RAMON PUBLICATIONS P. LTD, MUMBAI V. ACIT 1(3), MUMBAI

ITA 1267/MUM/2011

• Counselvise Citation: 126719914 RSA 2011
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 25-02-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Notional interest
• Section: 263; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI [ , [ , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDIC IAL MEMBER ./ ITA NO S . 1267 /M/20 11 ( [ [ / ASSESSMENT YEA S : 2004 - 0 5 ) M/S. RAMON PUBLICATIONS PVT. LTD. RAMON HOUSE, 6 TH FLOOR, 169 BACKBAY RECLAMATION, MUMBAI 400 020 PAN : AAACR2895P / VS. ACIT 1(3) , MUMBAI ( / APPELLANT) ( / RESPONDENT) / ASSESSEE BY : S/ SHRI DEEPAK TRALSHAWALA & ALOKSAKSENA / RESPONDENT B Y : SHRI SANJEEV JAIN , D.R. / DATE OF HEARING : 2 5 .02 . 201 4 / DATE OF PRONOUNCEMENT : 12.03.2014 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] DATED 25.11.10 . THE ONLY ISSUE TAKEN BY THE ASSESSEE IN THE PRESENT APPEAL IS REGARDING THE ASSESSMENT OF RENTAL INCOME FROM BUSINESS CENTRE RECEIVED BY THE ASSESSEE FROM HDFC BANK LTD. DURING THE YEAR UNDER CONSIDERATION. THE ISSUE WAS TAKEN UP BY THE ADMINISTRATIVE COMMISSIONER UNDER SECTION 263 OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) DIRECTING THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS AO) TO MAKE DE NOVO ASSESSMENT ON THIS PARTICULAR ISSUE OBSERVING THAT THE RENT OFFERED BY THE ASSESSEE AT ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 2 RS.21,44,996/ - WAS NOT THE FAIR MARKET RENT OF THE PROPERTY. HE FURTHER OBSERVED THAT THE ASSESSEE HAD RECEIVED AN INTEREST FREE DEPOSIT OF RS.7 CRORES FROM HDFC BANK LTD. AND THE ISSUE RELATING TO THE SAID RECEIPT WAS NOT EXAMI NED BY THE AO DURING THE ASSESSMENT PROCEEDINGS AS TO WHETHER THE INTEREST FREE DEPOSIT WAS IN LIEU OF THE RENT WHICH WAS NOT OFFERED AS INCOME FROM HOUSE PROPERTY BY THE ASSESSEE. H E FURTHER OBSERVED THAT THE AO DID NOT EXAMINE THE FAIR MARKET VALUE OF T HE SAID PROPERTY UNDER SECTION 23(1)(A) OF THE ACT . THE AO DID NOT EXAMINE THE COST OF ASSETS LEASED/RENTED TO SEE WHETHER THE RENT WAS ADEQUATE IN THE LIGHT OF INTEREST FREE DEPOSIT OF RS.7 CRORES AND WHETHER THE SAID INTEREST FREE DEPOSIT WAS NOT IN LIE U OF THE RENT WHICH WAS NOT OFFERED AS INCOME FROM HOUSE PROPERTY. THE COMPARATIVE MARKET RATES WERE NOT CALLED FOR/FURNISHED AND HENCE THE APPLICABILITY OF SECTION 23(1)(A) WAS NOT EXAMINED BY THE AO. HE THEREFORE HELD THAT THE ISSUE NEEDS TO BE EXAMINE D AFRESH BY THE AO AND THEREFORE HE SET ASIDE THE ORDER OF THE AO WITH A DIRECTION TO DO THE ASSESSMENT DE NOVO, ON THIS ISSUE ONLY AFTER AFFORDING THE NECESSARY OPPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE. 2. IN THE DE NOVO ASSESSMENT , THE AO O BSERVED THAT THE RENT OFFERED TO TAX BY THE ASSESSEE WAS GROSSLY LOW WHEN COMPARED WITH THE MARKET RENT OF THE SIMILAR PROPERTY IN THE VICINITY OF THE