TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 534
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.... notice u/s 143(2) of the Act dated 18.8.2009 was issued and duly served on 27.8.2009. In response to the notice issued u/s 143(2) & 142(1) of the Act, the assessee's authorised representative Shri Prabhakar Rao and assessee Shri Bhaskar Murthy appeared from time to time and produced the books of accounts, bills & vouchers and other relevant material before the assessing officer. The A.O., after considering the details submitted by the assessee has passed the assessment order u/s 143(3) of the Act by making the following additions: i. Interest paid to HDFC Bank Rs.7,10,543/- ii. Interest paid on housing loan and disallowance of Statutory deduction u/s 24 Rs.2,81,179/- iii. Estimated income on House Property Rs.2,38,816/- iv. Disallowance of claim of loss of assets Rs.5,02,449/- v. Advertisement charges paid Rs.23,974/- vi. Disallowance of claim of depreciation on building used for the purpose of business Rs.45,503/- vii. Notional interest on investments Rs.26,02,952/- viii. Notional interest on investments Rs.41,25,000/- 3. The assessee challenged the assessing officer's order before the CIT(A). The Ld. CIT(A), after consider....
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....of Rs. 23,974/- as the decision of the Special Bench: Vizag in the case of Merylin Shipping Corporation has been kept under interim suspension' by the Hon'ble High Court of A.P. vide order dt.08/10/2012. h. The Id. CIT(A) ought to have conf i rmed the addi t ions of Rs. 26,02,952/- and Rs. 41,25,000/- towards notional interest charged on the investments made since the assessee is not offering any, income but incurring huge expenditure towards interest. i. Any other ground that may be urged at the time of hearing. 5. From the above grounds of appeal, the revenue has agitated the following issues for our consideration. a) Whether on facts and circumstances of the case, the CIT(A) is right in deleting the following additions made by the Assessing Officer? i. Interest paid to HDFC Bank of Rs. 7,10,543/- ii. Standard deduction and interest paid on borrowed capital of Rs. 2,81,979/- claimed u/s 24 of the Act. iii. Estimation of gross annual value from let out property of Rs. 2,38,816/- iv. Disallowance of advertisement expenditure u/s 40a(ia) of the Act of Rs. 23,974/-. v. Notional interest on investments in firms and companies of Rs. 26,02,952/- vi. Notional interest....
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....e invested in the partnership firm, assessee would not have earned this income. Though, the share of profit is exempt in the hands of the assessee, it has already suffered tax in the hands of the firm. Therefore, even assuming that the interest is paid on partner's capital account which is taxable in the hands of assessee, the same amount is deductible as business expenditure in the hands of the firm. Therefore, the legitimate taxes payable to the exchequer of the Government is already paid by the firm and balance amount is distributed among the partners which is being exempt u/s 10(2A) of the Act. The assessee has rightly claimed the interest paid on borrowed funds against the business income. Therefore, the A.R., urged to confirm the order of the CIT(A). 9. We have heard both the parties and perused the materials available on record and also considered the case laws cited by the revenue. It is undisputed fact that the assessee has invested Rs. 50 lakhs in the partnership firm and as a result of this investment, it has earned remuneration of Rs. 6 lakhs and share of income of Rs. 32,48,000/- from the firm. Unless this investment is being made, the assessee would not have earned t....
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....ousing loan. 11. The assessee owned a property at Himayatnagar, Hyderabad consisting of land admeasuring 380 Sq.yds. and a building consisting of 307 Sq.ft. The property was let out to partnership firm M/s. The Mithra Agencies for parking and making ready for PDI of Maruti Vehicles and the income from the said property was offered under the head income from house property. During the course of assessment, the assessing officer assessed the income from said property under the head income from other sources and disallowed the standard deduction and interest paid on borrowed capital u/s 24 of the Act of Rs. 34,200/- and Rs. 2,46,949/- respectively. During the appellate proceedings, the CIT(A) allowed the claim of the assessee and held that income from the said property is assessable under the head income from house property. 12. The Ld. D.R. submitted that the assessee owns a property ad measuring 380 Sq.yds. of land and built a small portion of building of 307 sq.ft. The property let out to firm was a vacant land therefore, the annual rental income from the said property should be assessable under the head income from other sources and deductions claimed u/s 24 of the Act being st....
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....assessee paying rent of Rs. 1,08,000/- to his wife for a house property which is measuring 650 sq.ft. Therefore, the A.O. applied the average rate of rent from assessee wife property to the assessee's property and estimated the gross annual rental value of Rs. 4,78,308/- and after allowing 30% rebate u/s 24 of the Act computed the income from house property at Rs. 2,38,816/- as against the assessee's declaration of Rs. 96,000/-. The CIT(A), after considering the submissions made by the assessee, deleted the additions made by the A.O., by holding that the said building is 40 years old situated in a residential locality and cannot be compared to the another building belonging to assessee's wife which is situated in a commercial locality. 16. The Ld. D.R. submitted that the plinth area of the property let out was 2880 sq.ft. and the rent offered to such building seems to be very low. The D.R, further, submitted that the assessee is paying a rent of Rs. 1,08,000/- on leased premises to his wife which is consisting of 650 sq.ft. which works out to Rs. 13.84ps. per sq.ft. Therefore, keeping in view of the locality, fair market value and the average rent paid on leased premises to his wi....
