AI Drafter 
TaxTMI 
TaxTMI 
2026 (5) TMI 1781
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....ar and the findings rendered therein shall apply mutatis mutandis to the remaining assessment years also. 2. The Revenue in the present batch of appeals has challenged the action of the learned CIT(A) in deleting the additions/disallowances made by the Assessing Officer on three common issues, namely, firstly, determination of enhanced Annual Letting Value under section 23(1)(a); secondly, disallowance of interest expenditure relatable to borrowed funds utilized for acquisition of commercial properties; and thirdly, disallowance made under section 14A read with Rule 8D despite the admitted position that no exempt income had been earned by the assessee during the relevant years. The issue-wise additions involved in the respective years are reproduced herein below: (i) Assessment Year 2013-14 - Addition on account of ALV of Rs. 1,08,92,616/-, disallowance of interest expenditure of Rs. 1,23,60,853/- and disallowance under section 14A of Rs. 16,79,804/-; (ii) Assessment Year 2014-15 - Addition on account of ALV of Rs. 1,08,92,616/-, disallowance of interest expenditure of Rs. 1,80,95,099/- and disallowance under section 14A of Rs. 13,97,249/-; (iii) Asses....
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....red appeal before the learned CIT(A). The learned CIT(A), after examining the documentary evidences, registered agreements, financial records and the judicial precedents governing the controversy, deleted all the additions/disallowances made by the Assessing Officer. Against such deletion, the Revenue is now in appeal before us. 6. Before us, the learned Departmental Representative strongly relied upon the assessment order and submitted that the Assessing Officer was justified in rejecting the rental structure adopted by the assessee and in determining the Annual Letting Value on the basis of fair market rent prevailing in the locality. According to the Revenue, the bifurcation of receipts into rent and amenities charges was merely an artificial arrangement intended to reduce taxable income assessable under the head "Income from House Property". It was further contended that the assessee had failed to establish direct nexus between borrowed funds and acquisition of property and therefore the learned CIT(A) erred in allowing deduction of interest under section 24(b). With regard to section 14A disallowance, the learned DR submitted that the provisions of section 14A apply irrespe....
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....on 14A by Finance Act, 2022 is prospective in operation and cannot be applied retrospectively to the years under consideration. 10. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the entire material placed on record including the leave and license agreements, amenities/facilities agreements, details of rental receipts, computation of income, interest expenditure details, balance sheet, ledger extracts and the judicial precedents relied upon by both the parties. At the very threshold, we find that the entire assessment framed by the Assessing Officer proceeds more on presumptions, generalized notions of commercial conduct and hypothetical market perceptions rather than on any tangible material demonstrating suppression of income, receipt of unaccounted consideration or diversion of borrowed funds by the assessee. The assessee company is engaged in leasing and exploitation of commercial properties coupled with provision of various commercial facilities and amenities to tenants occupying such premises. The record clearly reveals that the assessee had entered into duly executed and registered leave and license agreements for l....
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.... and the actual rent received thereunder constitutes the best evidence of the sum for which the property might reasonably be expected to let from year to year. The Hon'ble Delhi High Court in Moni Kumar Subba and the Hon'ble Bombay High Court in J.K. Investors (Bombay) Ltd. have also consistently held that actual rent received under genuine arm's length arrangements cannot be displaced merely on notional considerations or by imputing hypothetical additions unsupported by evidence. The Assessing Officer, in the garb of determining ALV, cannot assume unto himself the role of a rent control or valuation authority based merely upon subjective market perceptions. Taxation under the Income Tax Act has to proceed upon real income and legally admissible evidence and not upon hypothetical commercial expectations conceived in the mind of the Assessing Officer. 12. We further find considerable substance in the contention of the assessee that execution of separate agreements for rent and amenities is a normal, commercially recognized and legally permissible practice in modern commercial real estate transactions, particularly in the case of business centres, IT parks and high-end commercial ....
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....he properties under section 22, then the statutory deduction specifically contemplated under section 24(b) for interest on borrowed capital utilized for acquisition of such property becomes a natural and inevitable corollary flowing from the scheme of the Act itself. Section 24(b) does not require that the property should be used for business purposes; it merely requires that the borrowed capital should have been utilized for acquisition, construction or reconstruction of the property whose annual value is assessed to tax. From the records before us, we find that the assessee had duly furnished complete details demonstrating nexus between the borrowings and acquisition of the commercial properties. There is no finding by the Assessing Officer that the borrowed funds were diverted to sister concerns, utilized for personal purposes or siphoned away for non-income generating activities. Therefore, the denial of deduction was wholly unjustified. 14. The learned CIT(A), in our opinion, has rightly observed that taxation of rental receipts while simultaneously denying the corresponding borrowing cost incurred for acquisition of the income generating asset amounts to taxation of gross ....