Tribunal allows appeal on 14A disallowance & instructs reevaluation of letable value

The Tribunal allowed the appeal of the assessee for statistical purposes on both issues. Regarding the disallowance under section 14A r.w.r. 8D(2) of the Income Tax Rules, the Tribunal held that no disallowance was required as the assessee had deployed own funds exceeding the investment for exempt income. The Tribunal directed a 0.5% computation on the investment for disallowance under Rule 8D(2)(iii). Concerning the calculation of the annual letable value of the inherited house property, the Tribunal set aside the Ld. CIT(A)'s decision and instructed the AO to verify the habitability of the house before determining a reasonable annual letting value.

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Issues:
1. Disallowance under section 14A r.w.r. 8D(2) of the Income Tax Rules.
2. Calculation of annual letable value of inherited house property.

Issue 1: Disallowance under section 14A r.w.r. 8D(2) of the Income Tax Rules:
The appeal was against the Ld. CIT(A)'s decision upholding the disallowance of Rs. 1,37,387 under section 14A r.w.r. 8D(2) of the Rules for AY 2013-14. The AO disallowed the amount as the assessee failed to provide specific utilization of the loan received and interest paid, and did not prove that investments were exclusively from own funds. The Ld. CIT(A) confirmed the disallowance. However, the Tribunal noted that no disallowance was required under Rule 8D(2)(ii) as the assessee had deployed own funds far exceeding the investment for exempt income. The Tribunal relied on a Bombay High Court decision and directed the AO to compute 0.5% on the investment for disallowance under Rule 8D(2)(iii) based on a previous Tribunal decision.

Issue 2: Calculation of annual letable value of inherited house property:
The AO estimated the annual letable value of a house inherited by the assessee at Rs. 1,20,000 per annum, despite it being in a dilapidated condition in a non-habitable village in Rajasthan. The Ld. CIT(A) upheld this estimation, leading to an addition of Rs. 84,000. The Tribunal noted that the house was shown in the Balance Sheet and the AO did not inquire into its habitability before estimating the value. Considering the dilapidated state and non-habitable condition, the Tribunal set aside the Ld. CIT(A)'s order and directed the AO to verify the condition of the house. If found non-habitable, no deemed provision should apply; otherwise, a reasonable annual letting value should be determined after hearing the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes on both issues.

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