DCIT CENT. CIR. - 9, MUMBAI V. M/s. B.D.A. LTD., MUMBAI

ITA 125/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48619 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 05-01-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S SRIVASTAVA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER ITA. NO. 125/MUM/2007 ASSESSMENT YEAR 2002-2003 ITA. NO. 126/MUM/2007 ASSESSMENT YEAR 2003-2004 DCIT, C.C. 9 MUMBAI 400 020 VS. M/S. BDA LTD. MUMBAI 400 011 PAN AAACB0502B (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI R.S. SRIVASTAVA (DR) FOR RESPONDENT : SHRI K.P. DEWANI ORDER PER D. MANMOHAN, V.P. 1. THESE TWO APPEALS ARE FILED AT THE INSTANCE OF THE REVENUE AND THEY PERTAIN TO THE ASSESSMENT YEARS 2002-2003 AND 2003-2004. FOLLOWING GROUNDS WERE URGED BY THE REVENUE IN THE APPEAL FILED FOR THE ASSESSMENT YEAR 2002-2003. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ALV OF THE LET OUT PROPERTY AT NIL INSTEAD OF RS.22,56,585/- DETERMINED BY THE ASSESSING OFFICER IGNORING THE RETURN ON DEPOSIT AND PREVAILING MARKET RATE OF RENT ON THE FLAT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING THE EXPENSES OF RS.1,84,784/- ON ACCOUNT OF MAINTENANCE CHARGES OF THE EMBASSY APARTMENT, FLAT ALTHOUGH IT WAS NEITHER OWNED BY THE ASSESSEE NOR USED FOR BUSINESS PURPOSE. 3. THE ORDER OF THE LEARNED CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2 2. IN THE SUBSEQUENT YEAR THE ONLY ISSUE IS WITH R EGARD TO THE CORRECTNESS OF THE INCLUSION OF THE NOTIONAL INTERE ST ON INTEREST FREE DEPOSIT, FOR DETERMINATION OF THE ALV. WE HAVE HEAR D THE LEARNED DR AS WELL AS THE LEARNED COUNSEL FOR THE ASSESSEE AND CAREFULLY PERUSED THE RECORD. 3. FACTS CONCERNING THE FIRST ISSUE IN THE ASSESSM ENT YEAR 2002-2003 AND THE ONLY ISSUE FOR THE ASSESSMENT YEA R 2003-2004 ARE STATED IN BRIEF. ASSESSEE RECEIVED NOMINAL LICENSE FEES OF RS.50,000/- PER MONTH FROM ENRON INDIA LTD. FROM 1 ST APRIL, 2001 TO 30 TH NOVEMBER, 2001 AND IN ADDITION THERETO, ASSESSEE CO LLECTED INTEREST FREE DEPOSIT OF RS.2.75 CRORES. THEREAFTER, IT WAS LET OUT TO M/S. CITI BANK, NA. ON A LICENSE FEES OF RS.25,000/- PER MONT H AND HAD OBTAINED AN INTEREST FREE DEPOSIT OF RS.2.50 CRORES FROM CITI BANK NA. IT IS NOT IN DISPUTE THAT THE ANNUAL RENT RECEIVED BY THE ASSESSEE FROM THE AFORESAID CONCERNS WERE IN EXCESS OF THE STANDA RD RENT DETERMINED BY THE MUNICIPAL AUTHORITIES. HOWEVER, CONSIDERING THE LOCALITY IN WHICH THE FLAT WAS SITUATED AND THE RENT IT SHOULD HAVE ORDINARILY FETCHED, THE ASSESSING OFFICER WAS OF THE OPINION T HAT THE RENT DECLARED BY THE ASSESSEE IS MUCH LESS THAN THE RENT ACTUALLY RECEIVED FROM THE PARTY; BUT FOR THE INTEREST FREE DEPOSIT, THE ASSES SEE WOULD HAVE RECEIVED A HIGHER LICENSE FEE. IT MAY BE NOTICED TH AT THE ASSESSEE HAS DECLARED RS.50,000/- PER MONTH LICENSE FEES FOR A P ERIOD OF 8 MONTHS WHEREAS FOR THE SUBSEQUENT PERIOD IT HAS DECLARED R S.25,000/- PER MONTH WHICH IN ITSELF SHOWS THAT THE CORRECT MARKET RENT WAS NOT DECLARED. HE, THEREFORE, PROPOSES