M/s. Jay Laxmi Land Developers, Ahmedabad V. The Income tax Officer,Ward-1, Anand

ITA 1171/AHD/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 8625 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-01-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANIL R SHAH
• Keywords: Business income

Judgement Text

, , , , B, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, B BENCH . .. . . .. . , !' !' !' !', , , , #$ %&'( #$ %&'( #$ %&'( #$ %&'(, , , , )* + ) ' )* + ) ' )* + ) ' )* + ) ' BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER) ITA NO.1171/AHD/2011 [ASSTT.YEAR : 2006-2007] M/S.JAY LAXMI LAND DEVELOPERS B-07, JAY LAXMI TOWER, GANESH CHOWKDI, ANAND. PAN : AAFFJ 1432 Q /VS. ITO, WARD-1 ANAND. ( (( ( -. -. -. -. / APPELLANT) ( (( ( /0-. /0-. /0-. /0-. / RESPONDENT) 1& 2 3 ) / ASSESSEE BY : SHRI ANIL R. SHAH, AR + 2 3 ) / REVENUE BY : SHRI V.K. SINGH, SR.DR 5 2 &(* / DATE OF HEARING : 5 TH JANUARY, 2015 678 2 &(* / DATE OF PRONOUNCEMENT : 02-02-2015 )9 / O R D E R PER G.C. GUPTA, VICE-PRESIDENT: THIS APPEAL BY THE ASSESSEE FOR THE ASSTT.YEAR 2006-2007 IS DIRECTED AGAINST THE OR DER OF THE CIT(A). 2. THE GROUND NO.1 AND 2 OF THE ASSESSEES APPEAL A RE AS UNDER: 1.(A) THE CIT(A) HAS ERRED IN CONFIRMING THE ADOPTI ON RS.18,83,000/- A INCOME FROM HOUSE PROPERTY WHICH IS NOT EARNED OR ACCRUED AND THE SAID INCOME IS NOT TA XABLE IN THE HANDS OF THE APPELLANT AS INCOME FROM HOUSE PROPERTY. ITA NO.1171/AHD/2011 -2- THE RENT RECEIVED FROM VARIN COMMERCIAL PVT. LTD., IS INCOME FROM BUSINESS AS DECLARED BY THE APPELLANT A ND THEREFORE, THE SAID INCOME OUGHT TO HAVE BEEN ACCEP TED AS BUSINESS INCOME BY THE ITO. (B) THE CIT(A) ALSO ERRED IN CONFIRMING THE ANNUAL VALUE OF PROPERTY AT RS.26,90,000/- WHICH IS NOT SUPPORTED B Y ANY EVIDENCE. SINCE THE PROPERTY WAS RENTED AND ACTUAL RENT WAS RECEIVED THE INCOME FROM PROPERTY CANNOT BE TAK EN AT A FIGURE HIGHER THAN ACTUAL INCOME EARNED FROM T HE PROPERTY. WITHOUT PREJUDICE YOUR APPELLANT SUBMITS THAT THE PROPERTY CAN AT BEST BE TAKEN AS PER ANNUAL LETTING VALUE DETERMINED BY THE BARODA MUNICIPAL CORPORATIO N. 2.(A) THE CIT(A) HAS ALSO ERRED IN CONFIRMING COMPU TATION OF TOTAL INCOME OF YOUR APPELLANT AS AGAINST ACTUAL IN COME OF RS.1,00,000/- EARNED & DECLARED WHEREIN EH AO HA S TAKEN INCOME FROM HOUSE PROPERTY AT RS.32,96,882 WHICH IS BASED ON PRESUMPTION AND ASSUMPTION AND NO T ON ACTUAL RENT BASIS AND THEREFORE THE SAME IS REQU IRED TO BE DELETED. (B) WITHOUT PREJUDICE THE CIT(A) HAS ALSO ERRED IN CONFIRMING ADDITION OF RS.32,96,082 AS INCOME FROM PROPERTY AND WHILE DOING SO THE AO HAD TAKEN NOTION AL RENT FOR SECOND FLOOR TO FIFTH FLOOR AT RS.49,95,54 6 AS THE STARTING POINT OF NOTIONAL INCOME