Platinum Avenues Private Limited, Hyderabad, Hyderabad V. ITO, Ward-16(4), Hyderabad, Hyderabad

ITA 1454/HYD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2513 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-02-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 27-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SWAPNA
• Assessee Lawyers: SYED JAMEELUDDIN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 1454/HYD/2016 ASSESSMENT YEAR: 2012-13 M/S. PLATINUM AVENUES PRIVATE LIMITED, HYDERABAD [PAN: AAIFA8456C] VS INCOME TAX OFFICER, WARD-16(4), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI SYED JAMEELUDDIN, AR FOR REVENUE : SMT. N. SWAPNA, DR DATE OF HEARING : 12-02-2018 DATE OF PRONOUNCEMENT : 16-02-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-4, HYDERABAD, DATED 25-08-2016 ON THE ISSUE OF DETERMINING THE ANNUAL LETTI NG VALUE OF THE PROPERTY WHICH WAS LET OUT AND DISALLOWANCE OF CER TAIN EXPENDITURE. I.T.A. NO. 1454/HYD/2016 :- 2 - : 2. BRIEFLY STATED, ASSESSEE IS OWNER OF A BUILDING WH ICH WAS LET OUT TO VARIOUS PERSONS ON COMMERCIAL BASIS. THE GROU ND FLOOR AND FIRST FLOOR ARE LEASED OUT TO VARIOUS COMPANIES FOR TH EIR SHOWROOMS, WHEREAS ASSESSEE HAS SECOND, THIRD AND FOURTH FLOORS WHICH ARE USEFUL FOR HOTEL BUSINESS ALONE. ASSESSEE HAS OFFER ED THE RENTAL RECEIPTS TO AN EXTENT OF RS. 1.07 CRORES AND ALSO OTHE R RECEIPTS LIKE RENTS ON FURNITURE AND FIXTURES IN THE HOTEL AND INTERES T ETC. TO AN EXTENT OF RS. 11,85,241/-. AGAINST THIS, ASSESSEE HAS CLAIMED VARIOUS EXPENDITURES IN THE P&L A/C. HOWEVER, IN THE INCOME TAX COMPUTATION, ASSESSEE HAS OFFERED THE RENT RECEIVED UND ER THE HEAD INCOME FROM HOUSE PROPERTY AND OTHER RECEIPTS UNDER THE HEAD BUSINESS, CLAIMING VARIOUS EXPENDITURES. AO IN TH E SCRUTINY ASSESSMENT HAS NOTICED THAT ASSESSEE HAS OFFERED HIGHER RENT IN THE MONTHS OF APRIL, MAY AND JUNE, 2011, BUT REDUCED TH E RENTS IN THE SUBSEQUENT PERIOD. HE ALSO NOTICED THAT THE RENT OF FERED BY ASSESSEE FROM HOTEL UNIT IS NOT COMPARABLE WITH OTHER TE NANTS IN THE GROUND AND FIRST FLOOR AND THEREFORE, HE HAS TAKEN THE AVERAGE VALUE OF THE RENTS RECEIVED FROM THE GROUND FLOOR AND FIRST FLOOR TO DETERMINE THE ANNUAL LETTING VALUE OF THE HOTEL UNIT IN SECOND, THIRD AND FOURTH FLOORS AT RS. 100 PER SQ. FT. SINCE TH E HOTEL WAS OCCUPYING AREA OF 19,761 SQ. FT., AO ADOPTED THE ANNUA L LETTING VALUE FOR THE PROPERTY AT RS. 2,37,13,200/- FOR THE W HOLE YEAR AND THEREAFTER, RE-COMPUTED THE INCOME FROM HOUSE PROPERTY . HE FURTHER DISALLOWED THE EXPENDITURE CLAIMED IN THE COMPU TATION OF INCOME. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AN D RAISED VARIOUS GROUNDS THAT EXPENDITURE COULD NOT BE DISALLOWE D AS ASSESSEE HAS OFFERED VARIOUS OTHER RECEIPTS UNDER THE HEAD I.T.A. NO. 1454/HYD/2016 :- 3 - : BUSINESS. EVEN UNDER THE HEAD OTHER SOURCES, THE E XPENDITURES ARE ALLOWABLE. WITH REFERENCE TO THE ANNUAL LETTING VAL UE, ASSESSEE EXPLAINED THAT THE PROPERTY CAN ONLY BE LET OUT TO A HOT EL AND THE EXISTING TENANTS HAVE INCURRED LOSSES AND SO THERE IS NO OPTION THAN TO REDUCE THE RENTS AND ACCORDINGLY, ASSESSEE HAS RECEIVED AND OFFERED THE ACTUAL RENTS RECEIVED. ASSESSEE ALSO RELIED ON VARIOUS CASE LAW TO CONTEND THAT AOS RE-VALUATION IS NO T ACCORDING TO THE PRESCRIBED PROCEDURES AND PARTICULARLY RELIED O N THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY [368 ITR 330] (BOM) AND OTHER CASES. 4. LD.CIT(A), HOWEVER, DID NOT CONSIDER ANY OF THE ARGUMENTS AND AGREED WITH THE AO BY STATING AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, THE ASSESSMENT ORDER AND THE SUBMISSIONS MADE BY THE APPELLANT. TH E APPELLANT IN THE ORIGINAL COMPUTATION OF INCOME AND REVISED COMPUTAT ION OF INCOME DISCLOSED THE RENTAL INCOME AND AFTER CLAIMING DEPR ECIATION AND EXPENSES AS PER PROFIT & LOSS ACCOUNT ARRIVED AT BUSINESS LO SS. ON CAREFUL VERIFICATION OF THE FACTS OF THE CASE, ASSESSMENT O RDER, PROFIT & LOSS ACCOUNT AND BALANCE SHEET OF THE APPELLANT, I AM AL SO IN AGREEMENT WITH THE ASSESSING OFFICER SINCE IT WAS FOUND THAT THE A PPELLANT HAS NOT DONE ANY BUSINESS ACTIVITY AND WAS ONLY RECEIVING THE RE NTAL INCOME AND HENCE ALL THE EXPENSES CLAIMED BY THE APPELLANT ARE NOT A LLOWABLE. THEREFORE, THE BUSINESS EXPENSES DISALLOWED BY THE ASSESSING OFFIC ER WERE CONFIRMED. WITH REGARD TO THE SECOND ADDITION OF TAKING THE FA IR MARKET VALUE AND ALV ON COMPARISON BASIS ALSO, THE APPELLANT HAS FAILED TO SUBSTANTIATE HIS GROUND FAIRLY ALONG WITH EVIDENCES AND EXPLANATION AND SO, I AM IN AGREEMENT WITH THE AO AND THE ADDITION MADE ON THIS GROUND IS CONFIRMED. 5. LD. COUNSEL SUBMITTED THAT PROPERTY WAS GIVEN ON LEA SE TO ONE M/S. R. LINE FOODS ON A LEASE AGREEMENT DT. 28-02 -2007 FOR A FIXED LEASE OF FOURTH FLOOR FOR ONE YEAR AT RS. 2,86, 300/- I.E., AT RS. I.T.A. NO. 1454/HYD/2016 :- 4 - : 35/- PER SQ. FT. THEREAFTER, M/S. R. LINE FOODS HAS EXPRESSED ITS DIFFICULTY AND THIS WAS REDUCED TO RS. 1,25,000/-. STI LL THEY ARE UNABLE TO PAY AND AS THERE IS NO OTHER OPTION THAN TO L EASE OUT TO THE SAID COMPANY W.E.F. 01-07-2011, THE ENTIRE BUILDIN G FROM SECOND FLOOR TO FOURTH FLOOR WHICH WAS LEASED AT RS. 1 LAKH PER MONTH AND RS. 50,000/- PER MONTH FOR FURNITURE AND F IXTURES IN THE SAID PORTION OF BUILDING. 