TO TAKE INTO CONS IDERATION THE INTEREST COMPONENT ON INTEREST FREE DEPOSIT AND TAK ING THE NOTIONAL INTEREST AT 12% ON INTEREST FREE DEPOSIT HE ARRIVED AT THE ALV AT RS.32,23,836/- FOR THE ASSESSMENT YEAR 2002-2003 AN D A SUM OF RS.33 LAKHS FOR THE ASSESSMENT YEAR 2003-2004. AFTE R GIVING DEDUCTION OF 30% TOWARDS REPAIRS, NET INCOME FROM H OUSE PROPERTY WAS DETERMINED BY THE ASSESSING OFFICER. LEARNED CI T(A) SET ASIDE THE ADDITION ON THE GROUND THAT UNDER THE PROVISIONS OF SECTION 23 OF THE 3 ACT THERE CANNOT BE ANY ADDITION REFERABLE TO NOTIO NAL INTEREST, SO LONG AS THE RENT ACTUALLY RECEIVED BY THE ASSESSEE IS HI GHER THAN THE STANDARD RENT DETERMINED BY THE MUNICIPAL AUTHORITI ES. HE ALSO OBSERVED THAT IDENTICAL ISSUE AS DECIDED IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEAR 2001-2002. 4. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEAR NED COUNSEL FOR THE ASSESSEE, PLACED A COPY OF THE ORDE R OF THE ITAT, K BENCH, MUMBAI IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2001- 2002 (ITA. NO. 919 AND 1278/2005 DATED 10-3-2008) A ND ASSESSMENT YEAR 2004-2005 (ITA. NO. 5350/MUM/2007 DATED 30-7-2 008) TO SUBMIT THAT NOTIONAL INTEREST ON INTEREST FREE DEPO SIT CANNOT BE TAKEN INTO CONSIDERATION WHILE DETERMINING ALV. HE HAS AL SO PLACED BEFORE US COPY OF THE ORDER OF THE ITAT, D BENCH, MUMBAI IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD. (ITA. NO. 1411/2 007 AND BATCH DATED 26-11-2010) TO SUBMIT THAT SECTION 22 OF THE I.T. ACT DOES NOT SPEAK OF THE MARKET RENT BUT IT ONLY REFERS TO THE ANNUAL VALUE AND IN THE CASE OF PROPERTY WHICH IS NOT LET OUT, MUNICIPA L VALUE WOULD BE A PROPER YARDSTICK FOR DETERMINING THE ANNUAL VALUE. IN OTHERWORDS, FOR THE PURPOSE OF DETERMINING THE MARKET VALUE UNDER S ECTION 23(1)(A) OF THE ACT STANDARD RENT ADOPTED BY THE MUNICIPAL AUTH ORITIES SHOULD BE THE DETERMINING FACTOR AND IF THE RENT RECEIVED BY AN ASSESSEE IS MORE THAN THE AFOREMENTIONED SUM, THE ACTUAL RENT RECEIV ED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY UNDER SECTION 23 (1) ( B) OF THE ACT; CONSEQUENTLY, NOTIONAL INTEREST ON INTEREST FREE SE CURITY DEPOSIT SHOULD NOT BE ADDED TO THE SAME. HE THUS SUBMITTED THAT THE ISSUE STANDS SQUARELY COVERED BY THE DECISION OF THE ITAT (SUPRA) WHICH INTURN WAS BASED ON THE DECISION OF THE JURISDICTIO NAL HIGH COURT IN THE CASE OF J.K. INVESTORS 248 ITR 723. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE RECORD. AT THE OUT SET, IT MAY BE NOTIC ED THAT THE DECISION OF THE ASSESSING OFFICER IS PRIMARILY BASED UPON TH E EARLIER DECISION OF THE ITAT IN THE CASE OF TIVOLI INVESTMENT & TRADING CO. (P) LTD. VS. 4 ACIT (2004) 84 TTJ (MUM.) 198 WHEREIN THE BENCH HEL D THAT FOR THE PURPOSE OF CALCULATING ALV, ANY DEPOSIT RECEIVED BY AN ASSESSEE SHOULD BE TAKEN INTO CONSIDERATION AND ACCORDINGLY ASSESSING OFFICER HAS ESTIMATED THE NOTIONAL RENT AT 12% ON THE DEPOS IT TAKEN BY THE ASSESSEE FOR THE PURPOSE OF ARRIVING AT THE ANNUAL LETTING VALUE, WITHOUT