BUILDING IN WHICH THE ASSESSEES PROPERTY WAS SITUATED. HE FURTHER OBSERVED THAT THE INTEREST FREE DEPOS IT OF RS.7 CRORES WAS IN FACT MORE THAN THE 40 YEARS RENTAL INCOME RECEIVED IN ADVANCE WHICH WAS NOT JUST THE SECURITY BUT ALSO INCLUDED THE RENTAL RECEIPTS. HE THEREFORE CONCLUDED THAT THE INTEREST FREE DEPOSIT WAS GIVEN BY THE HDFC BANK LTD. TO THE ASSE SSEE TO COMPENSATE THE LOW RENT AGREED UPON BY THE PARTIES IN THE RENTAL AGREEMENT. HE THEREFORE HELD THAT THE FAIR MARKET VALUE HAD TO BE CALCULATED AS PER PROVISIONS OF SECTION 23(1)(A) OF THE ACT. THEREAFTER RELYING UPON THE DECISION OF THE CO - ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF TRIVOLY INVESTMENT AND TRADING COMPANY PVT. LTD. REPORTED IN 90 ITD 163 , TO ARRIVE ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 3 AT THE FAIR RENTAL , HE COMPUTED USU - FRUCTUOUS FROM SECURITY DEPOSIT AT THE RATE OF 6.25% OF RS.7 CRORES BEING THE RATE AT WHICH THE ASSESSEE WOULD HAVE EARNED INTEREST ON FIXED DEPOSIT IF THE AMOUNT IN QUESTION WOULD HAVE BEEN DEPOSITED WITH THE HDFC BANK LTD. ITSELF. THE DEEMED INTEREST SO ARRIVED OF RS.43,75,000/ - WAS THEREAFTER ADDED TO THE RENT RECEIPT AND THE RESULTANT OF RS.60, 49,996/ - WAS CONSIDERED AS REASONABLE FAIR MARKET RENT OF THE PORTION OF THE PROPERTY WHICH WAS MADE OUT TO HDFC BANK LTD. THE PER SQUARE FEET RENT OF THE PROPERTY IN QUESTION WAS THUS CALCULATED AT RS.126 PER MONTH AND WHEN APPLIED TO THE ENTIRE PROPERTY THE ANNUAL RENTAL VALUE OF THE PROPERTY WAS COMPUTED AT RS.72,57,600/ - . 3. BEFORE THE COMMISSIONER OF INCOME TAX , IT WAS SUBMITTED THAT THE AO DID NOT FOLLOW THE DIRECTIONS ISSUED BY THE COMMISSIONER IN HIS ORDER UNDER SECTION 263 OF THE ACT AND THAT T HE CALCULATION OF DEEMED INTEREST BY NAMING IT AS USU - FRUCTUOUS WAS WRONG AND ILLEGAL. THE COMMISSIONER OF INCOME TAX VIDE IMPUGNED ORDER THOUGH OBSERVED THAT THE AO DID NOT FOLLOW THE DIRECTIONS OF THE COMMISSIONER GIVEN VIDE ORDER UNDER SECTION 263 FOR ARRIVING AT THE FAIR MARKET RENTAL VALUE OF THE PROPERTY, YET , HE OBSERVED THAT THE METHOD ADOPTED BY THE AO FOR CALCULATING THE FAIR RENT OF THE PROPERTY WAS ABSOLUTELY CORRECT AND JUSTIFIED. HOWEVER, HE FURTHER OBSERVED THAT THE AO EXCEEDED HIS JURISDIC TION BY ENHANCING THE ANNUAL VALUE OF THE PROPERTIES OTHER THAN RENTED OUT TO THE HDFC BANK LTD. AS VIDE ORDER UNDER SECTION 263 , IT WAS SPECIFICALLY DIRECTED TO THE AO TO RESTRICT HIMSELF TO THE ISSUE CONTAINED IN THAT ORDER WHICH WAS RELATING TO THE INC OME OFFERED TO TAX AS RENT RECEIVED FROM HDFC BANK LTD. AND NOT IN RESPECT OF ANY OTHER PROPERT Y . HE THEREFORE GAVE PARTLY RELIEF TO THE ASSESSEE. THE ASSESSEE IS THUS IN APPEAL BEFORE US AGITATING AGAINST THE CONFIRMATION OF THE REMAINING ADDITION BY T HE COMMISSIONER OF INCOME TAX. ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 4 4. BEFORE US THE CONTENTION OF THE LD. A.R. HAS BEEN THAT THE AO FAILED TO ADHERE TO THE DIRECTIONS GIVEN BY THE COMMISSIONER OF INCOME TAX IN HIS ORDER UNDER SECTION 263 OF THE ACT. THE AO FAILED TO MAKE THE NECESSARY EN QUIRIES FOR CALCULATING THE FAIR MARKET RENTAL VALUE OF THE PROPERTY IN QUESTION. ON THE OTHER HAND, THE LD. D.R. HAS CONTENDED THAT THE ASSESSEE WHILE MAKING THE SUBMISSIONS BEFORE THE AO , ITSELF HAD CONTENDED THAT THE PROPERTY WAS SITUATED AT A N ISOLAT ED PLACE AND AS SUCH THE CONDUCTING OF ENQUIRIES FOR ARRIVING AT COM PARATIVE MARKET RENTAL VALUE WAS NOT POSSIBLE. THE AO RIGHTLY RELIED UPON THE JUDGMENT IN THE CASE OF TRIVOLY INVESTMENT AND TRADING COMPANY PVT. LTD. (SUPRA) . THE LD. DR HAS FURTHER RE LIED UPON AN AUTHORITY OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. K . STREETLITE ELECTRIC CORPN . (2011) 336 ITR 348 (P & H) WHEREIN THE HONBLE PUNJAB & HARYANA HIGH COURT HAS OBSERVED THAT WHERE THE SECURITY DEPOSIT WAS DISPROPORTI ONATE TO THE ACTUAL CONTRACTUAL RENT WHICH AMOUNTED TO 140 TIMES THE MONTHLY RENT , THE PAYMENT OF SECURITY DEPOSIT WAS TO CIRCUMVENT TO THE REAL RENT. ON THE OTHER HAND, THE LD. A.R. HAS RELIED UPON THE DECISION OF THE FULL BENCH OF THE HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. M O NI K UMAR SUBBA (2011) 333 ITR 38 AND FURTHER ON THE DECISION OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. DIVEN DEMBLA (2013) 37 TAXMANN.COM 127 (MUMBAI TRIB. ). 5 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND ALSO HAVE GONE THROUGH THE RECORDS. A PERUSAL OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX UNDER SECTION 263 OF THE ACT REVEALS THAT HE HAD OBSERVED THAT THE AO DID NOT EXAMINE THE CO ST OF ASSETS LEASED/RENTED AND THE ADEQUACY OF THE RENT IN COMPARISON TO ITS VALUE AND FURTHER THAT WHETHER THE INTEREST FREE DEPOSIT OF RS.7 CRORES WAS IN LIEU OF RENT WHICH WAS NOT OFFERED BY THE ASSESSEE. THE COMPARATIVE MARKET RATES WERE NOT ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 5 CALLED FO R AND THE APPLICABILITY OF SECTION 23(1)(A) WAS NOT EXAMINED AND THEREAFTER HE REMANDED THE CASE BACK TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT ON THIS ISSUE. THE AO INSTEAD OF EX AMINING THE ABOVE ISSUES AND MAK E NECESSARY ENQUIRIES , REL IED UPON THE J UDGMENT OF THE TRIBUNAL IN THE CASE OF TRIVOLY INVESTMENT AND TRADING COMPANY PVT. LTD. (SUPRA) AND THUS CALCULATED THE NOTIONAL RENT AT THE RATE OF 6.25% ON THE DEPOSIT AMOUNT OF RS. 7 CRORES AND ADDED BACK THE SAME INTO THE RENTAL VALUE OF THE PROPER TY. IT MAY BE OBSERVED THAT THE FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MO NI K UMAR SUBBA (SUPRA) HAS HELD THAT SECTION 23(1)(A) REQUIRES DETERMINATION OF THE FAIR RENT BEING THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE AO HAS TO MAKE AN ENQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH. IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR/MARKET RENT BECAUSE THE ASSESSEE HAS RECEIVED ABNORM ALLY HIGH INTEREST FREE SECURITY DEPOSIT, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. FOR DETERMINATION OF FAIR RENT, THE AO CAN TAKE INTO ACCOUNT VARIOUS FACTORS INCLUDING STANDARD RENT. IF THE STANDARD RENT IS NOT FIXED THEN THE PROCEDURE PROVI DED UNDER THE RENT CONTROL ACT FOR FIXATION OF STANDARD RENT CAN BE TAKEN INTO CONSIDERATION. HOWEVER, THE ALV FIXED BY THE MUNICIPAL AUTHORITIES CANNOT BE THE SOLE CRITERIA FOR DETERMINING THE FAIR RENT OF THE PROPERTY. THE AO CAN IGNORE THE MUNICIPAL V ALUATION IF HE FINDS THAT THE SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING THE FAIR RENT IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. IN DETERMINING THE REASONABLE/FAIR RENT, EXTRANEOUS CIRCUMSTANC ES MAY INFLATE/DEFLATE THE FAIR RENT. VARIOUS CIRCUMSTANCES CAN BE TAKEN INTO CONSIDERATION BY THE AO WHILE DETERMINING THE FAIR RENT THOUGH NO PARTICULAR TEST CAN BE LAID DOWN AND IT WOULD DEPEND ON FACTS OF EACH CASE. ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 6 6 . IN THE CASE OF CIT VS. K. STREETLITE ELECTRIC CORPN. (SUPRA) , IN THE FACTS AND CIRCUMSTANCES OF THE CASE BEFORE THE HONBLE HIGH COURT , IT WAS OBSERVED THAT THE SECURITY DEPOSIT MADE BY THE ASSESSEE WAS MUCH MORE HIGHER THAN THE RENT OFFERED BY THE ASSESSEE. HENCE UNDER SUCH CIR CUMSTANCES IT WAS HELD THAT ORDINARILY THE NOTIONAL INTEREST THAT MAY ACCRUE ON THE SECURITY DEPOSIT WOULD NOT FORM PART OF INCOME FROM HOUSE PROPERTY AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J.K. INVESTORS (BOMBAY) LTD. (2001) 248 ITR 723. HOWEVER, WHERE PAYMENT OF SECURITY DEPOSIT IS TO CIRCUMVENT THE REAL RENT , THE SAME SHALL FALL WITHIN ITS AMBIT AS INCOME FROM HOUSE PROPERTY. 7 . THE REASONABLE CONCLUSION THAT CAN BE DRAWN FROM THE ABOVE SAID DECISIONS OF THE HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA (SUPRA) AND OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. K. STREETLITE ELECTRIC CORPN. (SUPRA) IS THAT ORDINARILY THE NOTIONAL INTEREST THAT MAY ACCRUE ON THE SECURITY DEPOSIT WOUL D NOT FORM PART OF INCOME FROM HOUSE PROPERTY TO DETERMINE THE FAIR RENT WHICH IS REASONABL Y EXPECTED TO BE FETCHED FROM THE PROPERTY. THE AO HAS TO MAKE NECESSARY ENQUIRIES AS OBSERVED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SU BBA (SUPRA). HOWEVER, AFTER HAVING UNDERTAKEN THE NECESSARY EXERCISE IN THAT BEHALF , IT COMES OUT FROM THE FACTS THAT THE PAYMENT OF SECURITY DE POSIT IS TO CIRCUMVENT THE REAL RENT THEN THE SAME MAY BE CONSIDERED FOR COMPUTING THE INCOME FROM HOUSE PROPE RTY. IN THE CASE IN HAND, THE LD. C OMMISSIONER HAD DIRECTED THE AO TO UNDERTAKE THE NECESSARY EXERCISE FOR DETERMINING THE FAIR RENT OF THE PROPERTY. HOWEVER, THE AO INSTEAD OF MAKING ENQUIRIES AS PER THE DIRECTIONS GIVEN BY THE LD. C OMMISSIONER VIDE HIS ORDER