M/s. PSB Industries (I) (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 1536/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0551 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 10-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 08-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Keywords: Bonafide belief; Difference of opinion; Valuation report
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH F DELHI ] BEFORE SHRI R. P. TOLANI, JM & SHRI K. D. R ANJAN, AM I. T. APPEAL NO. 1536 (DEL) OF 2010. ASSESSMENT YEAR : 200607. M/S. P S B INDUSTRIES (I) PVT. LTD., ASSTT. COMMISSIONER OF INCOME-TAX, 207, 2 ND FLOOR, 87 ZAMRUDPUR, VS . C I R C L E : 14 (1), GREATER KAILASH, PART 1, N E W D E L H I. N E W D E L H I 110 048. P A N / G I R NO. AAA CP 0009 M. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI AJAY VOHRA, ADV.; DEPARTMENT BY : MS. BANITA DEVI NAOREM, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)XVII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE, RE AD AS UNDER:- 1.1 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER I N LEVYING PENALTY OF RS.17,82,078/- UNDER SECTION 271(1)(C) OF THE INCOM E-TAX ACT, 1961 (THE ACT) ON ACCOUNT OF INCOME DERIVED FROM THE PROPERTY WHICH W AS LET OUT TO M/S. BANK OF PUNJAB LTD.; 2 I. T. APPEAL NO. 1536 (DEL) OF 2010. 1.2 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (APPEALS) FAILED TO APPRECIATED THAT THE ORDER PASS ED UNDER SECTION 271(1)(C) IS BEYOND JURISDICTION AND BAD IN LAW, AS NO SATISFACT ION AS REQUIRED IN LAW HAS BEEN RECORDED BY THE ASSESSING OFFICER IN THIS REGARD IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT; 1.3 THAT THE CIT (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE ASSESSING OFFICER HAS INITIATED PROCEEDINGS UND ER SECTION 271(1)(C) OF THE ACT FOR ALLEGED FURNISHING OF INACCURATE PARTICULARS O F INCOME BUT LEVIED PENALTY ON THE ALLEGED GROUND THAT THE APPELLANT HAS CONCEALE D ITS PARTICULARS OF INCOME; 1.4 THAT THE CIT (APPEALS) ERRED ON FACTS AND IN LAW IN OBSERVING THAT PENALTY IS LEVIABLE AS NO APPEAL HAS BEEN FILED BY THE APPELLANT AGAINST THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT; 1.5 THAT THE CIT (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS A CIV IL LIABILITY AND HAS TO BE PAID LIKE ANY OTHER CIVIL LIABILITY; 1.6 THAT THE CIT (APPEALS) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THAT THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT WAS NOT LEVIABLE QUA THE IMPUGNED ADDITION MADE IN THE ASSESSMENT ORDER CONSIDERING T HAT (I) THE ADDITION WAS MADE IN THE QUANTUM PROCEEDINGS, SIMPLY ON ACCOUNT OF BO NAFIDE DIFFERENCE OF OPINION; (II) THE CLAIM MADE BY THE APPELLANT WAS PROPERLY E XPLAINED AND THE EXPLANATION FURNISHED WAS BONAFIDE; AND (III) ALL FACTS MATERIA L TO THE AFORESAID CLAIM WERE DULY DISCLOSED BY THE APPELLANT. 3. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT T HE ASSESSEE HAD SHOWN RENTAL INCOME OF RS.1,00,000/- PER ANNUM BASED ON AN AGREEMENT ENTE RED INTO WITH PUNJAB NATIONAL BANK, THE LESSEE. AS PER THE AGREEMENT THE PROPERTY ADMEASUR ING 11,499 SQ. YDS. [10,682.83 SQ. MTS.] SITUATED AT MANESAR ROAD, GURGAON TOGETHER WITH FIV E EXISTING BUILDINGS OR STRUCTURE STANDING THEREON WAS GIVEN ON RENTALS. THE ASSESSEE HAD LEA SED OUT THE SAID PREMISES HAVING AGGREGATE CONSTRUCTED AREA OF 1,23,490 SQ. FT. FOR A TERM OF 25 YEARS COMMENCING FROM 24 TH MARCH, 2001, ON THE EARLY RENT OF RS.1,00,000/- ONLY. THE ASSESSEE HAD RECEIVED A SUM OF RS.67,00,00,000/- AS INTEREST-FREE DEPOSIT FROM THE LESSEE. SINCE THE A NNUAL RENT FOR 1,23,490 SQ. FT. WAS VERY LOW, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH VAL UATION REPORT OF ANNUAL RENTAL VALUE OF THE PREMISES. THE ASSESSEE FURNISHED VALUATION REPORT DATED 26.11.2008 FROM A REGISTERED VALUER OF THEIR CHOICE, ACCORDING TO WHICH THE ANNUAL RENTAL VALUE WAS DETERMINED 75,63,360/- AS ON 1/04/2005. THIS ANNUAL RENTAL VALUE OF RS.75,63,36 0/- WAS ADMITTED BY THE ASSESSEE AS FAIR RENTAL 3 I. T. APPEAL NO. 1536 (DEL) OF 2010. VALUE OF THE PROPERTY UNDER SECTION 23 OF INCOME-TA X ACT, 1961. ACCORDINGLY, THE AO ADOPTED THE ANNUAL LETTING VALUE OF THE PREMISES AT RS.75,6 3,360/- AS AGAINST RS.1,00,000/- DECLARED BY THE ASSESSEE IN ITS RETURN OF INCOME. THE AO ON TH E BASIS OF ANNUAL VALUE OF RS.75,63,360/- DETERMINED THE INCOME FROM HOUSE PROPERTY AT RS.52, 94,352/- AFTER ALLOWING ELIGIBLE DEDUCTIONS. HE ALSO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 4. DURING THE COURSE OF PENALTY PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT THE ADDITION WAS MADE ON THE BASIS OF NOTIONAL INCOME I .E. FAIR RENTAL VALUE OF THE PROPERTY AND THE SAME WAS ADMITTED DURING THE COURSE OF ASSESSMENT P ROCEEDINGS. THEREFORE, PENALTY SHOULD NOT BE IMPOSED. THIS CONTENTION OF THE ASSESSEE WAS NO T ACCEPTED BY THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAD NOT GIVEN ANY EXPLANAT ION SUPPORTED BY PROPER EXPLANATION REGARDING HIS CONDUCT IN NOT DISCLOSING THE CORRECT RENT OF THE PROPERTY. THE ASSESSEE HAS FAILED TO FURNISH SUPPORTIVE EVIDENCE IN RESPECT OF RENT S HOWN BY IT. INSTEAD THE ASSESSEE ACCEPTED THE VALUATION MADE BY THE REGISTERED VALUER. THE ASSES SING OFFICER WAS OF THE OPINION THAT AS REQUIRED BY EXPLANATION 1 TO SECTION 271(1)(C) OF T HE ACT IT WAS THE DUTY OF THE ASSESSEE TO EXPLAIN HIS CASE REGARDING NOT FURNISHING TRUE AND CORRECT PARTICULARS OF ITS INCOME. HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F K. P. MADHUSUDAN VS. CIT 251 ITR 99 (SC) FOR THE PROPOSITION THAT IF THE ASSESSEE DOES NOT PROVE THAT HIS FAILURE TO RETURN ITS CORRECT INCOME WAS NOT DUE TO FRAUD OR NEGLECT, HE SHALL BE DEEM TO HAVE CONCEALED THE PARTICULARS OF ITS INCOME OR FURNISHED INACCURATE PARTICULARS THEREOF. THEREFORE, THE ASSESSEE WAS LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. HE ACCORDINGLY IMPOSED PENALTY OF RS.17, 82,078/- BEING HUNDRED PER CENT OF TAX SOUGHT TO BE EVADED. 5. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED TH AT THE ASSESSING OFFICER HAD LEVIED THE PENALTY WITHOUT APPRECIATING THE FACTS OF THE CASE JUDICIOUSLY. HE SUBMITTED THAT THE ASSESSEE HAD DULY OFFERED RENTAL INCOME IN THE RETURN OF INCOME ACTUALLY RECEIVED FROM LETTING OUT OF THE PROPERTY TO M/S. PUNJAB NATIONAL BANK. THE AGREEME NT OF THE LEASE OF THE SAID PROPERTY WAS PLACED ON RECORD BEFORE THE ASSESSING OFFICER IN TH E COURSE OF ASSESSMENT PROCEEDINGS. THEREFORE, THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS RELATING 4 I. T. APPEAL NO. 1536 (DEL) OF 2010. TO THE ASSESSMENT OF THE SAID RENTAL INCOME. HE AD MITTED THAT THE ASSESSMENT OF THE PROPERTY AT THE ANNUAL VALUE OF RS.75,63,360/- WAS ENTIRELY ON THE BASIS OF THE VALUATION REPORT SUBMITTED BY THE VALUER. SINCE THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY THE MATERIAL RELATING TO ASSESSMENT OF THE RENTAL INCOM E, PENALTY UNDER SECTION 271(1)(C) WAS NOT LEVIABLE. HE PLACED RELIANCE ON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF VS. JCIT 291 ITR 590 (SC). 6. THE LD. CIT (APPEALS) AFTER CONSIDERING THE SUBM ISSIONS MADE BY THE ASSESSEE EXAMINED THE SCOPE OF ANNUAL LETTING VALUE AS PER THE PROVIS IONS OF SECTION 23 OF THE INCOME-TAX ACT, 1961. HE WAS OF THE OPINION THAT IN VIEW OF EXPRESS PROVI SIONS OF SECTION 23(1)(A) PERTAINING TO INCOME FROM HOUSE PROPERTY, IT WAS EVIDENT THAT THE ACTUAL RENT RECEIVED IS ONLY ONE OF THE CONDITIONS. THE IMPORTANT CONDITION FOR TAXABILITY OF RENT IS T HE EXPECTATION OF RENT FROM SUCH PROPERTY FROM YEAR TO YEAR. THE LD. CIT (A) FURTHER NOTED THAT T HE ASSESSEE HAD TAKEN INTEREST-FREE DEPOSITS OF RS.67 CRORES AGAINST THE SAID PROPERTY. THE AMOUNT WAS ADVANCED TO GROUP COMPANIES AS INTEREST-FREE LOAN AND ADVANCES ON WHICH NO INTERES T HAD BEEN SHOWN TO HAVE RECEIVED BY THE ASSESSEE AS NO INCOME WAS OFFERED FOR TAXATION ON A CCOUNT OF UTILIZATION OF RS.67 CRORES. AS PER THE NORMAL PRACTICE IN THE PROPERTY MARKET THE LAND LORDS TAKE INTEREST-FREE DEPOSIT OF AMOUNT EQUAL TO TWO TO THREE MONTHS. THE ADVANCE TAKEN AT RS.67 CRORES WAS RENT EQUIVALENT TO RS.6,700 YEARS OF RENT. THE LD. CIT (A), THEREFORE, RESORTE D TO DECISION OF HONBLE SUPREME COURT IN THE CASE OF MC DOWELLS & CO. LTD. VS. CTO 154 ITR 148 ( SC) FOR THE PROPOSITION THAT THE TAX AVOIDANCE BY ADOPTING DUBIOUS METHODS COULD NOT BE ENCOURAGED. SECTION 23 OF THE I. T. ACT MAKES IT OBLIGATORY ON THE PART OF AN ASSESSEE TO O FFER THE INCOME FROM THE HOUSE PROPERTY ON THE BASIS OF EXPECTED MARKET RENT, IF THE ACTUAL RENT R ECEIVED WAS LOWER THAN MARKET EXPECTATION. SINCE ASSESSEES RETURNS OF INCOME FOR EARLIER YEA RS WERE ACCEPTED UNDER SECTION 143(1) OF THE ACT THE AO HAD NO OCCASION TO EXAMINE THE ISSUE IN THOSE YEARS. FURTHER THE ASSESSEE HAD NOT FILED ANY APPEAL AGAINST THE ADDITION MADE BY THE A O. THUS THE ASSESSMENT ORDER HAD ATTAINED FINALITY. THE LD. CIT (A) ALSO PLACED RELIANCE IN THE CASE OF CIT VS. ESCORTS FINANCE LTD. 226 CTR (DEL.) 2005 WHEREIN PENALTY WAS HELD TO BE LEVI BLE WHEN DEDUCTION UNDER SECTION 35-D WAS CLAIMED WAS NOT ADMISSIBLE. IT WAS NOT A BONAFIDE ERROR. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN UNION OF INDIA VS. DHAR MENDRA TEXTILES PROCESSOR 306 ITR 277 5 I. T. APPEAL NO. 1536 (DEL) OF 2010. (SC) WHEREIN IT HAS BEEN HELD THAT THE OBJECT BEHIN D ENACTMENT OF SECTION 271(1)(C) READ WITH EXPLANATIONS INDICATE THAT THE SECTION HAS BEEN ENA CTED TO PROVIDE FOR A LOSS OF REMEDY. THE PENALTY UNDER THAT PROVISION IS A CIVIL LIABILITY. WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY, AS IS THE CASE IN T HE MATTER OF PROVISION UNDER SECTION 276C. IN THE CASE OF CIT VS. RLP LTD. 313 ITR 397 (SC) HONBLE S UPREME COURT HELD THAT WHERE POSITIVE INCOME REDUCED TO NIL BY SETTING OFF OF CARRIED FOR WARD LOSSES FOR EARLIER YEARS PENALTY FOR CONCEALMENT WAS LEVIABLE. HE ALSO PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. ATUL MOHAN BINDAL 225 CTR (SC) 148 WHEREIN IT HAS BEEN HELD THAT PENALTY UNDER SECTION 271(1)(C) IS NEITHER CRIMINAL NOR QUA SI CRIMINAL, BUT A CIVIL LIABILITY, ALBEIT A STRICT LIABILITY. SUCH LIABILITY BEING CIVIL IN NATURE ME NS REA IS NOT ESSENTIAL. ACCORDINGLY, THE LD. CIT (APPEALS) UPHELD THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 7. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE PROPERTY WAS LEASED OUT TO PUNJAB NATIONAL BANK @ RS.1,00,000/- PER ANNUM. SINCE THE PROPERTY WAS LEASED OUT TO THE BANK, THE GOVT. WAS SATISFIED ABOUT THE LEASE RENTALS. AS PE R CLAUSE 8(A) OF THE AGREEMENT ON EXPIRATION OF THE TERM OR PRIOR DETERMINATION OF LEASE UNDER PROV ISIONS OF THE AGREEMENT THE SAID DEMISED PREMISES INCLUDING THE PREMISES WHICH MAY BE CONSTR UCTED BY THE LESSEE SHALL AUTOMATICALLY WOULD VEST IN LESSOR WITHOUT PAYMENT OF COMPENSATIO N, OR REIMBURSEMENT OF ANY COST OF CONSTRUCTION OR IMPROVEMENT BY LESSOR TO THE LESSEE . BECAUSE OF THIS CLAUSE THE LEASE RENT WAS FIXED AT LOWER AMOUNT. HE PLACED RELIANCE ON THE D ECISION OF HONBLE SC IN THE CASE OF CIT VS. MADRAS AUTO SERVICE (P) LTD. 233 ITR 468 (SC) FOR T HE PROPOSITION THAT WHERE BUILDING CONSTRUCTED BY THE LESSEE FROM HIS OWN FUNDS AND LE SSEE WAS USING THE SAID PREMISES AT A VERY LOW RENT, THE PAYMENT OF LOW RENT WAS ON ACCOUNT OF THE REASON THAT THE INVESTMENT MADE IN CONSTRUCTION BY THE LESSEE BELONGED TO THE LESSOR. IT WAS ALSO SUBMITTED THAT PUNJAB NATIONAL BANK, THE LESSEE HAS CLAIMED IN THE RETURN OF INCOM E THE RENT PAID TO ASSESSEE AT RS.1,00,000/- PER ANNUM. ENTIRE DETAILS WERE AVAILABLE ON RECORD AND , THEREFORE, THERE IS NO CONCEALMENT OF INCOME AND, THEREFORE, PENALTY COULD NOT BE IMPOSED. HE A LSO SUBMITTED THAT THE PAYMENT OF SECURITY DEPOSIT AT RS. 67 CRORES WAS SHOWN AS LIABILITY AND , THEREFORE, THERE WAS COMPLETE DISCLOSURE OF THE FACTS IN THE ACCOUNTS. HE FURTHER SUBMITTED TH AT WHETHER THE INCOME FROM HOUSE PROPERTY WILL 6 I. T. APPEAL NO. 1536 (DEL) OF 2010. BE AT RS.1,00,000/- PER ANNUM OR AT RS. 75,63,360/- IS A DEBATABLE ISSUE AND, THEREFORE, PENALTY CANNOT BE IMPOSED UNDER SECTION 271(1)(C) OF THE AC T. 8. ON THE OTHER HAND, THE LD. SR. DR SUBMITTED THAT ASSESSMENT IN THIS CASE WAS MADE UNDER SECTION 143(1) OF THE ACT. IF THE CASE WAS NOT SEL ECTED FOR SCRUTINY THE ASSESSEE WOULD HAVE AVOIDED TAX PAYABLE ON INCOME FROM HOUSE PROPERTY T O BE ASSESSED AS ANNUAL LETTING VALUE WHICH THE ASSESSEE MIGHT EXPECT TO LET OUT FROM YEAR TO Y EAR BASIS. IT HAS BEEN FURTHER SUBMITTED THAT THE ASSESSEES CASE IS COVERED BY HONBLE DELHI HIG H COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION P. LTD. 327 ITR 510 (DEL.) WHEREIN I T HAS BEEN HELD THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATERIAL FACTS OR THE FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITIO N OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, EVEN IF THE CLAIM MADE BY HIM IS UN-SUSTAINABLE IN LAW PROVIDED THAT HE EITHER SUBSTANTIATES THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT SUBSTANTIATED IS FOUND TO BE BONAFIDE. IF THE EXPLANATION IS NEITHE R SUBSTANTIATED NOR SHOWN TO BE BONAFIDE, THE EXPLANATION 1 TO SECTION 271(1)(C) WOULD COME INTO PLAY AND THE ASSESSEE WILL BE LIABLE TO PENALTY. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE LEASE AGREEMENT. THE AS SESSEE HAD ENTERED INTO AN AGREEMENT TO LEASE OUT THE PROPERTY TO PUNJAB NATIONAL BANK LTD. ON A SUM OF RS.1,00,000/- PER ANNUM. THE TOTAL AREA OF CONSTRUCTED BUILDING LEASED OUT BY THE ASSE SSEE IS GIVEN IN SECOND SCHEDULE TO THE LEASE AGREEMENT WHICH IS 1,23,490 SQ.FT. THE APPROVED VA LUER HAS VALUED THE ANNUAL LETTING VALUE OF TOTAL CONSTRUCTED AREA OF 1,23,490 SQ. FT AT RS.75, 63,360/-. ANNEXURE 2 TO THE VALUATION REPORT GIVES THE AREA OF PROPERTY LET OUT AT 1,23,490 S Q. FT. FROM THESE FACTS IT IS EVIDENT THAT THE ASSESSEE HAS LET OUT THE BUILDINGS HAVING AREA OF 1 ,23,490 SQ. FT. THEREFORE, IT IS NOT A CASE OF THE ASSESSEE THAT OPEN LAND WAS GIVEN TO THE LESSEE AND THE LESSEE HAD CONSTRUCTED THE SAID BUILDING WITH OWN FUNDS AND BECAUSE OF WHICH THE LEASE RENTA LS WERE LOW. THEREFORE, DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. MADRAS AUTO SE RVICE P. LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AS IN THIS CASE NE W BUILDING WAS DEMOLISHED AND CONSTRUCTED BY 7 I. T. APPEAL NO. 1536 (DEL) OF 2010. THE LESSEE AT ITS OWN EXPENSE AND THE LEASE OF THE PREMISES WAS FOR A PERIOD OF 39 YEARS. ON DETERMINATION OF LEASE THE BUILDING WAS TO VEST IN LESSOR WHEREAS IN THE INSTANT CASE, THE BUILDING WAS CONSTRUCTED BY THE LESSOR ITSELF AND THE SAME W AS GIVEN ON RENT. MERELY BECAUSE THERE IS A CLAUSE IN LEASE AGREEMENT THAT FUTURE CONSTRUCTION WOULD VEST IN LESSOR, IT WOULD NOT JUSTIFY THE LOWER PAYMENT OF RENT. HENCE, THE DECISION OF HON BLE SUPREME COURT IS DISTINGUISHABLE ON FACTS. 10. SECTION 23 OF INCOME TAX ACT WHICH DEFINES THE SCOPE ANNUAL VALUE OF HOUSE PROPERTY READS AS UNDER: 23. (1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALU E OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THER EOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED O R RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS L ET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWIN G TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RE CEIVED OR RECEIVABLE. FROM THE PLAIN READING OF CLAUSE (A) AND (B) IT IS CLEAR THAT ANNUAL LETTING VALUE OF THE PROPERTY WILL BE THE SUM FOR WHICH THE PROPERTY MIGHT REASON ABLY