WHICH IS VERY STR ONGLY OBJECTED BY YOUR APPELLANT PARTICULARLY BECAUSE UND ER THE I.T.ACT WHILE COMPUTING INCOME FROM HOUSE PROPE RTY EITHER ACTUAL RENT OR MUNICIPAL VALUE/ALV AS PER MUNICIPAL CORPORATION ONLY CAN BE TAKEN. (C) THE CIT(A) HAS ALSO ERRED IN CONFIRMING THE DEE MED INCOME RS.32,96,882/- ADOPTED BY AO WHICH IS NOT COMPUTED AS PER THE PROVISIONS OF LAW AND ON FACTS OF THE CASE. ITA NO.1171/AHD/2011 -3- 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT GROUNDS OF THE APPEAL OF THE ASSESSEE RELATE TO TWO ISSUES. THE F IRST ISSUE IS REGARDING ASSESSING RENTAL VALUE OF PART OF THE PROPERTY, LET OUT BY THE ASSESSEE TO M/S.VARINE COMMERCIAL PVT. LTD. (VCPL FOR SHORT) AND THE RENTAL VALUE OF OTHER PART OF THE SAME PROPERTY LET OUT TO ONE O F THE PARTNERS OF THE ASSESSEE-FIRM, HAS BEEN ASSESSED UNDER THE HEAD IN COME FROM HOUSE PROPERTY AS AGAINST THE CLAIM OF THE ASSESSEE FOR ASSESSING THE SAME AS BUSINESS INCOME OF THE ASSESSEE. HE SUBMITTED TH AT BUILDING OF THE ASSESSEE-FIRM CONSISTS OF GROUND FLOOR, FIRST FLOOR TO FIFTH FLOOR. THE GROUND FLOOR AND FIRST FLOOR WERE LET OUT BY THE AS SESSEE FIRM TO VCPL, WHICH RUNS A DEPARTMENTAL STORE THEREIN, AND HAS PA ID RENT OF RS.2.69 LAKHS PER MONTH. HE SUBMITTED THAT UPPER FLOOR OF THE PR OPERTY I.E. SECOND FLOOR TO FIFTH FLOOR OF THE SAME PROPERTY WERE LET OUT TO ONE OF THE PARTNERS OF THE ASSESSEE-FIRM FOR AN AMOUNT OF RS.1 LAKH PER ANNUM. HE SUBMITTED THAT THE ASSESSEE HAS LET OUT THE PROPERTY IN QUESTION A LONG WITH FURNITURE AND FIXTURES, AND THEREFORE, THE RENTAL VALUE FROM VCP L AS WELL AS PARTNER OF THE ASSESSEE-FIRM SHOULD HAVE BEEN ASSESSED UNDER T HE HEAD INCOME FROM BUSINESS. HE REFERRED TO RELEVANT PORTIONS OF THE LEASE AGREEMENT BETWEEN THE ASSESSEE FIRM (LESSOR) AND VCPL (L ESSEE) DATED 18.6.2005, WHEREIN IT IS MENTIONED THAT THE RENT OF RS.2.69 LAKHS PER MONTH IS INCLUSIVE OF ELECTRICAL PANEL BOARD AND GENERATO R SETS PROVIDED IN THE BACK SIDE OF THE BUILDING BY THE LESSER. 4. THE LEARNED DR HAS OPPOSED THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THERE IS NO EV IDENCE BROUGHT ON RECORD ON BEHALF OF THE ASSESSEE TO SHOW THAT IT HAS PROVI DED SOME FURNITURE AND FIXTURES TO VCPL, AND IN FACT THE LEASE AGREEMENT BETWEEN THE ASSESSEE- FIRM AND VCPL SHOWS THAT THERE WAS NO PROVISION F OR ANY SERVICES PROVIDED BY THE ASSESSEE TO THE LESSEE. HE SUBMITT ED THAT PROVIDING ITA NO.1171/AHD/2011 -4- ELECTRICAL PANEL IS PART OF THE BUILDING PREMISES L ET OUT AND NO SEPARATE RENT IS CHARGED FOR THE SAME. LIKEWISE, GENERATOR SPACE IS ALSO IN THIS PREMISES ONLY, AND IS NOT A SERVICE OR SEPARATE ASSET. HE SUBMITTED THAT NO FACILITY LIKE AIR-CONDITION PLANT OR COMMON AMENITIES LIKE L IFT, WATCHMEN ETC. WERE EVER PROVIDED BY THE ASSESSEE-FIRM TO VCPL. HE R ELIED ON THE ORDERS OF THE AO AND THE CIT(A). 