6. IT WAS NOTICED THAT THE M/S. R. LINE FOODS HAVE BEC OME M/S. PLATINUM BUSINESS HOTELS AND ASSESSEES COUNSEL WAS ASKED WHETHER M/S. PLATINUM BUSINESS HOTELS IS A SISTER CONCE RN OF ASSESSEE. LD. COUNSEL FAIRLY ADMITTED THAT AT PRESEN T, THE SAID M/S. PLATINUM BUSINESS HOTELS HAS PARTNERS WHO ARE DI RECTORS IN THIS COMPANY. 7. LD.DR, HOWEVER, SUBMITTED THAT THE REDUCTION IN RENT I S NOT PROPER AND FURTHER AO HAS THE POWER TO ARRIVE AT THE ANN UAL VALUE OF BUILDING LET OUT AND RELIED ON VARIOUS CASE LAW IN CLUDING CIT VS. DR. K.M. MEHABOOB (75 TAXMANN.COM 254)] (KERALA) AND CIT VS. PARASMAL CHORDIA [233 ITR 147] (MADRAS) TO SUBMIT THAT IN A CASE WHERE FAIR RENT WAS NOT FIXED, AO HAS THE POWER TO ARR IVE AT THE ANNUAL RENT RECEIVABLE BY ASSESSEE WITH REFERENCE TO S ECTION 23(1). IT IS ALSO SUBMITTED THAT WHERE BUILDINGS ARE LET OUT TO FI RMS OR COMPANIES IN WHICH THEY ARE INTERESTED, AO HAS POWER TO RE- DETERMINE THE ANNUAL VALUE [CIT VS. DR. K.M. MEHABOO B (75 TAXMANN.COM 254)] (KERALA) (SUPRA). 8. IN RESPONSE THE LD. COUNSEL SUBMITTED THAT THE AO HAS ARBITRARILY FIXED THE RENT WITHOUT CONSIDERING THAT THE HO TEL BUILDING I.T.A. NO. 1454/HYD/2016 :- 5 - : CANNOT BE LEASED OUT FOR SHOPS AND RENTS IN THE GROUND FLOOR AND FIRST FLOOR AS RECEIVED BY ASSESSEE WERE ALREADY OFF ERED AND THAT CANNOT BE THE BASIS FOR FIXING THE RENT OF A HOTEL BUI LDING IN SECOND, THIRD AND FOURTH FLOORS WITHOUT CONSIDERING THE ADVANTAG ES/DIS- ADVANTAGES. IT WAS SUBMITTED THAT THE AO HAS NOT FOLLOWED THE PRESCRIBED PROCEDURE AND RENT WAS FIXED ARBITRARILY TA KING THE AVERAGE LEASE VALUE OF THE GROUND FLOOR. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE DOCUMENTS PLACED ON RECORD AND ALSO THE CASE LAW RELI ED UPON. IT IS ADMITTED THAT AO HAS POWER TO RE-DETERMINE THE ANNUAL VAL UE UNDER THE PROVISIONS OF THE ACT, WHEREVER HE FINDS THAT THE RENT REPORTED IS ARBITRARILY LOW. AS SEEN FROM THE FACTS OF THE CASE, ASSESSEE WAS OFFERING THE HIGHER INCOME OF RS. 4 LAK HS IN EARLIER YEARS WHICH WAS ACCEPTED BY THE AO. HOWEVER, THE COR RESPONDING RENTS OF GROUND FLOOR AND FIRST FLOOR IN THOSE YEARS A RE NOT AVAILABLE ON RECORD WHETHER THERE IS REASON TO REDUCE THE RENTS, P ARTICULARLY IN A CASE WHERE THE DIRECTORS ARE INTERESTED IN THE FI RM AS WELL. LOSS INCURRED BY TENANT HAS NO RELEVANCE AS FAR AS THE DE TERMINATION OF ANNUAL VALUE UNDER THE PROVISIONS OF SECTION 23 IS CO NCERNED. IT IS ADMITTED THAT ASSESSEE HAS LET OUT THE PROPERTY AT A REASO NABLE VALUE NOT ONLY PART OF THE MONTHS IN THE YEAR BUT ALSO IN EARLIER YEARS AS WELL. THEREFORE, AO IS WELL WITHIN HIS RI GHTS/POWERS TO RE- DETERMINE THE ANNUAL VALUE. MOREOVER, THE SAID PARTY IS AN INTERESTED PARTY, BEING A UNIT HAVING COMMON PERSONS. WHETHER THE SAID FIRM IS INTERESTED PARTY FROM THE BEGINNING OR BECAME A SISTER CONCERN ONLY DURING THE YEAR IS NOT ON RECORD. AS SEEN FROM THE ORDER OF THE AO, HE HAS NOT CONSIDERED THE ISSUE IN THE CORRECT PERSPECTIVE. THE BUILDING IS SUBJECT TO LET OUT ONLY TO A HOTEL I.T.A. NO. 1454/HYD/2016 :- 6 - : BUSINESS AS IT CONTAINS ROOMS AND ALSO RESTAURANT. THE GROUND FLOOR AND FIRST FLOOR BUILDING, HAVING ROAD FRONTAGE AND USING FOR SHOW ROOM PURPOSES, MAY FETCH A HIGHER RENT BUT THAT DOE S NOT INDICATE THAT ALL THE FLOORS IN THE BUILDING WILL FETCH THE SAME RENT. THEREFORE, IN OUR VIEW, ADOPTION OF RS. 100/- PER SQ . FT., IS NOT ONLY ARBITRARY BUT ALSO WITHOUT ANY BASIS AS WELL. SINCE THE RATIO OF COMMERCIAL RENT RECEIVED IN GROUND FLOOR WITH THAT OF HOTEL PROPERTY IN EARLIER YEARS IS NOT AVAILABLE AND SINCE NO OTHER COMPARABLE RENT DETAILS WERE PLACED ON RECORD, WE ARE OF THE OPINION THAT THE MATTER REQUIRES RE-EXAMINATION BY THE AO, PARTICULARLY KEEPIN G IN MIND THE PRINCIPLES LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY (SUPRA) RELIED O N BY ASSESSEE AND ALSO KEEPING IN MIND THE CASE LAW RELIED ON BY T HE DR AND THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF A. VE NKATESWARA RAO VS. ACIT [372 ITR 136] (AP). AO IS DIRECTED TO EXAMINE ALL THE ASPECTS, AND BY GIVING AN OPPORTUNITY TO ASSESSEE RE-D ETERMINE THE ANNUAL LETTING VALUE, AS PER THE PROVISIONS OF THE ACT A ND LAW INVOLVED. 9.1. ASSESSEE ALSO OFFERED OTHER INCOMES, PARTICULARL Y RENT ON FURNITURE AND FIXTURES. ASSESSEE ALSO CLAIMED SERVI CE TAX AND OTHER EXPENDITURE. WHETHER THOSE INCOMES CAN BE CONSIDERED AS PART OF HOUSE PROPERTY INCOME OR HAS TO BE ASSESSED SEPARATE LY EITHER UNDER THE HEAD BUSINESS OR UNDER THE HEAD OTHER SOU RCES ALSO REQUIRE RE-EXAMINATION BY THE AO. THE ALLOWANCE OF V ARIOUS EXPENDITURE DEPENDS ON THE HEAD UNDER WHICH INCOMES ARE ASSESSED. THEREFORE, THE ENTIRE ORDER OF THE AO AND C IT(A) IS SET ASIDE AND THE ISSUES ARE RESTORED TO THE FILE OF AO TO D O IT AFRESH, I.T.A. NO. 1454/HYD/2016 :- 7 - : AFTER GIVING DUE OPPORTUNITY TO ASSESSEE. GROUNDS A RE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. 10. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY, 2018 SD/- SD/- (V. DURGA RAO) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD, DATED 16 TH FEBRUARY, 2018 TNMM I.T.A. NO. 1454/HYD/2016 :- 8 - : COPY TO : 1. M/S. PLATINUM AVENUES PRIVATE LIMITED, C/O. SYED JAMEELUDDIN, INCOME-TAX CONSULTANT, 16-7-302, ERRAM COTTAGE, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-16(4), HYDERABAD. 3. CIT(APPEALS)-4, HYDERABAD. 4. PR.CIT-4, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.