Tribunal remands ALV assessment, deletes disallowance under Sec 14A. Separate entities, no actual expenditure.

The Tribunal partly allowed the appeal, remanding the Annual Letting Value assessment to the Assessing Officer and deleting the disallowance under Section 14A of the Act. The Tribunal found that the properties were used by separate legal entities and that the disallowance under rule 8D was incorrect due to the absence of actual expenditure related to earning exempt income.

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Issues:
1. Addition of annual letting value of properties for commercial use
2. Disallowance under section 14A of the Act

Issue 1: Addition of Annual Letting Value for Commercial Use
The appeal was against the addition of &8377; 5,41,262 by the AO as the annual letting value (ALV) of the properties was estimated at 8% of the recorded value in the balance sheet. The assessee argued that the properties were used for commercial purposes by companies where the assessee was a shareholder and director, and therefore, ALV estimation was incorrect. The CIT(A) dismissed the appeal, stating the properties were used by separate legal entities. The Tribunal noted that the companies were distinct legal entities and the business conducted through them did not equate to the assessee conducting business. The Tribunal found merit in the alternative argument that ALV should be determined based on the Annual Rateable Value by the Municipal Corporation in the absence of rent receipts. Relying on previous decisions, the Tribunal allowed the appeal for statistical purposes and remanded the issue to the AO for reassessment.

Issue 2: Disallowance under Section 14A of the Act
The appeal challenged the disallowance of &8377; 1,58,123 under section 14A of the Act by the CIT(A) and AO. The AO applied rule 8D for disallowance as the assessee had exempt income without corresponding expenditure disallowance. The Tribunal observed that the assessee had not claimed any expenses except bank charges, indicating no actual expenditure related to earning exempt income. Citing a precedent, the Tribunal held that where no actual expenditure was incurred in relation to exempt income, the provisions of rule 8D were not applicable. The disallowance under rule 8D(iii) was deemed incorrect and deleted. Following the precedent, the Tribunal allowed the ground raised by the assessee, partially allowing the appeal for statistical purposes.

In conclusion, the Tribunal partly allowed the appeal on both issues, remanding the ALV assessment to the AO and deleting the disallowance under section 14A of the Act.

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