DCIT 2(2)(2), MUMBAI V. NRB BEARING LTD, MUMBAI

ITA 1359/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6980 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMARDR
• Assessee Lawyers: MANJUNATH PRABHU
• Section: 143(3)

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -BBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./1359/MUM/2016, / ASSESSMENT YEAR: 2005-06 DCIT-2(2)(2) ROOM NO.549, AAYAKAR BHAVAN M.K. ROAD, MUMBAI-400 020. VS. M/S. NRB BEARING LIMITED DHANNUR, 15, SIR P.M. ROAD FORT, MUMBAI-400 001. PAN:AAACN 3479 P ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI SUMAN KUMAR-DR /ASSESSEE BY: SHRI MANJUNATH PRABHU / DATE OF HEARING: 05/04/2018 / DATE OF PRONOUNCEMENT: 23/05/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , - PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 22/12/2015 OF THE CIT(A )- 5,MUMBAI,THE ASSESSING OFFICER(AO) HAS FILED PRESENT APPEAL. THE ASSESSEE IS ENGAGED I N THE BUSINESS OF MANUFACTURING, SELLING AND INDENTING OF BEARINGS.IT FILED ITS RETURN OF IN COME ON 06/12/2005,DECLARING TOTAL INCOME AT RS.44.53 CRORES.THE CASE WAS SELECTED FOR SCRUTINY AND ORDER U/S. 143(3) WAS PASSED ON 30/3/ 2007,ASSESSING TOTAL INCOME AT RS.44.78 CRORES.LATE R ON THE AO ISSUED A NOTICE U/S.148 OF THE ACT,AS HE WAS OF THE OPINION THAT TAXABLE INCOME HA D ESCAPED ASSESSMENT. THE AO COMPLETED ASSESSMENT U/S.143(3) R.W.S. 147 OF THE ACT,DETERMI NING TOTAL INCOME AT RS.71.52 LAKHS. 2. EFFECTIVE SOLITARY GROUND OF APPEAL IS ABOUT DELETI NG THE ADDITION MADE ON ACCOUNT OF ENHANCEMENT OF OF ANNUAL LETTING VALUE(ALV).THE ASS ESSEE IS OWNER OF BUILDING KNOWN AS SHANGRILA AT CARMICHAEL ROAD MUMBAI. DURING THE ASS ESSMENT PROCEEDINGS FOR AY 2007-08 THE AO FOUND THAT THERE WAS CHANGE OF TENANT WITH R ESPECT TO FLAT NO.4, THAT FUTURA POLYESTER CAME AS A NEW TENANT IN PLACE OF JOHNSON AND JOHNSO N, THAT THERE WAS AN IMMEDIATE CHANGE IN RENT AMOUNT,THAT FOR FUTURA POLYESTER THE ASSESSEE FIXED RENT OF RS.5.00 LAKHS PER MONTH AS AGAINST RS.20,000 CHARGED AGAINST THE FORMER TENANT . THE AO HELD THAT DIFFERENCE WAS DUE TO DIFFERENCE IN THE INTEREST FREE DEPOSIT, THAT FUTUR A POLYESTER HAD GIVEN A DEPOSIT OF RS.15 LAKHS ONLY AS AGAINST RS.3.5 CRORES GIVEN BY JOHNSON AND JOHNSON.HE WAS OF THE OPINION THAT FOR THE AY 2006-07, WHEN THE TWO FLATS WERE RENTED OUT TO JOHNSON AND JOHNSON AND CENTURION BANK, THE SUM FOR WHICH THE PROPERTIES MIGHT REASON ABLY BE EXPECTED TO LET FROM YEAR TO YEAR 1359/M/16 NRB BEARING LTD. 2 WAS MUCH MORE THAN THE ACTUAL RENT RECEIVED BY IT. ACCORDINGLY, HE ENHANCED THE RENT OF THE ASSESSEE AS UNDER:- FLAT NO. MKT.VALUE OF THE FLAT IN FY 2004-05 (RS.) % ADOPTED ALV (RS.) NO. OF MONTHS RENTED OUT FINAL ALV (RS.) ALV AS PER ASSESSEE (RS.) ENHANCEMENT OF ALV (RS.) 4 3,71,71,386 12.98 48,24,846 12 48,24,846 2,40,000 45,84,846 5 3,78,08,694 12.98 49,07,569 8 MTHS 10 DAYS 34,03,632 8,35,483 25,68,149 TOTAL 71,52,995 ACCORDINGLY,THE AO DETERMINED THE ALV OF THE PROPER TY AT RS.71.52 LAKHS WHICH AS PER THE ASSESSEE WAS ONLY RS.12.97 LAKHS. AFTER ALLOWING D EDUCTION @30%, U/S. 24 OF THE ACT,THE AO ENHANCED AND ADDED THE INCOME FROM HOUSE PROPERT Y TO RS.50.07 LAKHS.THE ENHANCEMENT WAS CARRIED OUT BY AO BASED ON MARKET RENTAL VALUE OF THE PROPERTY IN RESPECT OF THE RENT RECEIVED. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). IT REFERRED TO THE ORDER OF THE TRIBUNAL FOR THE AY .S.2007-08 AND 2008-09 (ITA.S 672/MUM/2011 AND 1982/MUM/2011),WHER EIN THE TRIBUNAL HAD RESTORED BACK THE MATTER TO FILE OF THE AO TO DETERMINE THE ALV AT MUNICIPAL VALUATION RATE IN VIEW OF JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT DELIV ERED IN THE CASE OF TIP TOP TYPOGRA- PHY(368ITR330).RELYING UPON THE ORDER OF THE TRIBUN AL AND THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT ,THE FAA DELETED THE ADDITION. 4. DURING THE COURSE OF HEARING BEFORE US, THE DEPART MENTAL REPRESENTATIVE (DR) REFERRED TO THE ORDER OF THE AO. THE AUTHORISED REPRESENTATIVE (AR) SUPPORTED THE ORDER OF FAA. WE HAVE CONSIDERED AVAILABLE MATERIAL ON RECORD. W E FIND THAT THE FAA HAS FOLLOWED THE ORDER OF THE TRIBUNAL WHEREIN THE JUDGMENT OF HON 'BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF TIP TOP TYPOGRAPHY (SUPRA ), WAS CITED. IN THE S AID JUDGMENT THE HON'BLE HIGH COURT HAS HELD AS UNDER: INCOME FROM HOUSE PROPERTY HAS TO BE COMPUTED BY COMPUTING THE ANNUAL VALUE OF THE PROPERTY. THE ANNUAL VALUE FIRSTLY TO BE THE SUM FO R WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. IN THE EVENT, THE PROPERTY WHICH CONSISTS OF ANY BUILDINGS OR LANDS APPURTENANT THERETO, IF THE ACTUAL RENT RECEI VED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), IT IS THAT AMOUNT SO RECEIVED OR RECEIVABLE WHICH SHALL BE DEEMED TO BE THE ANNUAL VALUE FOR THE PURP OSES OF COMPUTING THE TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE PRINCIPLES APPLIC ABLE IN DETERMINING THE ANNUAL LETTING VALUE ARE : (I) THE ANNUAL LETTING VALUE WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLU ENCED BY ANY EXTRANEOUS CIRCUMSTANCES ; (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEOUS CONSI DERATIONS MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS ; (III) THE ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCES, WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED OR DEFLATED BY REASON OF EXTRANEOUS CONSIDERATIONS ; (IV) SUCH ANNUAL LETTING VALUE, HOWEVER, CANNOT EXCEED THE ST ANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY ; (V) IF THE STANDARD RE NT HAS NOT BEEN FIXED BY THE RENT CONTROLLER, THEN 1359/M/16 NRB BEARING LTD. 3 IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMIN E THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT ; (VI) THE STANDARD RENT IS THE U PPER LIMIT, AND IF THE FAIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS THE ANNUAL LETTING VALUE AND NOT THE STANDARD RENT. IT IS A WELL-RECOGNISED PRINCIPLE IN RATING THAT BOTH GROSS VALUE AND NET ANNUAL VALUE ARE ESTIMATED BY REFERENCE TO THE RENT AT WHI CH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. VARIOUS METHODS OF VAL UATION ARE APPLIED IN ORDER TO ARRIVE AT SUCH HYPOTHETICAL RENT, FOR