2025 (5) TMI 1560 - AT - Income Tax

Income Tax Appeal Partially Succeeds: Reduced Disallowances Under Sections 14A, 36(1)(iii), and 23(4) for Tax Year 2016-17

ITAT Ahmedabad partially allowed the assessee's appeal for AY 2016-17. The Tribunal reduced disallowances under sections 14A, 36(1)(iii), and 23(4), ... Disallowance u/s 14A - HELD THAT:- As submitted that the assessee had own funds to the tune of Rs. 7.11 crores which is sufficient to make investments. Having gone through the facts on record, we hold that an amount of Rs. 5,000/- shall be considered as the expenses incurred for earning the dividend income. Disallowance of interest expenses u/s 36(1)(iii) - Assessee has advanced loan of Rs. 1.63 crores and has not charged the interest on the amount of loan of Rs. 11.62 lakhs - AO made addition of Rs. 54,130/- on account of interest received. The assessee had own capital of Rs. 7.11 crores. Since the assessee has sufficient capital to advance loan of Rs. 11.62 lakhs, we hold that no notional interest is chargeable nor disallowable. Addition on account of notional rent u/s 23(4) - AO determined notional rent @ Rs. 1 lakh per month - CIT(A) earlier determined the same at Rs. 50,000/- per month which the Revenue has not disputed. keeping in view the order of the Ld. CIT(A) in earlier year, the notional rent is determined at Rs. 50,000/- per month. ITAT Ahmedabad (Citation: 2025 (5) TMI 1560) allowed the assessee's appeal partly for AY 2016-17 against the CIT(A) order. The return showed loss; assessment u/s 143(3) raised income to Rs. 7,54,580 by disallowances u/s 14A (Rs. 3,15,860), u/s 36(1)(iii) (Rs. 54,130) and notional rent u/s 23(4) (Rs. 12,00,000). On s.14A, the Tribunal found dividend of Rs. 2,83,383 was from earlier investments and the assessee had sufficient own funds; holding that 'an amount of Rs. 5,000/- shall be considered as the expenses incurred for earning the dividend income,' and allowed Grounds 2-5. On s.36(1)(iii), loans advanced without charging interest were funded from own capital; the Tribunal held 'no notional interest is chargeable nor disallowable,' allowing Ground 6. For s.23(4) notional rent, the Tribunal followed the CIT(A)'s earlier-year determination and fixed notional rent at Rs. 50,000 per month (partly allowing Ground 7). Overall, the appeal was partly allowed.