MENTIONING ANYTHING ABOUT THE REASONABLENES S OF THE ALV DECLARED BY THE ASSESSEE. IT ALSO DESERVES TO BE NO TICED THAT IN THE INSTANT CASE THERE IS NO DISPUTE THAT THE RENT DECL ARED BY THE ASSESSEE WAS HIGHER THAN THE MUNICIPAL RATEABLE VALUE AND IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT BOTH MUNICIPAL RATEABLE VALUE AS WELL AS ACTUAL RENT RECEIVED BY THE ASSESSEE ARE LESS THAN THE REASONABLE RENT RECEIVABLE BY THE ASSESSEE AND HE HAS MERELY PROCEEDED TO TAKE INTO CONSIDERATION THE NOTIONAL INTEREST FOR THE PU RPOSE OF ARRIVING AT THE ALV. HOWEVER, IN ASSESSEES OWN CASE FOR THE EA RLIER YEARS AS WELL AS FOR THE SUBSEQUENT YEAR (ITA. NO. 919 AND 1278/2 005 DATED 10/3/2008 A.Y. 2001-2002 & ITA. NO. 5350/MUM/2007 D ATED 30/7/2008 A.Y. 2004-2005) THE ITAT, MUMBAI BENCHES, HAVE CONSISTENTLY TAKEN A VIEW THAT THE MUNICIPAL RATEAB LE VALUE REPRESENTS THE FAIR RENT AND NOTIONAL INTEREST SHOULD NOT BE T AKEN INTO CONSIDERATION. SUBSEQUENT TO THE DECISION OF THE IT AT, IN ASSESSEES OWN CASE, THE ITAT, D BENCH, MUMBAI IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD. (SUPRA) FOLLOWED THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (SU PRA), TO HOLD THAT THE EXPRESSION RECEIVABLE MEANS, ACTUAL RENT RECE IVED OR THE RENT THAT IS FIXED BY THE MUNICIPAL CORPORATION, WHICHEV ER IS HIGHER. RECENTLY, THE FULL BENCH OF THE HONBLE DELHI HIGH COURT, IN THE CASE OF CIT, DELHI, CENTRAL-III VS. MR. M.K. SUBBA (ITA. NO. 803 OF 2007 AND BATCH DATED 30-03-2011) EXPLAINED THE VIEW TAKEN BY THE HONBLE BOMBAY HIGH COURT (SUPRA) AND HELD THAT THE HONBLE BOMBAY HIGH COURT NEVER INTENDED THAT THE FAIR RENT SHOULD NOT EXCEED MUNICIPAL RATEABLE VALUE OR THE ACTUAL RENT RECEIVED. ON THE CONTRARY, AS EXPLAINED BY THE FULL BENCH OF THE HONBLE DELHI HI GH COURT, HONBLE BOMBAY HIGH COURT OBSERVED THAT WHILE DECIDING THE FAIR RENT VARIOUS 5 FACTORS COULD BE TAKEN INTO ACCOUNT WHICH IMPLIES T HAT REASONABLENESS OF THE RENT SHOULD BE THE CRITERIA RATHER THAN THE RATEABLE VALUE ADOPTED BY THE MUNICIPAL AUTHORITIES OR BY THE RENT CONTROLLER. AT THE SAME TIME, THE HONBLE DELHI HIGH COURT OBSERVED TH AT IN A CASE WHERE THE ASSESSING OFFICER HAS PROCEEDED TO CONSID ER ONLY THE NOTIONAL INTEREST FOR THE PURPOSE OF ARRIVING AT TH E ALV, THE SAME IS NOT IN ACCORDANCE WITH THE LAW. NO DOUBT THE FACT T HAT THE ASSESSEE RECEIVED A HIGHER RENT IN THE EARLIER YEAR AND DECL ARED A LOWER RENT IN THE SUBSEQUENT YEAR MAY BE A NEGATIVE FACTOR TO ASS UME THAT THE RENT DECLARED BY THE ASSESSEE IS NOT REASONABLE, BUT T HE FACT REMAINS THAT UNDER IDENTICAL CIRCUMSTANCES THE TRIBUNAL UPHELD T HE PLEA OF THE ASSESSEE THAT RENT DECLARED BY THE ASSESSEE IS REA SONABLE AND, IN PARTICULAR, HELD THAT NOTIONAL INTEREST SHOULD NOT BE TAKEN INTO CONSIDERATION. HAVING REGARD TO THE CIRCUMSTANCES O F THE CASE, AND CONSISTENT WITH THE VIEW TAKEN BY THE ITAT IN ASSES SEES OWN CASE, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSU E. 6. IN SO FAR AS THE ASSESSMENT YEAR 2002-2003 IS C ONCERNED, REVENUE HAS CHALLENGED THE ORDER OF THE LEARNED CIT (A) WITH REGARD TO ALLOWABILITY OF EXPENSES OF RS.1,84,789/-. ASSESSIN G OFFICER DISALLOWED THE CLAIM OF DEDUCTION OF MAINTENANCE CHARGES OF TH E EMBASSY APARTMENT ON THE GROUND THAT IT WAS NEITHER OWNED B Y THE ASSESSEE NOR USED FOR BUSINESS PURPOSE. LEARNED CIT(A) ALLOW ED THE CLAIM OF DEDUCTION BY OBSERVING AS UNDER : 4. IN GR. NO. (VI) THE APPELLANT HAS CHALLENGED TH E ADDITION MADE BY A.O. AT RS.1,84,784/- IN RESPECT OF MAINTENANCE CHARGES OF EMBASSY FLAT. A.O. HAS DISCUSSED THE ADDITION IN PARA 8 OF ASSESSMENT ORDER. I FIND THAT SIMILAR ISSUE HAS BEEN DECIDED B Y MY PREDECESSOR IN THE CASE OF APPELLANT FOR A.Y. 2001-02 WHEREIN APPEAL OF APPELLANT HAS BEEN ALLOWED AND ADDITION AS MADE BY A.O. HAS BEEN 6 DELETED. RESPECTFULLY FOLLOWING THE DECISION OF MY PREDECESSOR AND FOR THE REASONS RECORDED THEREIN, I DELETE THE ADDITION MADE BY ASSESSING OFFICER. THIS GROUND OF APPEAL IS ALLOWED. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. LEAR NED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE STANDS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-2002 (SUPRA), WHEREIN THE BENCH OBSERVED AS UNDER : 10. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS INCURRED A SUM OF RS.59,044/- ON ACCOUNT OF MAINTENANCE CHARGES IN RESPECT OF EMBASSY APARTMENT. THE LEARNED A.O. DISALLOWED THE EXPENSES ON THE GROUND THAT FLAT WAS NOT USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSES. IT IS OWNED BY A GROUP ENTITY. THE LEARNED CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT RENT PAID ON THIS FLAT HAS BEEN ALLOWED BY THE A.O. WHILE DETERMINING THE INCOME FROM BUSINESS. THUS THERE IS NO REASON TO DISALLOW THE MAINTENANCE EXPENSES. WE ALSO DO NOT SEE ANY GOOD REASON TO INTERFERE IN THIS FINDING OF LEARNED CIT(A). 8. ON THE OTHER HAND, LEARNED DR RELIED UPON THE O RDERS PASSED BY THE ASSESSING OFFICER. IT WAS SUBMITTED B EFORE US THAT ADMITTEDLY FLAT WAS NOT USED BY THE ASSESSEE FOR IT S BUSINESS PURPOSE AND IT WAS OWNED BY GROUP ENTITY. THEREFORE, IT IS NOT ALLOWABLE AS DEDUCTION. HOWEVER, WE FIND THAT IDENTICAL ISSUE WA S CONSIDERED BY THE ITAT, K BENCH, MUMBAI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-2002 WHEREIN THE ISSUE WAS DEC IDED IN FAVOUR OF THE ASSESSEE. CONSISTENT WITH THE VIEW TAKEN THE REIN, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION AND ACC ORDINGLY REJECT GROUND NO.2 OF THE REVENUE. 7 ITA. NO. 125 & 126/MUM/2007 M/S. BDA LTD. 9. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS THE 29 TH DAY OF APRIL, 2011. SD/- SD/- (B.RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 29 TH APRIL, 2011 VBP/- COPY TO 1. DCIT, CENTRAL CIRCLE-9, 8 TH FLOOR, OLD CGO BLDG. ANNEXE, M.K. ROAD, MUMBAI 400 020. 2. M/. BDA LTD., 12, EVERGREEN INDUSTRIAL ESTATE, SHAK TI MILLS LANE, MAHALAXMI, MUMBAI 400 011 PAN AAACB0502B 3. CIT(A), CENTRAL-VII, MUMBAI 4. CIT, CENTRAL-I, MUMBAI 5. DR B BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.