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS REGARDING F IRST ISSUE OF ASSESSING THE RENTAL VALUE OF THE SAID PROPERTY UND ER THE HEAD INCOME FROM HOUSE PROPERTY. WE FIND THAT THE ASSESSEE HA S NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT IT HAS PROVIDED ANY COMMON FACILITY LIKE AIR-CONDITION PLANT, POWER BACK-UP, LIFT, WATCHMEN ETC. TO VCPL OR ITS PARTNER TO WHOM THE UPPER FLOORS WERE LET OUT BY TH E ASSESSEE-FIRM. A BARE READING OF THE LEASE AGREEMENT BETWEEN THE ASSESSEE -FIRM AND VCPL SHOWS THAT THE RENT WAS CHARGED BY THE ASSESSEE-FIR M ONLY FOR THE PREMISES AS PROVIDED IN THE LEASE AGREEMENT. PRO VIDING OF ELECTRICAL PANEL AND SPACE FOR GENERATOR COULD NOT BE SAID TO BE A SEPARATE SERVICE OR ASSET AND IN FACT NO SEPARATE RENT IS CHARGED FOR T HE SAME. WE FIND THAT THERE WAS NO PROVISION OF ANY SERVICES TO BE PROVID ED BY THE ASSESSEE TO THE VCPL OR TO THE PARTNER OF THE ASSESSEE-FIRM I N THE UPPER FLOOR. THE CIT(A) HAS RECORDED IN HIS APPELLATE ORDER THAT THE VALUE OF THE BUILDING WAS SHOWN AT RS.3.86 CRORES WHEREAS THE VALUE OF TH E FURNITURE AND FIXTURES IS OF RS.87,226/- ONLY, WHICH ARE OF INSIG NIFICANT VALUE VIS--VIS VALUE OF THE BUILDING. IN THESE FACTS OF THE CASE, WE ARE OF THE VIEW THAT IN THE ABSENCE OF ANY FACILITIES OR BUSINESS INFRASTRU CTURE PROVIDED BY THE ASSESSEE-FIRM TO ITS LESSEE, RENTAL INCOME FROM LET OUT OF PREMISES ONLY WAS RIGHTLY TAXED BY THE DEPARTMENT UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NO INTERFERENCE IN THE ORDER OF THE C IT(A) ON THIS ISSUE IS ITA NO.1171/AHD/2011 -5- CALLED FOR, WHICH IS CONFIRMED AND THE GROUND OF TH E APPEAL ON THIS ISSUE IS DISMISSED. 6. OTHER ISSUE IN THE GROUNDS OF THE APPEAL OF THE ASSESSEE IS REGARDING DETERMINATION OF THE NOTIONAL VALUE OF THE SECOND F LOOR TO FIFTH FLOOR OF THE BUILDING LET OUT TO ONE OF THE PARTNERS OF THE ASSE SSEE-FIRM, WHO RUNS A HOTEL BUSINESS, AT RS.49.95 LAKHS, AND AFTER ALLOWI NG STATUTORY DEDUCTIONS, THE NET INCOME OF RS.32,96,882/- WAS ASSESSED AS I NCOME FROM HOUSE PROPERTY. THE LEARNED COUNSEL FOR THE ASSESSEE SU BMITTED THAT THE SECOND FLOOR OF THE PROPERTY IN QUESTION WAS IN A BROKEN C ONDITION AND NOT FIT FOR USE FOR COMMERCIAL PURPOSE. HE SUBMITTED THAT THE AO HAS NOT COMPARED THE COVERED AREA OF THE GROUND AND FIRST FLOOR OF T HE PROPERTY LET OUT TO VCPL WITH THE COVERED AREA IN SECOND TO FIFTH FLO OR OF THE SAME PROPERTY LET OUT TO ONE OF THE PARTNERS OF THE ASSESSEE-FIRM WHO RUN A HOTEL BUSINESS UNDER THE NAME SUDARSHAN PALACE, AND THERE WAS NO BASIS FOR TAKING NOTIONAL RENT OF THE SECOND TO FIFTH FLOOR OF