PASSED UNDER SECTION 263 , BY RELYING UPON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF TRIVOLY INVESTMENT AND TRADING COMPANY PVT. LTD. (SUPRA) ASSESSED THE INCOME TAKING INTO ACCOUNT THE REASONABLE INTEREST ON THE SECURITY DEPOSITS BEING USU - FRUCTUOUS OF THE PROPERTY. IN OUR VIEW, THE APPROACH ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 7 ADOPTED BY THE AO IN THE DE NOVO ASSESSMENT WAS NOT PROPER. SO FAR SO THE RELIANCE PLACED BY THE LD. A.R. ON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DC IT VS. DIVEN DEMBLA (SUPRA) IS CONCERNED, IN OUR VIEW , THE FACTS OF THE PRESENT CASE ARE QUITE DISTINGUISHABLE FROM THE CASE OF DCIT VS. DIVEN DEMBLA (SUPRA) . IN THE CASE OF DCIT VS. DIVEN DEMBLA (SUPRA) THE MATTER WAS REMANDED BACK BY THE LD. C OMMIS SIONER TO THE AO FOR MAKING NECESSARY ENQUIRIES AND TO SUBMIT THE REMAND REPORT. BUT THE AO DID NOT COMPLY WITH THE ORDERS OF THE LD. C OMMISSIONER AND REPORTED THAT THERE WAS NO NEED TO MAKE SUCH ENQUIRIES. HOWEVER, IN THE CASE IN HAND, THE MATTER WAS RE MANDED BACK BY THE LD. C OMMISSIONER VIDE HIS ORDER UNDER SECTION 263 OF THE ACT FOR DE NOVO ASSESSMENT. WHILE MAKING DE NOVO ASSESSMENT , THE AO RELIED UPON THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL BUT FAILED TO TAKE INTO CONSIDERATION THE DIR ECTIONS GIVEN BY THE LD. C OMMISSIONER FOR MAKING NECESSARY ENQUIRIES FOR DETERMINING THE FAIR RENTAL VALUE OF THE PROPERTY. THIS IS NOT A CASE OF REFUSAL OF DIRECTIONS GIVEN BY THE LD. COMMISSIONER TO THE AO. HOWEVER, IT CAN BE SAID TO BE A CASE WHERE TH E AO DID NOT PROPERLY COMPLY WITH THE DIRECTIONS WHILE MAKING DE NOVO ASSESSMENT. IT MAY BE OBSERVED THAT WHILE MAKING DE NOVO ASSESSMENT, THOUGH THE AO WAS REQUIRED TO MAKE NECESSARY ENQUIRIES AS DIRECTED BY THE LD. COMMISSIONER VIDE HIS ORDER UNDER SECT ION 263 BUT , AT THE SAME TIME THE AO WAS ALSO AT LIBERTY TO TAKE INTO CONSIDERATION THE OTHER FACTS AND CIRCUMSTANCES AND THE CASE LAW , IF ANY , AVAILABLE BEFORE HIM. SO TAKING INTO CONSIDERATION THE OVERALL FACTS AND CIRCUMSTANCES, IN OUR VIEW, IT WILL BE FIT IF THE MATTER IS RESTORED TO THE FILE OF THE AO FOR DE NOVO ASSESSMENT IN ACCORDANCE WITH LAW TAKING INTO CONSIDERATION THE DIRECTIONS GIVEN BY LD. COMMISSIONER IN HIS ORDER UNDER SECTION 263 AS WELL AS THE RELEVANT CASE LAWS WHICH MAY BE AVAILABLE TO THE AO AT THE TIME OF PASSING OF ASSESSMENT ORDER AND AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. ITA NO . 1267/M/2011 M/S. RAMON PUBLICATIONS PVT. L TD. 8 8 . THE APPEAL OF THE ASSESSEE IS THUS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH 201 4 . 12 TH MARCH 2014 SD/ - SD/ - ( / RAJENDRA ) ( [ / SANJAY GARG) / ACCOUNTANT MEMB ER / JUDICIAL MEMBER / MUMBAI ; / DATED 12.03. 2014 * KISHORE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE. / BY ORDER, //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI