ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 IN INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM] I.T.A No. 2476/Kol/2013 Assessment Year: 2009-10 Vinodkumar Harshavardhan, HUF Vs. Assistant Commissioner of Income-tax, (PAN: AABHV5732K) Circle-30, Kolkata. (Appellant) (Respondent) Date of hearing: 05.10.2016 Date of pronouncement: 07.10.2016 For Appellant: Smt. Nilima Joshi, FCA For Respondent: Shri David Z. Chawn, DR ORDER Per Shri M. Balaganesh, AM: This appeal by assessee is arising out of order of CIT(A)-XIV, Kolkata vide appeal No. 873/CIT(A)-XIV/2011-12 dated 12.08.2013. Assessment was framed by ACIT, Circle- 30, Kolkata u/s. 143(3) of Income tax Act, 1961 (hereinafter referred to as Act ) for AY 2009-10 vide his order dated 29.12.2011. 2. first issue to be decided in this appeal of assessee is as to whether ld CITA is justified in upholding disallowance of interest paid in sum of Rs.30,11,441/- in facts and circumstances of case. 2.1. brief facts of this issue are that assessee has borrowed monies from several parties and had lent those monies to several parties and according to ld AO had also partially utilized same for investment in mutual funds. assessee had derived interest income of Rs.46,96,874/- out of its loans lent by it and had claimed deduction for interest paid in sum of Rs.30,11,441/- under head Income from Other Sources as expenditure incurred for purpose of earning interest income. ld AO found that nexus of borrowed funds utilized for giving loans to fetch interest income was not clearly proved by assessee as admittedly, assessee had also made investments in mutual funds for optimum utilisation of its funds. Accordingly, AO disallowed entire interest paid of Rs.30,11,411/- as expenditure not incurred for purpose of earning 2 ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 interest income. This action of AO was upheld by Ld. CIT(A). Aggrieved, assessee is in appeal before us on following ground no.1: 1. Ld. CIT(A) confirmed disallowance of interest paid of Rs.30,11,441/- unlawfully, deduction of which was taken against interest received of Rs.46,96,874/-. Ld. CIT(A) did not consider plea of assessee where it was claimed that loan funds received were utilized for giving of loans. 2.2. Ld. AR at time of hearing argued that loans borrowed were indeed utilized for giving interest bearing loans to several parties and assessee had rightly claimed payment of interest as expenditure incurred for purpose of earning interest income u/s. 57 of Act. She also furnished details of Balance Sheet of assessee HUF as on 31.03.2008 and 31.03.2009 and also gave break-up of loans received and loans paid as below: Loans received Loans paid Opening Balance Rs. 1.01 cr. Rs. 2.03 cr. Add: Fresh transactions during year Rs. 2.23 cr. Rs. 3.18 cr. Total : Rs. 3.24 cr. Rs. 5.48 cr. Less: Refunded during year Rs. 0.00 cr. Rs. 4.30 cr. Closing balance as on 31.03.2009 Rs. 3.24 cr. Rs. 1.19 cr. 2.3. Ld. AR pleaded that from aforesaid details it could be very well seen that amounts borrowed had been directly utilized for giving loans thereby proving nexus of borrowed funds being utilized for advancing of loans which fetched interest income. 2.4. In response to this, Ld. DR has vehemently relied on orders of lower authorities and urged before bench to confirm order of Ld. CIT(A). 2.5. We have heard rival submissions and gone through facts and circumstances of case. We find from details filed by Ld. AR before us that these details were not filed before lower authorities and hence, become additional evidence which deserves to be admitted in facts and circumstances of case and in interest of justice. Admittedly, ld AO did not have occasion to examine these figures in light of arguments advanced by Ld. AR. Hence, we deem it fit and proper to set aside this issue and restore matter back to file of ld AO with direction to assessee to explain before ld AO as to from which funds loans were given by assessee to various parties which ultimately fetched interest income. In instant case it is not in dispute that entire transaction of interest income earned by assessee would have to be taxed 3 ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 under head Income from Other sources as admittedly assessee is not engaged in any business activity. aforesaid details to be filed by assessee as directed hereinabove would enable allowability of claim of deduction u/s. 57 of Act with regard to interest paid by assessee. Accordingly, ground no. 1 of assessee s appeal is allowed for statistical purposes. 3. next ground to be decided in this appeal of assessee is as to whether Ld. CIT(A) is justified in upholding determination of annual rent @ Rs.30,000/- per month as against rental income declared by assessee in facts and circumstances of case. 4. Brief facts of this issue are that assessee had taken property on lease from one Shri Manishes Mallick vide irrevocable deed. In fact, this property is in possession of assessee for more than 30 years. earlier tenancy was with original landlord and Shri Manishes Mallick being legal heir of property confirmed old tenancy of assessee. salient features of said agreement are reproduced hereunder which are relevant for disposal of issue before us: (i) lease is perpetual lease. There is no clause regarding vacating premises by assessee. (ii) repairs and maintenance will be carried out by tenant at his or her own cost. (iii) tenant has right to make alteration in building including removing walls of rooms and verandas. (iv) landlady has been exonerated from any liability on account of repairs and maintenance charges in building. (v) cost of charges for alteration will be borne by tenant i.e. assessee. (vi) tenant is free to sub-let or assign tenancy to any third party without approval or consent of landlady. 4.1 above facts prove that assessee is deemed owner of property situated at No. 7/2, Queens Park, Kolkata-700 019. Accordingly, assessee had sublet subject mentioned property at Rs.7,200/- per month and declared same as Income from House Property after reducing municipal taxes paid by assessee and after claiming deduction towards 30% of repairs. It is not in dispute that rental income from subject mentioned property is to be assessed under head Income from House Property . ld AO 4 ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 observed that property is situated in one of most posh locality in city of Kolkata and accordingly show caused assessee to substitute fair market rent of subject mentioned property and called for details of same from assessee. assessee did not produce any details regarding same. ld AO deputed his Inspector to subject mentioned property and based on Inspector s report determined fair market rent at Rs.30,000/- per month and accordingly, proceeded to determine gross annual value at Rs.7,20,000/- and granted deduction at 30% for repairs on average basis without giving deduction for municipal taxes paid by assessee. This action of AO was upheld by Ld. CIT(A). Aggrieved, assessee is in appeal before us on following ground No. 2: 2. Ld. CIT(A) confirmed enhancement of income from House Property from Rs.4752/- to Rs.5,04,000/- unjustifiably, without understanding facts & figures. Ld. AO had given explanation in page No. 4 & 5 of order u/s. 143(3), that Assessee has shown Rental income under Income from Other sources . Factually, in return, it was offered under Income from House Property which shows Ld. AO did not think it necessary to go through Return or Computation of income. Before making order u/s. 143(3). Ld. CIT(A) was unjustified and unfair in considering Fair Market Rent at Rs.30,000/- per month each from two tenants. Notional interpretation of Fair Market Rent is totally unfair on part of Ld. CIT(A). Ld. CIT(A) did not consider plea of assessee where it was claimed that Rs.6412/- paid on account of Municipal Tax should have been allowed for deduction. 4.2. At time of hearing before us, Ld. AR argued that assessee had never received this exorbitant rent determined by AO and it would result in absurd situation of asking assessee to pay tax which would be several times more than actual rent received. In support of her argument she placed reliance on decision of Hon ble Calcutta High Court in case of CIT Vs. Kishanlal & Sons (Udyog) (P) Ltd. (2003) 260 ITR 481`(Cal). She also argued that Inspector of Income Tax Department is not technically qualified to determine fair market rent of property. Hence, she urged before bench to set aside orders of lower authorities. 4.3. In response to this, ld. DR argued that fact of determination of quantum of fair market rent by AO was never disputed by assessee before lower authorities and what ld AO has done in instant case is only in accordance with provisions of section 23 of Act which is supreme and which has to be followed as against decision relied on by Hon ble Calcutta High Court. He also argued that assessee on its part had not bothered to submit fair market rent or even municipal value to prove that fair 5 ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 market rent determined by AO is exorbitant compared to facts of case. He urged before bench to confirm action of Ld. CIT(A). 4.4. We have heard rival submissions and gone through facts and circumstances of case. We find that in instant case it is not in dispute that subject mentioned property which derived rental income is to be taxed under head Income from House Property . We have also gone through income tax return of assessee wherein assessee has duly shown same only under head Income from House Property . Hence, provisions of section 23 of Act would come into play for determination of actual value of subject mentioned property. provisions of section 23 read as under: [Annual value how determined. 23. (1) For purposes of section 22, annual value of any property shall be deemed to be (a) sum for which property might reasonably be expected to let from year to year; or (b) where property or any part of property is let and actual rent received or receivable20 by owner in respect thereof is in excess of sum referred to in clause (a), amount so received or receivable; or (c) where property or any part of property is let and was vacant during whole or any part of previous year and owing to such vacancy actual rent received or receivable by owner in respect thereof is less than sum referred to in clause (a), amount so received or receivable : 4.5. We also find that assessee had not produced any evidence with regard to fair market rent or municipal value determined municipal authorities on basis of which municipal taxes were levied by them. However, we find that actual rent received by assessee is far less than fair market rent determined by ld AO based on Inspector s report. We also find that ld AO while determining income from house property has not granted deduction towards municipal taxes paid by assessee which is squarely allowable as per provisions of Act. Ld. AO is directed to allow same after verification of proof of payment of municipal taxes. However, in order to meet ends of justice, we deem it fit and proper to set aside this issue to file of ld AO with corresponding direction to assessee to submit municipal valuation of subject mentioned property. ld AO also is hereby directed to ascertain going rate per sq. ft. at relevant point of time from jurisdictional sub-registrar s office. ld AO is directed to determine annual value of property based on any of methods as directed above or average of two and also in light of decision relied on by Ld. AR as stated supra, as admittedly said decision has not been controverted by Ld. 6 ITA No. 2476/Kol/2013 Vinodkumar Harshavardhan,HUF, AY 2009-10 CIT(A) in his appellate order. Accordingly, ground no. 2 raised by assessee is allowed for statistical purposes as indicated above. 5. In result, appeal of assessee is allowed for statistical purposes. Order pronounced in open court on 07.10.2016 Sd/- Sd/- (S.S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member Dated : 7th October, 2016 Jd.(Sr.P.S.) Copy of order forwarded to: 1. APPELLANT Vinodkumar Harshavardhan, HUF, 7/2, Queens Park, Kolkata-700 019 2 Respondent ACIT, Circle-30, Kolkata. 3. CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order, Asstt. Registrar. Vinodkumar Harshavardhan, HUF v. Assistant Commissioner of Income-tax, Circle-30, Kolkata