ATUR INDIA P.LTD,MUMBAI vs. ASST CIT CIR 6(1), MUMBAI

Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.

The assessee is carrying business of construction of building, dams, power house etc. The common issue urged in these appeals relates to disallowance made u/s. 14A of the Act in all the three years.

Learned counsel appearing for the assessee submitted that the Assessing Officer has made disallowance u/s 14A r.w.r. 8D(2)(ii) relating to indirect interest expenses and also u/r. 8D(2)(iii) relating to administrative expenses. Learned counsel submitted that the assessee does not have grievance with regard to disallowance made u/r. 8D (2)(iii) of the I.T. Rules. With regard disallowance of indirect interest expenditure made u/r. 8D(2)(ii) of the I.T. Rules, the Learned AR submitted that the interest free funds available with the assessee are in far in excess of investments made and hence as per the decision rendered by Hon'ble Jurisdictional High Court in the case of CIT Vs. HDFC Bank Ltd. (366 ITR 505), no disallowance u/r. 8D(2)(ii) is called for. In this connection, he also drew our attention to the copies of the balance- sheets of the three years under consideration.

We have heard learned Departmental Representative and perused the record. We find merit in the contentions of the assessee. For the sake of convenience, we extract below details of own funds and investments available with the assessee in each of the three years as culled out from the Balance Sheet filed by the assessee. Rs. in lakhs Assessment year Own funds Investment 2008-09 (31.3.08) 1577 547 2009-10 1667 516 2010-11 1750 390 It can be noticed that own funds available with the assessee in each of the three years is more than investment made and hence disallowance u/r. 8D(2)(ii) of the I.T. Rules is not called for in view of the decision rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra). Accordingly, we set aside the order of learned CIT(A) passed on this issue and direct the Assessing Officer to delete the disallowance made u/r. 8D(2)(ii) of the I.T. Rules.

The next common ground urged in AY 2009-10 and 2010-11 relates to the assessment of Service charges received from the tenants as Income from other sources. The assessee has let out a property and collected rent by way of two components, viz., Rent and Service charges. The assessee offered both the receipts as income under the head Income from House Property. However, the AO assessed the services charges as income under the head income from other sources and the same was also upheld by the Ld CIT(A).

The Ld A.R submitted that the assessee has split the rental receipts into two components to suit certain purposes, but it has not provided any specialised services to the tenants. He submitted that the AO himself has noted down the nature of services as “providing maintenance of surrounding precints of the rented premises, supervising power and water supply, provision of car parking, disposal of garbage etc.”

On the contrary, the Ld D.R submitted that the assessee has collected separately the service charges and hence it is not related to the renting of premises. Accordingly he submitted that the AO has rightly assessed the same as income from other sources.

We heard the parties on this issue and perused the record. On a careful perusal of the nature of services described in the rental agreement, we are of the view that there is merit in the contentions of the assessee. The maintaining the surroundings and precincts, providing of car parking, maintaining electricity and water supply lines are, in our view, connected with normal renting of properties and hence they cannot be considered to be specialized services necessitating the assessment of charges, if any, collected for that purpose as income under the head Income from other sources.

One more issue that is urged in AY 2009-10 relates to the addition of notional rent of Rs.10,02,400/-. During the course of assessment proceedings, the AO asked the assessee to reconcile the rental income with the rental agreements. The AO noticed that there was a difference of Rs.13,75,630/-. After further reconciliation, there was still a difference of Rs.10,02,400/- in the case of rental agreement entered with M/s Athma Productions P Ltd. The AO assessed the same as income of the assessee. Before the Ld CIT(A), the assessee explained that assessee has terminated the lease with M/s Athma Productions P Ltd on 29-07-2008 and the said party has also vacated the premises in July 2008 itself. The assessee furnished a copy of letter dated 08-09-2008 written by it to M/s Athma Productions P Ltd acknowledging peaceful possession of the property. The assessee submitted that the very same premise was let out to M/s Meridhun Entertainment P Ltd under an agreement dated 28-06-2009 subsequently. It was further submitted that the security deposit of Rs.4,50,000/- collected from M/s Athma Productions P Ltd was credited as income of the assessee in June 2009, after settlement of dispute.

The Ld CIT(A) took the view that the rental income from immovable property is assessed under the Income from house property on notional basis. Accordingly he took the view that the rental income pertaining to the period in which the premise remained vacant should also be assessed on notional basis. Accordingly he upheld the order passed by the AO.

The Ld A.R submitted that the provisions of sec. 23(1)(c) shall apply to the premises let out to M/s Athma Productions Private Limited, since the vacancy has arisen in a let out property. He submitted that as per the provisions of sec. 23(1)(c) of the Act, the actual rent received should be taken as Annual letting value. Accordingly he submitted that the view taken by Ld CIT(A) was not in accordance with the provisions of the Act.

On the contrary, the Ld D.R supported the order passed by Ld CIT(A) on this issue.

We have heard rival contentions and perused the record. The income under the head “Income from house property” is assessed as per section 23 to 27 of the Act. Sec. 23 provides for the manner of determination of Annual Value of a property. As submitted by the assessee, the provisions of sec. 23(1)(c) governs the let out properties that remained vacant. The said provision reads as under:- “Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable.”

In the instant case, the impugned property was let and the termination notice was given in July 2008 and it was stated that the tenant has vacated the property in that month itself. The Ld A.R also made a statement at bar that the assessee has offered the rent pertaining to the period from April, 2008

In view of the above, we are unable to agree with the view expressed by Ld CIT(A) on this issue. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the assessment of Rs.10,02,400/- made on notional basis.

In the result, all the appeals filed by the assessee are treated as allowed. Order has been pronounced in the Court on 2.9.2016