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....ad, whereas assessee wife property which is situated at Himayatnagar, a posh commercial locality. To arrive at an annual value one has to refer to section 22 of the Act. The said section prescribes the mode of computation of annual value which is the higher of the gross annual value received by the assessee, municipal valuation and fair market value of the property. In the present case, the municipal valuation of the said property as per the assessee's claim is Rs. 10,544/- and the assessee has received annual rent of Rs. 96,000/-. Further, the fair market value of the property cannot be ascertained from the same locality as the relevant materials are not available on record. So, from the above, it is very clear that the gross rent received by the assessee is higher of these three. The assessee has rightly adopted the gross annual value of Rs. 96,000/-, whereas the assessing officer without bringing on record any comparable cases, simply compared the property, which is situated in a different locality and estimated the income. The CIT(A), after examining the details of the property deleted the additions made by the A.O. Therefore, for the reasons stated above, we do not find any in....
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....mitted that the assessee has admitted interest income of Rs. 8,17,617/- for the assessment year 2006-07 on the same amount advanced to M/s. The Mithra Agencies and also he had offered Rs. 3,76,216/- as interest income from investment of Rs. 34,24,682/- from the firm M/s. Achyuta Automobiles. By applying the same principles, he should have received the interest from these two investments. The Ld. D.R. further submitted that the assessee is paying interest on borrowed funds for investing in these firms. Therefore, he should have estimated the interest income@ 12% on investment in firm. 23. On the other hand, the authorised representative of the assessee, submitted that the assessee is a partner in M/s. The Mithra Agencies and the investment in the firm represent his share capital as a partner. No interest was admitted because the partnership deed does not provide for interest in the firm. He further, submitted that when the firm has not paid interest nor provided in its books of accounts, the assessing officer cannot estimate the income from these two investments. He further, argued that there is no provision under the Income Tax Act to estimate notional interest on capital account ....
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....des for interest on partner's capital account. Admittedly, in the present case, the partnership deed does not provide for interest on capital. The assesse has earned share of income and remuneration from the partnership firm, as a result of these investments in the firm. The finding of the assessing officer is that the assessee ought to have collected the interest. If the assessee had not bargained for interest or had not collected any interest, the Income-Tax authorities could not fix a notional interest as due or as collected by the assessee. There was no provision in the Income-Tax Act, to authorise the assessing officer to include the income which is not due or not collected. The A.O. has not given any cogent reason to establish that such legal right to receive the income has arisen to the assessee. There is no evidence with the A.O., to show that the assesse has received any interest income. 25. It is pertinent to mention here that the Hon'ble Delhi High Court's decision in the case of Shivnandan Buildcon Pvt. Ltd. Vs. CIT & Anr. (2015) 93 CCH 46, wherein Hon'ble High Court held as follows: "On going through the reasoning adopted by the Commissioner of Income Tax, it appears....
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....ed the income as the amount of interest. The said addition was approved by the Commissioner of Income Tax (Appeals) and the Tribunal. 16. In this case there is no finding when the assessee had in fact received the interest or that the Jorhat Investments Ltd., had in fact paid the interest to the assessee and the interest was not reflected in the accounts. The finding is that the assessee ought to have charged interest. 17. The facts in the instant case are more or less identical with the case of Highways Construction Co... Pvt. Ltd. v CIT [1993] 199 ITR 702, wherein this court held (page 708) "There is no finding of fact to the effect that actually the loan had been granted to the managing director or any other person on interest, or that interest had actually been collected and the collection of the interest was not reflected in the accounts. The finding of the Income Tax Officer is that the assessee ought to have collected interest. In other words, the view of the Income Tax Officer, which has been accepted by the Tribunal, was that the assessee, as a good business concern, should not have granted interest-free loan, or should have insisted on payment of interest. If the....
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....ancial year. Therefore, it was decided not to charge any interest on the investment, hence no income was admitted on this investment. During the course of assessment, the assessing officer has estimated notional interest of Rs. 41,25,000/- @12% on the advance of Rs. 3,43,75,000/- and brought to tax. The assessee carried the matter to the CIT(A). During the course of appellate proceedings, the CIT(A) deleted the additions made by the A.O. by holding that without establishing that either interest was accrued or received as required under the provisions of the section 5 of the Act, the A.O. cannot make any additions. Aggrieved by the CIT(A) order, the Revenue is in appeal. 29. The Ld. D.R., submitted that the assessee has borrowed Rs. 3 crores from M/s. Achyuta Automobiles and the lender has charged interest on the money borrowed by the assessee. Therefore, whether the assessee claims it as a deduction or not, once the interest bearing funds utilized for making investment in another firm, the interest should be brought to tax. 30. On the other hand, the A.R. submitted that the assessee has advanced funds to M/s Bhanu Auto Agencies Pvt Ltd., out of the funds borrowed from its sister ....