Tribunal decision on ALV income upheld, interest expenditure issue restored for further inquiry.

The Tribunal upheld the CIT(A)'s decision regarding the addition of Annual Lettable Value (ALV) as income from house property for Assessment Years 2013-14 and 2014-15, stating that properties remaining vacant despite efforts could avail benefits under section 23(1)(c). However, in the matter of disallowance of interest expenditure, the Tribunal found the CIT(A) had not adequately established the nexus between interest-bearing loans and interest income, leading to the restoration of the issue for further inquiry. The Department's appeals were partly allowed for statistical purposes in both assessment years.

---

---

Issues Involved:
1. Addition on account of Annual Lettable Value (ALV) as income from house property.
2. Disallowance of interest expenditure.

Issue-wise
Detailed Analysis:

1. Addition on account of Annual Lettable Value (ALV) as income from house property:
Assessment Year 2013-14:
- Facts: The AO observed that the assessee had shown "income from house property" from various properties in different years, but some properties were shown at "Nil" for the assessment year 2013-14. The AO applied section 23(1)(a) of the Act, adding notional ALV of Rs. 63,37,765/- to the total income.
- Assessee's Argument: The properties were not capable of being let out due to lack of parking space, global recession, and non-availability of tenants despite best efforts. The assessee relied on case laws to argue that section 23(1)(a) should not apply if the property could not be let out for reasons beyond control.
- CIT(A)'s Decision: Accepted the assessee's arguments and deleted the addition, stating that if the property remained vacant and was not let out, the ALV should be considered NIL under section 23(1)(c).
- Department's Argument: The CIT(A) did not verify the facts or ascertain reasons for the properties lying vacant. Relied on judicial precedents indicating that section 23(1)(c) does not apply to properties that remained vacant throughout the year.
- Tribunal's Decision: The Tribunal upheld the CIT(A)'s decision, emphasizing that if properties were let out in previous years but remained vacant despite best efforts, the assessee could avail benefits under section 23(1)(c). The Tribunal dismissed Ground No. 1 of the Department's appeal.

Assessment Year 2014-15:
- Facts and Issues: Similar to the assessment year 2013-14.
- Tribunal's Decision: Applied the same findings as the assessment year 2013-14 and dismissed Ground No. 1 of the Department's appeal.

2. Disallowance of Interest Expenditure:
Assessment Year 2013-14:
- Facts: The assessee claimed interest expenditure of Rs. 1,42,98,568/-. The AO disallowed Rs. 99,21,084/- due to the failure to establish a direct nexus between the interest expenses and loans taken for earning interest.
- CIT(A)'s Decision: Allowed the appeal, stating that the income under section 56 was more than the expenses claimed under section 57. Relied on previous CIT(A) decisions for earlier years.
- Department's Argument: The CIT(A) passed a cryptic order without verifying the nexus between interest-bearing loans and interest income.
- Tribunal's Decision: The Tribunal found that the CIT(A) did not clearly establish the nexus or discuss how interest-bearing funds were used to earn interest income. The matter was restored to the CIT(A) for a detailed enquiry. Ground No. 2 of the Department's appeal was allowed for statistical purposes.

Assessment Year 2014-15:
- Facts and Issues: Similar to the assessment year 2013-14.
- Tribunal's Decision: Applied the same findings as the assessment year 2013-14 and allowed Ground No. 2 for statistical purposes.

Conclusion:
- Assessment Year 2013-14: The appeal of the Department was partly allowed for statistical purposes.
- Assessment Year 2014-15: The appeal of the Department was partly allowed for statistical purposes.
- Combined Result: Both appeals filed by the Revenue were partly allowed for statistical purposes.

Order pronounced in the open court on 10-11-2022.

---