ITO 6(1)-4, MUMBAI V. BOHEA PROPERTIES P.LTD, MUMBAI

ITA 1293/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75398 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 01-01-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: OF CIT A ASSESSMENT YEAR; CIRCUMSTANCES OF CASE
• Keywords: Fair market value; Notional interest; Reason to believe

Judgement Text

M/S. BOHEA PROPERTIES PVT PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1293/MUM/2011 ASSESSMENT YEAR 2005-06 ITA NO. 1294/MUM/2011 ASSESSMENT YEAR 2007-08 O R D E R PER VIJAY PAL RAO, JM THESE TWO APPEALS BY THE REVENUE IS DIRECTED AGAINS T THE TWO SEPARATE ORDERS DATED 19.11.2010 AND 29.11.2010 OF CIT (A) F OR THE ASSESSMENT YEAR 2005-06 AND 2007-08 RESPECTIVELY. THE REVENUE HAS R AISED THE COMMON GROUND IN THESE APPEALS. THE GROUND RAISED IN ASSESSMENT Y EAR 2005-06 IS REPRODUCED AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 23 ,00,000/- IGNORING THE ITO 6(1) - 4, ROOM NO. 503, AAYAKAR BHAVAN, MUMBAI 400 020. M/S. BOHEA PROPERTIES PVT. LTD. 608, REGENT CHAMBERS, NARIMAN POINT, MUMBAI 400 021. PAN:- AAACB2435R APPELLANT RESPONDENT DATE OF HEARING: 01 / 01/2014 DATE OF PRONOUNCEMENT: 15 / 01/2014 DEPARTMENT BY. SHRI SANJIV JAIN ASSESSEE BY: NONE M/S. BOHEA PROPERTIES PVT PAGE 2 OF 4 FACTS THAT THE INTEREST FREE REFUNDABLE DEPOSIT OF RS. 2.30 CRORES WAS MADE BY THE LICENSEE TO COMPENSATE THE RENT RECEIVED BEI NG LESS THAN FAIR MARKET VALUE OF PROPERTY . 2. NONE HAS APPEARED ON BEHALF OF THE ASSESSEE TO R EPRESENT THE CASE DESPITE SERVICE OF NOTICE OF HEARING. ACCORDINGLY WE PROPOS E TO DECIDE THESE APPEALS EX PARTE. 3. WE HAVE HEARD THE LD. DR AND HAVE CAREFULLY PERU SED THE RELEVANT RECORDS. THE ASSESSEE IS A COMPANY WHICH IS ENGAGED IN THE BUSINESS OF LETTING OUT PROPERTY. THE ASSESSEE DURING THE YEAR RECEIVED THE RENTAL INCOME OF RS. 3,20,000/-. THE AO NOTED THAT THE ASSESSEE HAS RECE IVED INTEREST FREE DEPOSITS OF RS. 2.7 CRORES FROM THE TENANT. ACCORDINGLY THE AO DETERMINED THE ANNUAL LETTING VALUE BY MAKING ADDITION ON ACCOUNT OF NOTIONAL INT EREST ON THE INTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE. 4. ON APPEAL, CIT(A) HAS DELETED THE ADDITION MADE BY THE AO BY HOLDING THAT UNDER THE PROVISIONS OF SECTION 23 (1) (A) THE RE IS NO SCOPE OF MAKING ADDITION ON ACCOUNT OF NOTIONAL INTEREST. 5. BEFORE US, THE LD. DR HAS SUBMITTED THAT THE ISS UE IS NOW COVERED BY THE DECISION OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT V K. STREETLITE ELECTRIC CORPORATION ( 336 ITR 348), IN WHICH THE HONBLE HIGH COURT HELD THAT THE SECURITY DEPOSIT RECEIVED BY THE ASSE SSEE WAS DISPROPORTIONATE TO THE ACTUAL CONTRACTUAL RENT AND, THEREFORE, THE SECURIT Y DEPOSIT WAS HELD TO BE A SHAM DEVICE TO AVOID TAX AND HAS NO RELATIONSHIP WITH AC TUAL RENT THAT WAS RECEIVED BY THE ASSESSEE. THE LD. DR HAS ALSO RELIED UPON THE D ECISION OF THIS TRIBUNAL IN THE CASE OF ITO VS BAKER TECHNICAL SERVICES (P) LTD . ( 125 ITD 1 ) . 6. HAVING CONSIDERED THE SUBMISSIONS OF LD. DR AS W ELL AS THE DECISIONS RELIED UPON BY HIM, WE NOTE THAT NO ADDITION COULD BE MADE IN THE ANNUAL LETTING VALUE U/S 23(1)(A) OF THE INCOME TAX ACT ON ACCOUNT OF NOTIONAL INTEREST. HOWEVER IF THE AO FINDS THAT DUE TO THE EXCEPTIONAL AMOUNT OF INTEREST FREE DEPOSIT RECEIVED BY THE ASSESSEE THE AGREED RENT HAS BEEN DEFLATED IN C OMPARISON TO THE FAIR MARKET RENT OF THE PROPERTY, THEN THE AO HAS TO FIRST WORK OUT THE SUM FOR WHICH THE PROPERTY M/S. BOHEA PROPERTIES PVT PAGE 3 OF 4 MIGHT REASONABLY BE EXPECTED TO FETCH THE RENT FROM YEAR TO YEAR AND THEN IF THE PROPERTY IS LET OUT, COMPARED THE EXPECTED FAIR MAR KET RENT WITH THE ANNUAL/ACTUAL RENT RECEIVED OR RECEIVABLE. THUS AS PER SECTION 23 (1)(A) THE REASONABLE RENT EXPECTED TO BE FETCHED BY THE PROPERTY BY LETTING O UT FROM YEAR TO YEAR HAS TO BE DETERMINED BY TAKING INTO CONSIDERATION VARIOUS FAC TORS AND ASPECTS. THIS REASONABLY EXPECTED RENT AS DETERMINED BY THE AO HA S TO BE COMPARED WITH THE ANNUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER AND IF THE ANNUAL RENT SO RECEIVED OR RECEIVABLE IS IN EXCESS OF THE REASONABLE RENT E XPECTED FROM LETTING OUT THE PROPERTY THEN THE RENT RECEIVED WOULD BE THE ANNUAL VALUE FOR THE PURPOSE OF SECTION 22 OF THE IT ACT. IN CASE THE ACTUAL RENT RECEIVED BY THE ASSESSEE IS LESS THAN THE EXPECTED REASONABLE RENT TO BE FETCHED BY THE PROPE RTY IN QUESTION THEN THE FAIR MARKET RENT SO DETERMINED U/S 23 (1)(A) WOULD BE TH E ANNUAL LETTING VALUE FOR THE PURPOSE OF SECTION 22 OF INCOME TAX ACT. IN THE CAS E IN HAND, SINCE THE ASSESSEE HAS RECEIVED THE DISPROPORTIONATE AMOUNT OF INTEREST FR EE DEPOSITS FROM THE TENANTS AND, THEREFORE, IT IS A SUFFICIENT REASON TO BELIEVE THA T DUE TO THE RECEIPT OF INTEREST FREE DEPOSITS, THE AGREED RENT MIGHT HAVE BEEN DEFLATED. SINCE THE AO HAS NOT DETERMINED THE FAIR/REASONABLE RENT EXPECTED TO BE FETCHED FOR THE PROPERTY IN QUESTION U/S 23(A) IN ORDER TO COMPARE THE SAME WIT H THE ANNUAL RENT RECEIVED OR RECEIVABLE BY THE ASSESSEE, THEREFORE, THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST IS NOT WARRANTED. HOWEVER, IT APP EARS THAT THE AGREED RENT HAS BEEN DEPRESSED IN VIEW OF THE INTEREST FROM DEPOSITS OF RS. 2.7 CRORES RECEIVED BY THE ASSESSEE. IT IS CLEAR FROM THE FACTS THAT THE DISPR OPORTIONATE AMOUNT OF INTEREST FREE DEPOSITS RECEIVED BY THE ASSESSEE IS ONLY A DEVICE TO AVOID TAX BY REDUCING THE ACTUAL RENT RECEIVED BY THE ASSESSEE AS HELD BY THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. K. STREETLITE ELECT RIC CORPORATION (SUPRA). THE FULL BENCH OF HONBLE HIGH COURT OF DELHI IN THE CASE OF MONI KUMAR SUBBA ( 333 ITR 38) HAS HELD THAT FOR DETERMINATION OF FAIR RENT, THE AO HAS TO TAKE INTO ACCOUNT VARIOUS FACTORS WHICH ARE GUIDING IN NATURE. IF THE AO FINDS THAT RATABLE VALUE UNDER MUNICIPAL LAW DOES NOT REPRESENT CORRECT FAIR RENT THEN HE MAY DETERMINE THE SAME ON THE BASIS OF MATERIAL/EVIDENCE PLACED ON RECOR D. THE HONBLE FULL BENCH HAS FURTHER OBSERVED IN PARA 21 OF THE DECISION THAT TO DETERMINE THE REASONABLE/FAIR RENT EXTRAORDINARY CIRCUMSTANCES MAY INFLATE OR DEFLATE THE FAIR RENT WHICH COULD BE TAKEN INTO CONSIDERATION BY THE AO. SINCE IN THE CA SE IN HAND THE AO HAS NOT DETERMINED THE REASONABLE FAIR MARKET RENT U/S 23 ( 1) (A) OF THE I.T. ACT FOR THE PURPOSE OF COMPUTING THE ALV, THEREFORE, IN THE FAC TS AND CIRCUMSTANCES OF THE M/S. BOHEA PROPERTIES PVT PAGE 4 OF 4 CASE AND IN THE INTEREST OF JUSTICE, WE SET ASIDE T HE ORDER OF AUTHORITIES BELOW AND REMIT THE ISSUE TO THE RECORD OF THE AO TO DECIDE T HE SAME AFRESH IN THE LIGHT OF DECISION OF HONBLE DELHI HIGH COURT AS WELL AS TH E DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT ON THE POINT. NEEDLESS TO SAY THAT THE ASSESSEE HAS TO BE GIVEN AN OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER. 4. IN THE RESULT BOTH THE APPEALS OF THE REVENUE AR E ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON 15 -01-2014 SD/- SD/- (SANJAY ARORA) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER SKS SR. P.S, MUMBAI DATED .01.2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI