Case Law Details

Case Name : Shri Basant Kumar Nahata Vs ACIT (ITAT Kolkata)
Appeal Number : I.T.A. No. 2400/Kol/2018
Date of Judgement/Order : 07/06/2019
Related Assessment Year : 2013-14
Courts : All ITAT (7473) ITAT Kolkata (598)

Shri Basant Kumar Nahata Vs ACIT (ITAT Kolkata)

It is noted that a house property was inherited by the assessee in his native village situated at Rajasthan which was duly shown in his Balance Sheet. Since the assessee has residential house at Kolkata, the AO invoked sec. 22 and 23 of the Act, estimated the annual letable value at Rs. 1,20,000/-, i.e. Rs.10,000/- per month. It was brought to our notice that the house in question is an old house, which is in a dilapidated condition and so it is not habitable. Therefore, according to Ld AR, the question of letting out of the property does not arise. It was also brought to our notice that no inquiry was carried out by the AO before estimating the annual letable value of the house despite the assessee pointed out this fact to the AO that the house in question is an old house, which is in a dilapidated condition and so it is not habitable and therefore, the question of letting out of the property does not arise. Taking in to consideration the aforesaid facts, in the interest of justice and fair play, I set aside the order of Ld. CIT(A) and restore the matter to the file of AO to verify the contention of the assessee that the house in question is in a dilapidated condition and not habitable. The AO after making enquiries finds the contention of the assessee to be correct then no deemed provision of sec. 22 read with section 23 should be saddled on the assessee. If the contention of the assessee fails and the house is habitable then the AO to make reasonable annual letting value considering the location and rent which the house could fetch in that locality in accordance to law after hearing the assessee. Therefore, this ground of appeal of assessee is allowed for statistical purpose.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by assessee is against the order of Ld. CIT(A) – 13, Kolkata dated 04.09.2018 for AY 2013-14.

2. The first ground of appeal of assessee is against the action of Ld. CIT(A) in upholding the disallowance of Rs.1,37,387/- u/s. 14A r.w.r. 8D(2) of the Rules.

3. Briefly stated facts as observed by the AO are that at the time of scrutiny, the AO noted that the assessee has made investment in shares and mutual funds and also the assessee has claimed a sum of Rs.3,54,904/- towards interest paid and Rs.7,414/- as bank and demat charges. Accordingly, the AO asked the assessee to explain as to why disallowance u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) should not be made in the view of investment which is related to exempt income. In response, the Ld. AR of the assessee replied vide letter dated 19.01.2016 which has been reproduced by the AO at page 2 in his assessment order. And after considering the said reply, the AO observed that the Ld. AR of the assessee has presented an overall view of the matter but failed to file the specific utilisation of the loan received and interest paid thereon other than a mere statement that “the entire loan funds taken were deployed in earning of taxable income”. According to AO, thereby, the assessee failed to file any supporting documentary evidences that the loan received were not utilized for any investment which earned him exempt income. Further, the AO noted that the assessee also failed to prove that all such investments were exclusively from his own funds and not from the common kitty of funds. Therefore, according to AO, since such expenses cannot be segregated, disallowance u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”) is applicable in this case and such interest expense will be considered for calculation of disallowance u/s. 14A, r.w.r. 8D of the Rules. Hence, the AO disallowed an amount of Rs.1,37,387/-, calculation of which is available at page 4 of the assessment order, and added the same to the taxable income of the assessee. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee is before this Tribunal.

4. After having heard the rival submissions and gone through the facts and circumstances of the case, it is noted that section 14A disallowance under Rule 8D(2)(i) of Rs.7413/-, so, is confirmed. However, the controversy in respect of disallowance made by AO under Rule 8D(2)(ii) i.e., whether any interest expenditure can be attributed to earning of exempt income. It is noted that assessee has deployed own funds to the tune of Rs.4.39 cr. and investment to earn exempt income is only to the tune of Rs.46 lacs, so, no disallowance need to be made under Rule 8D(2)(ii) of the Rules. For that we rely on the decision of the Hon’ble Bombay High Court in CIT-vs.- Reliance Utilities & Power Ltd. reported in 313 ITR 340 (Bom.). Further, in respect of disallowance under Rule 8D(2)(iii) the AO is directed to compute 0.5% on the investment on which the assessee earned dividend income as held by this Tribunal in REI Agro Ltd. 144 ITD 141.

5. The next issue is with regard to the annual letable value of the house property which the assessee stated to have inherited from his mother on which the AO has calculated the annual letable value invoking sec. 22 and 23 of the Act. According to assessee, the house is in dilapidated condition in a village situated in the State of Rajasthan which is not habitable at all and, therefore, cannot be let out to anybody so, therefore, it was pleaded before the AO that by invoking the deeming provision it should not be taxed. However, the AO did not agree and he estimated the annual letable value at Rs.1,20,000/- per annum and after having given the standard deduction of 30% on it made an addition of Rs.84,000/-. On appeal, the Ld. CIT(A) confirmed the action of AO. Hence, the assessee is before this Tribunal.

6. After having heard the rival submissions and gone through the facts and circumstances of the case, it is noted that a house property was inherited by the assessee in his native village situated at Rajasthan which was duly shown in his Balance Sheet. Since the assessee has residential house at Kolkata, the AO invoked sec. 22 and 23 of the Act, estimated the annual letable value at Rs. 1,20,000/-, i.e. Rs.10,000/- per month. It was brought to our notice that the house in question is an old house, which is in a dilapidated condition and so it is not habitable. Therefore, according to Ld AR, the question of letting out of the property does not arise. It was also brought to our notice that no inquiry was carried out by the AO before estimating the annual letable value of the house despite the assessee pointed out this fact to the AO that the house in question is an old house, which is in a dilapidated condition and so it is not habitable and therefore, the question of letting out of the property does not arise. Taking in to consideration the aforesaid facts, in the interest of justice and fair play, I set aside the order of Ld. CIT(A) and restore the matter to the file of AO to verify the contention of the assessee that the house in question is in a dilapidated condition and not habitable. The AO after making enquiries finds the contention of the assessee to be correct then no deemed provision of sec. 22 read with section 23 should be saddled on the assessee. If the contention of the assessee fails and the house is habitable then the AO to make reasonable annual letting value considering the location and rent which the house could fetch in that locality in accordance to law after hearing the assessee. Therefore, this ground of appeal of assessee is allowed for statistical purpose.

7. In the result, the appeal of assessee is allowed for statistical purposes.

Order pronounced in the open court on 7th June, 2019

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