INSTANCE, BY REFERENCE TO TH E ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHER COMPARABLE TO IT OR WHERE THERE ARE NO RENTS BY REF ERENCE TO THE ASSESSMENTS OF COMPARABLE PROPERTIES OR TO THE PROFITS CARRIED FROM THE PROPE RTY OR TO THE COST OF CONSTRUCTION. CONSIDERING THE DIFFICULTIES FACED IN EITHER RETRIEVING IMMOVAB LE PROPERTIES IN METRO CITIES AND TOWNS, AND THE TIME SPENT IN LITIGATION, IT IS EXPEDIENT TO EXECUT E LEAVE AND LICENCE AGREEMENTS. THESE ARE USUALLY FOR FIXED PERIODS AND RENEWABLE. IN SUCH CASES AS W ELL, THE CONCEDED POSITION IS THAT THE ANNUAL LETTING VALUE WILL HAVE TO BE DETERMINED ON THE SAM E BASIS AS NOTED ABOVE. IN THE EVENT A SECURITY DEPOSIT COLLECTED AND REFUNDABLE INTEREST-FREE AND THE MONTHLY COMPENSATION SHOWS A TOTAL MISMATCH OR DOES NOT REFLECT THE PREVAILING RATE OR THE ATTEMPT IS TO DEFLATE OR INFLATE THE RENT BY SUCH METHODS, THE ASSESSING OFFICER IS NOT PREVENTE D FROM CARRYING OUT NECESSARY INVESTIGATION AND ENQUIRY. HE MUST HAVE COGENT AND SATISFACTORY M ATERIAL IN HIS POSSESSION WHICH WILL INDICATE THAT THE PARTIES HAVE CONCEALED THE REAL POSITION. HE MUST NOT MAKE A GUESS WORK OR ACT ON CONJECTURES AND SURMISES.THERE MUST BE DEFINITE AND POSITIVE MATERIAL TO INDICATE THAT THE PARTIES HAVE SUPPRESSED THE PREVAILING RATE. THEN THE ENQUI RIES THAT THE ASSESSING OFFICER CAN MAKE, WOULD BE FOR ASCERTAINING THE GOING RATE. HE CAN MA KE A COMPARATIVE STUDY AND AN ANALYSIS. IN THAT REGARD, TRANSACTIONS OF IDENTICAL OR SIMILAR N ATURE CAN BE ASCERTAINED BY OBTAINING THE REQUISITE DETAILS. HOWEVER, THERE ALSO THE ASSESSIN G OFFICER MUST SAFEGUARD AGAINST ADOPTING THE RATES STATED THEREIN STRAIGHTAWAY. HE MUST FIND OUT WHETHER THE PROPERTY WHICH HAS BEEN LET OUT OR GIVEN ON LEAVE AND LICENCE BASIS IS OF A SIMILAR NA TURE, NAMELY, COMMERCIAL OR RESIDENTIAL. HE SHOULD ALSO SATISFY HIMSELF WHETHER THE RATE OBTAIN ED BY HIM FROM THE DEALS AND TRANSACTIONS AND DOCUMENTS IN RELATION THERETO CAN BE APPLIED OR WHE THER A DEPARTURE THEREFROM CAN BE MADE. BEFORE THE ASSESSING OFFICER DETERMINES THE RATE BY THE ABOVE EXERCISE OR SIMILAR PERMISSIBLE PROCESS HE IS BOUND TO DISCLOSE THE MATERIAL IN HIS POSSESSION TO THE PARTIES. HE MUST NOT PROCEED TO RELY UPON THE MATERIAL IN HIS POSSESSION AND DIS BELIEVE THE PARTIES. THE SATISFACTION OF THE ASSESSING OFFICER THAT THE BARGAIN REVEALS AN INFLA TED OR DEFLATED RATE BASED ON FRAUD, EMERGENCY, RELATIONSHIP AND OTHER CONSIDERATIONS MAKES IT UNRE ASONABLE MUST PRECEDE THE UNDERTAKING OF THE ABOVE EXERCISE. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT OF THE HO N'BLE BOMBAY HIGH COURT, WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.CONFIRMING THE SAME, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT APPEAL FILED BY ASSESSING OFFICER IS DI SMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD MAY, 2018. ! ' # 23 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 23.05.2018 JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 1359/M/16 NRB BEARING LTD. 4 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.