THE P ROPERTY AT RS.49.95 LAKHS, AS AGAINST RS.1.00 LAKHS CHARGED BY THE ASSESSEE. HE SUBMITTED THAT THE AO SHOULD HAVE TAKEN EITHER THE ACTUAL RENT OF THE PROPERTY OR RENT DETERMINABLE AS PER THE RENT CONTROL ACT OR ANY STA NDARD RENT AND RELIED ON DECISIONS IN THE CASE OF CIT VS. SARABHAI (P.) L TD., (2009) 176 TAXMAN 6 (GUJ), CIT VS. TIP TOP TYPOGRAPHY (2014) 4 8 TAXMANN.COM 191 (BOM) AND SMT. KOKILABEN D. AMBANI VS. CIT, (20 14) 49 TAXMANN.COM 371 (BOM) IN SUPPORT OF THE CASE OF THE ASSESSEE. HE SUBMITTED THAT THE GROUND FLOOR AND FIRST FLOOR LET OUT TO VCPL WERE SUITABLE FOR RUNNING DEPARTMENTAL STORE BY THE SAID VCPL WHEREAS THE FACT REMAINS THAT UPPER FLOORS OF THE SAID BUILDING S WERE HAVING SMALL ROOMS AND NOT FIT ENOUGH FOR ANY COMMERCIAL USE. H E SUBMITTED THAT PARTNER OF THE ASSESSEE-FIRM, RUNNING A HOTEL BUSIN ESS UNDER THE NAME ITA NO.1171/AHD/2011 -6- SUDARSHAN PALACE HAS ADVANCED LOAN OF RS.163 LAKH S TO THE ASSESSEE- FIRM WITHOUT CHARGING ANY INTEREST, AND THIS FACT S HOULD HAVE BEEN GOT IN MIND BY THE AO WHILE MAKING ADDITION IN THIS CASE. THE LEARNED DR HAS OPPOSED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE. HE SUBMITTED THAT THE PROVISION OF SECTION 23(1)(A) IS VERY CLEAR THAT THE ANNUAL VALUE OF THE PROPERTY WERE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR. HE RELIED ON THE DECISION OF HONBLE HIGH COURT OF JHARKHAND IN THE CASE OF CIT VS. SMT. BHAGWANI DEVI, (2008) 298 ITR 413 IN SUPPORT O F HIS ARGUMENTS. HE SUBMITTED THAT THE AO HAS REASONABLY ESTIMATED THE NOTIONAL RENT FROM SECOND FLOOR TO FIFTH FLOOR OF THE BUILDING BY ALLO WING DEDUCTION AT 10% IN COMPARISON TO LOWER FLOOR WHICH IS QUITE REASONABLE IN THE FACTS OF THE CASE OF THE ASSESSEE. HE REFERRED TO THE RELEVANT PORTI ONS OF THE ASSESSMENT ORDER AND THE APPELLATE ORDER PASSED BY THE CIT(A) IN SUPPORT OF THE CASE OF THE REVENUE. 7. WE HAVE CONSIDERED RIVAL SUBMISSION AND PERUSED THE ORDERS OF THE AO AND THE CIT(A). WE FIND THAT THE ASSESSEE HAS C HARGED THE RENT OF RS.1 LAKH ONLY FOR THE SECOND FLOOR TO FIFTH FLOOR OF TH E SAID PROPERTY FOR THE ENTIRE YEAR FROM ONE OF ITS PARTNERS, WHO RUNS A HO TEL BUSINESS THEREIN UNDER THE NAME SUDARSHAN PALACE. NO VALID REASON S COULD BE ASSIGNED ON BEHALF OF THE ASSESSEE BEFORE US FOR CHARGING SU CH LOWER RENT FOR SECOND TO FIFTH FLOOR OF THE PROPERTY AS COMPARED TO RENT OF RS.2.69 LAKHS FROM VCPL PER MONTH FOR TWO FLOORS. IN REPLY TO A SPE CIFIC QUERY FROM THE BENCH, NO DEFINITE FIGURE OF THE COVERED AREA LET O UT TO SUDARSHAN PALACE COULD BE FILED BEFORE US. THE CIT(A) HAS GIVEN A F INDING THAT IT IS NOT THE APPELLANTS CASE THAT THE PROPERTY WAS SUBJECTED TO RENT CONTROL ACT OR STANDARD RENT WAS GOT DETERMINED. NO CONCLUSIVE E VIDENCE COULD BE LED ON BEHALF OF THE ASSESSEE TO SHOW THAT THE 2 ND FLOOR OF THE ASSET WAS IN ITA NO.1171/AHD/2011 -7- BROKEN CONDITION AND NOT USABLE FOR ANY COMMERCIAL PURPOSE. WE FIND THAT THE GROUND FLOOR TO FIRST FLOOR OF THE PROPERT Y WAS LET OUT TO VCPL AT RS.2.69 LAKHS PER MONTH, AND THAT, THERE IS A CLEAR DISPARITY IN THIS CASE BETWEEN THE RENT CHARGED FROM RELATED PARTIES AND F ROM AN UNRELATED PARTIES FOR TWO PORTIONS OF THE PROPERTY IN QUESTION. THE CASE LAW OF RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE WERE DISTIN GUISHABLE ON FACTS. IN THESE FACTS, WE HOLD THAT THE RENT FIGURE SHOWN BY THE ASSESSEE AT RS.1 LAKH PER ANNUM FOR SECOND FLOOR TO FIFTH FLOOR OF THE PR OPERTY LET OUT TO SUDARSHAN PALACE IS LOW AND HAS TO BE SUBSTITUTED F OR THE AMOUNT FOR WHICH THE PROPERTY MIGHT REASONABLY EXPECT TO LET FOR THE RELEVANT YEAR. THIS LEAVES US TO THE ONLY ISSUE OF DETERMINATION OF REA SONABLE AMOUNT OF RENT FOR WHICH THE PROPERTY MIGHT BE EXPECTED TO LET FRO M YEAR TO YEAR. CONSIDERING TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AND THE FACT THAT THE ALLOWANCE OF DEDUCTION AT 10% PER HIGHER F LOOR FROM THE BOTTOM GROUND AND FIRST FLOOR OF THE PROPERTY, WAS ON THE LOWER SIDE, AND THAT UPPER SECOND FLOOR TO FIFTH FLOOR NOT HAVING ANY HA LL TYPE CONSTRUCTION TO SUIT FOR COMMERCIAL USE FOR ANY DEPARTMENTAL STORES ETC., AND CONSTRUCTION OF BUILDING CONSISTED OF SMALL ROOMS ONLY AND THE C LAIM OF THE ASSESSEE THAT COVERED AREA ON THE HIGHER FLOORS WERE LESS AS COMPARED TO THE GROUND AND FIRST FLOOR OF THE PROPERTY, AND ALSO CONSIDERI NG THE UNDISPUTED FACT THAT THE PARTNER OF THE ASSESSEE-FIRM, WHO IS RUNNING A HOTEL SUDARSHAN PALACE BUSINESS HAS ADVANCED DEPOSIT OF RS.1.63 CR ORES TO THE ASSESSEE- FIRM WITHOUT CHARGING ANY INTEREST, WE ARE OF THE V IEW THAT THE ENDS OF JUSTICE SHALL BE MET, IF THE RENTAL VALUE OF SECOND FLOOR TO FIFTH FLOOR OF THE PROPERTY USED FOR HOTEL BUSINESS IS DETERMINED AT R S.30.00 LAKHS PER ANNUM FOR THE RELEVANT YEAR, AS AGAINST RS.49.95 LAKHS DE TERMINED BY THE AO, AND AFTER ALLOWING RS.2 LAKHS FOR MUNICIPAL TAX PAID BY THE ASSESSEE, AND ALSO 30% OF THE ANNUAL VALUE OF THE PROPERTY, THE INCOME FROM SECOND FLOOR TO ITA NO.1171/AHD/2011 -8- FIFTH FLOOR OF THE PROPERTY LET OUT TO M/S.SUDARSHA N PALACE, SHOULD BE ASSESSED AT RS.19.00 LAKHS AS AGAINST RS.32,96,882/ - ASSESSED BY THE AO AND THE GROUNDS OF THE APPEAL OF THE ASSESSEE, ON T HIS ISSUE, ARE PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( %&'( %&'( %&'( %&'( / ANIL CHATURVEDI) )* + )* + )* + )* + /ACCOUNTANT MEMBER ( . .. . . .. . /G.C. GUPTA) !' !' !' !' /VICE-PRESIDENT C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD