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Income Tax Appellate Tribunal, “J”, BENCH, MUMBAI
Before: SHRI RAJENDRA, AM & SHRI RAM LAL NEGI, JM
राजस्व की ओर से /Revenue by : Ms. Arju Garodia (DR) यनर्ावररती की ओर से /Assessee by : None सुनर्ाई की तारीख / Date of Hearing : 03/08/2017 घोषणा की तारीख/Date of Pronouncement: 13/10/2017 आदेश / O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the revenue against order dated 25/08/2015 passed by the Ld. CIT (A)-15, Mumbai pertaining to the Assessment Year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal of the appellant/ assessee against assessment order passed u/s 143(3) of the Income Tax Act, 1961 (for short ‘the Act’)
Brief facts of the case are that the assessee engaged in legal profession filed return of income for the assessment year under consideration declaring the total income of Rs. 28,84,08,520/-. The return was selected for scrutiny assessment and accordingly AO issued notice under section 143 (2) and 142 (1) of the Act. In compliance thereof the authorized representative of the assessee appeared before the AO and furnished the details called for. It was noticed that 2 Assessment Year: 2011-12 the assessee had valued his farmhouse in Pune, at Rs. 75,30,232/-. The AO following the decision of Radha Devi Dalmiya Vs. CIT 125 ITR 134 and the decision of Gujarat High Court in the case of Bipinbhai Vadilal, Family Trust Vs. CIT 2008 ITR 1005, determined the expected reasonable rent at 8% of the value of the property and made addition of Rs. 4,21,694/-. Similarly, it was noticed that the assessee had earned exempt income and had not made any suo motu disallowance, AO issued show cause notice as to why the provisions of section 14A should not be applied and after hearing the submissions of the assessee made disallowance @ 0.5% as per rule 8D (2)(iii), amounting to Rs. 51,30,492/.
The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) following the order of the Hon’ble Bombay High Court passed in M.V. Sonawala Vs. CIT 246 ITR 177 (Bom) directed the AO to make computation of income from house property on the basis of municipal ratable value and directed the AO to compute the value accordingly. The Ld. CIT(A) deleted the disallowance of Rs. 51,30,492/-made u/s 14A read with Rule 8 of the Income Tax Rules, relying on the decision of ITAT Mumbai in the case of ACIT 11(2) vs. Iqbal M Chagla in ITA No. 877/Mum/2013. The revenue is in appeal against the impugned order passed by the Ld. CIT (A).
The revenue has raised the following effective ground of appeal against the impugned order passed by the Ld. CIT (A):-
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting addition of Rs. 4,21,694/- on account of Expected Reasonable Rent as per section 23(1) of the Income Tax Act, which is calculated @ 8% of the value of property as per balance sheet value. This norm is accepted in many court cases.
3 Assessment Year: 2011-12
2. On the facts and circumstances of the case the order of the Ld. CIT (A) has erred in deleting disallowance of Rs. 51,30,492/- being 0.5% of average value of investment u/s 14A r.w.r. 8D (2)
(iii) for the exempt income earned by the assessee. 3. On facts and in circumstances of the order of the ld. CIT (A) is perverse in as much as the CIT (A) has not taken into consideration the facts.”
The Case was called for hearing, however, none appeared on behalf of the assessee. We noticed that the Ld. CIT(A) has partly allowed ground No. 1 of the appeal relying on the decision of Hon’ble Bombay High Court and allowed the second ground relying on the decision of ITAT Mumbai, we decided to proceed with the case and dispose of the appeal on the basis of material on record, after hearing the Departmental Representative (DR). Accordingly, we asked the Ld. DR to argue the appeal.
As regards the first ground of appeal, the Ld. DR relying on the assessment order passed by the AO submitted that the Ld. CIT (A) has wrongly directed the AO to compute the income on the basis of municipal ratable value. Hence, the order is liable to be set aside. Since, the AO has determined the expected reasonable rent within the meaning of section 23(1) of the IT Act in accordance with the decision of Hon,ble Allahabad High Court rendered in Radha Devi Dalmiya vs. CIT and the decision of Hon’ble Gujarat High Court in Sri Bipinbhai Vadilal Family Trust vs. CIT 208 ITR 1005, the Ld. CIT (A) ought to have confirmed the action of the AO.
We have perused the material on record in including the cases relied upon by the authorities below. We find that the Ld. CIT (A) has directed the AO to compute the income in question on the basis of municipal ratable value in accordance with the decision of the Hon’ble High Court of Bombay in M.V.
4 Assessment Year: 2011-12 Sonawala Vs. CIT (supra), wherein it has been held that the income from house property has to be computed on the basis of some receipt by the property let out year to year and municipal value. Since, the impugned order in question is in accordance with the law laid down by the jurisdictional High Court and the issue involved is fully covered by the judgment of the Hon’ble jurisdictional High Court aforesaid, we do not find any reason to interfere with the findings of the Ld. CIT (A). Hence, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. We accordingly direct the AO to compute the income of the assessee on the basis of municipal ratable value.
8. Second ground pertains to addition u/s 14A of the Act. The Ld. DR submitted that the Ld. CIT (A) has wrongly deleted the addition without taking into consideration the entire facts of the case. The Ld. DR further submitted that though in audit report the expenses in respect of such income was shown as nil, yet the overall supervisory use of manpower and infrastructure used to earn exempt income cannot be ruled out. Therefore, the Ld. AO has rightly made addition of .5% of average value of the investment u/s 14A read with rule 8D (2) of the Income Tax Rules.
We have gone through the entire material on record including the cases relied upon by the authorities below. We notice that the co-ordinate Bench of the Tribunal in ACIT vs. Iqbal M Chagla (supra) has decided the identical issue in favour of the assessee. The relevant portion of the decision reads as under:-
“The Assessee had not claimed any expenditure in its P & L A/c so the onus was on the Assessing Officer to prove that out of the expenditure incurred under various heads a part of some expenses were related to earning of exempt income. He is just adopted the formula of estimating expenditure on the basis of investments. But the justification for calculating the disallowance is missing. Provision of Rule 8D cannot and should not be applied in a mechanical way.
5 Assessment Year: 2011-12 Facts of the case have to be analyzed before invoking the provisions. We are of the opinion that the Assessing Officer had not deliberated upon the facts of the case before making the disallowance, whereas the FAA has decided the issue on merits. Therefore confirming his order, we decide the effective ground of appeal against the Assessing Officer.”
In the present case since, the assessee had not claimed any expenditure in P&L Account the onus was on the Assessing Officer to prove that out of the expenditure incurred under various heads, a part of some expenses were related to earning of exempt income. However, the AO has calculated the disallowance without pointing out as to which part of the expenses relates to exempt income. Since, the facts of the present case are identical to the facts of the case relied upon by the Ld. CIT (A) and the Ld. CIT (A) has deleted the addition in question by following the decision of the Mumbai Tribunal aforesaid, we do not find any reason to interfere with the findings of the Ld. CIT (A). We accordingly uphold the findings of the Ld. CIT (A) and dismissed this ground of appeal of the revenue.
In the result, appeal filed by the revenue for assessment year 2011-12 is dismissed.