. CIT (A) only directs Ld. AO to reduce ALV adopted by assessee from the value adopted by Ld.AO. Further Assessing Officer disagrees with the value adopted by assessee without providing sufficient reasons/without any materials on record.
Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. 8.2. As per the provisions of section 23(1), the ALV has to be determined by taking into account the sum for which the property might reasonably be expected to let-out from year to year under section 23(1)(a) and then if the property is let-out then the Assessing Officer has to first take into account the actual rent received or receivable by the owner of the property. Thus, as per the provisions of section 23(1), the Assessing Officer has to first determine the fair rent under section 23(1)(a ) and then take into account the actual rent received or receivable by the assessee under section 23(1)(b) and only thereafter the Assessing Officer has to compare the fair rent under section 23(1)(a) with the actual rent received or receivable as per the section 23(1)(b). If Assessing Officer finds that actual rent is more than the sum as determined under section 23(1)(a), then ALV of the property would be actual rent. 8.3. Exercise of determination of ALV as per section 23(1) includes two steps, first determination of fair rent under section 23(1)(a ) and second actual rent received or receivable by the owner. For computation of sum for which a property might reasonably be expected to be let, Assessing Officer has to take into account various factors. It is settled principle by various decisions of Hon’ble Supreme Court and High Courts, that fair rent under section 23(1)(a ) may be determined by considering Municipal Value or standard rent of the property as the case may be. Therefore, the issue on merits was to be verified and examined properly by taking into account various factors required for determination of ALV as prescribed under section 23(1). In the facts before us, Ld. AO has not undertaken any Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. exercise for computation of ALV of the property by adopting methods, as provided under section 23(1). It is further observed that assessee had provided municipal valuation of the property for two different periods which has been considered by Ld.CIT (A) in her order. 8.4. We accordingly set aside this ground too Ld.AO for recomputing ALV of the vacant house owned by assessee in accordance with law and by providing proper opportunity to assessee to represent her contentions. 8.5. Accordingly this ground raised by assessee stands allowed for statistical purposes.
9. Ground No. 2.1 & 2.2 9.1. These grounds have been raised by assessee against addition on account of notional interest amounting to Rs.7,23,090/-. 9.2. Brief facts as submitted by assessee before Ld.CIT (A) regarding this issue are that assessee had advanced interest-free loans to M/s. Shikhar Enterprises and M/s. Sterling Impex, belonging to Mr Anil Mahajan. Ld.AO also observed that during the year Mr. Anil Mahajan along with assessee and Mr. Shikhar Mahajan jointly raised a loan of Rs.150 Lacs from HDFC bank which was credited to OD account of Mr. Anil Mahajan. A sum of Rs.5 lakhs out of borrowed loan was utilised by assessee on 24/12/09. 9.3. Further assessee vide letter dated 29/12/14 submitted before Ld.CIT(A) that, interest free advance to M/s. Shikhar Enterprises of Rs.56.17 lakhs was outstanding from the preceding years and there was no advances made during the year Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. under consideration. Assessee also submitted before Ld.CIT (A) that she has a capital of Rs.83.63 Lacs against interest-free advance of Rs.56.17 lakhs. By placing reliance upon the decision of Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd reported in 313 ITR 340, assessee submitted that there was sufficient funds available which were free of interest and therefore it could not be presumed that assessee had advanced loans from interest-bearing funds. 9.4. Ld.Sr.DR submitted that the assessee has advanced interest-free loans to her husband and sister concern and therefore Assessing Officer has rightly computed the interest expenses in the hands of assessee.
We have perused the submissions advanced by Ld.Sr.DR in the light of the records placed before us. 10.1. Assessee has submitted before Ld. CIT (A) that interest-free loans were extended out of the capital available with assessee. On perusal of the orders passed by Ld.AO as well as Ld.CIT (A) we do not find any material from which it could be discerned that assessee advanced loan of Rs.60,25,756/- from any borrowed funds. In fact, assessee borrowed a sum of Rs.5 lakhs from Sh.Anil Mahajan, on which she paid interest of Rs.17,939/-. It has also been observed by Ld.AO that the loan of 60,25,756/-has been advanced to sister concerns. 10.2. In the absence of the audited accounts before us we are unable to determine the true position. We therefore direct Ld. AO to verify the same from the audited balance sheet regarding availability of sufficient funds with assessee. In the event it is found that assessee has sufficient funds then following ratio laid Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del. down by Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd (supra) claim of assessee should be allowed. We accordingly set aside this issue to Ld. AO for verification as directed hereinabove. 10.3. Accordingly this ground raised
by assessee stands allowed for statistical purposes.
11. In the result appeal filed by assessee stands allowed for statistical purposes. Order pronounced in the Open Court on 26th July, 2018.
Sd/- Sd/- (RK PANDA) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: the 26th July, 2018 • Gmv Copy forwarded to : 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT // true copy // BY ORDER ASSISTANT REGISTRAR ITAT, New Delhi Mrs. Suman Mahajan vs. ACIT, Circle 39(1), N.Del.
Date 1. Draft dictated on dragon 26.7.18 Sr.PS 2. Draft placed before author 26.7.18 Sr.PS 3. Draft proposed & placed 26.7.18 JM/AM before the second member 4. Draft discussed/approved by JM/AM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on 26.7.18 Sr.PS 7. Order uploaded on 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the AR 10. Date on which file goes to the Head Clerk. 11. Date of dispatch of Order.