BE EXPECTED TO LET FROM YEAR TO YEAR. ONLY IN THE CASES WHERE THE AMOUNT RECEIVED OR RECE IVABLE EXCEEDS THE SUM FOR WHICH PROPERTY MIGHT REASONABLY BE ACCEPTED TO LET OUT FROM YEAR T O YEAR IS IN EXCESS, THE AMOUNT RECEIVED OR 8 I. T. APPEAL NO. 1536 (DEL) OF 2010. RECEIVABLE SHALL BE THE ANNUAL VALUE OF THE PROPERT Y. THE WORD REASONABLY APPEARING IN CLAUSE (A) IS VERY IMPORTANT. WHAT THE LANDLORD MIGHT REAS ONABLY EXPECT TO GET FROM A HYPOTHETICAL TENANT, IF THE BUILDING WERE LET FROM YEAR TO YEAR, AFFORDS THE STATUTORY YARDSTICK FOR DETERMINING THE ANNUAL VALUE. THE ACTUAL RENT PAYABLE BY A TENA NT TO THE LANDLORD WOULD, IN NORMAL CIRCUMSTANCES, AFFORD RELIABLE EVIDENCE OF WHAT THE LANDLORD MIGHT REASONABLY EXPECT TO GET FROM A HYPOTHETICAL TENANT, UNLESS THE RENT IS INFLATED OR DEPRESSED BY REASON OF EXTRANEOUS CONSIDERATION SUCH AS RELATIONSHIP, EXPECTATION OF SOME OTHER BENEFIT ETC. THERE WOULD BE ORDINARILY BE IN A FREE MARKET CLOSE APPROXIMATION BETWEEN ACTUAL RENT RECEIVED BY THE LANDLORD AND THE RENT WHICH HE MIGHT REASONABLY EXPECT TO GE T FROM A HYPOTHETICAL TENANT. IN THE CASE BEFORE US THE ASSESSEE HAD RECEIVED INTEREST FREE D EPOSITS OF RS 67 CRORES BECAUSE WHICH THE RENT RECEIVED WAS LOW. THE ANNUAL RENT OF RS 1,00,000/- OF THE PROPERTY HAVING AREA OF 1,23,490 SQ.FT. LET OUT TO A BANK CANNOT BE TREATED AS REASONABLE T O WHICH PROPERTY COULD BE LET OUT FROM YEAR TO YEAR. IN CASE OF BABULAL RAJ GARHIA (4 ITR 148) HON BLE CALCUTTA HIGH COURT HELD THAT A LEASE DEED STIPULATING AN ANNUAL RENTAL VALUE, THOUGH A P IECE OF EVIDENCE, IS NOT A CONCLUSIVE EVIDENCE OF THE BONAFIDE ANNUAL VALUE OF THE PROPERTY. THERE FORE THE CONTENTION OF THE ASSESSEE THAT RENT RECEIVED BY THE ASSESSEE IS EVIDENCED BY LEASE DEED IS NOT A CONCLUSIVE EVIDENCE OF BONAFIDE ANNUAL VALUE OF THE PROPERTY. FURTHER THE DEEMING PROVISIONS OF SECTION 23(1) ARE MANDATORY IN NATURE AND, THEREFORE, THE ASSESSEE WAS REQUIRED TO ADMIT THE ANNUAL VALUE OF THE PROPERTY FOR WHICH IT MIGHT REASONABLY BE LET OUT FROM YEAR TO Y EAR RATHER THAN ADOPTING THE FIGURE OF RS.1,00,000/- PER ANNUM WHICH IS GROSSLY DEPRESSE D BECAUSE OF SECURITY DEPOSIT OF RS 67 CRORES EQUIVALENT 6700 YEARS OF ANNUAL RENT RECEIVED BY TH E ASSESSEE. 11. FURTHER THE ASSESSEE HAS RECEIVED RS.67 CRORES AS SECURITY DEPOSIT WHICH HAS BEEN GIVEN BY THE ASSESSEE TO ITS SISTER CONCERNS WITHOUT ANY INTEREST. THE ASSESSEE HAD LET OUT 1,23,490 SQ. FT. OF THE AREA TO PUNJAB NATIONAL BANK FOR A SUM O F RS.1,00,000/-, WHICH GIVES ANNUAL RENT PER SQ. FT. AT RS 0.80. IT IS UN-BELIEVABLE THAT THE A NNUAL LETTING VALUE OF ANY PROPERTY IN CITY LIKE GURGAON WILL BE AT THE RATE OF RS 0.80 PER SQ. FT . THE ASSESSEE WAS AWARE OF ITS ANNUAL LETTING VALUE BECAUSE OF WHICH HE HAD TAKEN INTEREST-FREE A DVANCE OF RS.67 CRORES WHICH HAS BEEN DIVERTED FREE OF INTEREST TO SISTER CONCERNS. HAD THIS MONEY BEEN PUT IN FIXED DEPOSIT @ 8%, THE ASSESSEE WOULD HAVE RECEIVED INTEREST OF RS.5,36,00 ,000/- PER ANNUM. IF THE ASSESSEE HAD OFFERED 9 I. T. APPEAL NO. 1536 (DEL) OF 2010. ANY INCOME FROM SECURITY DEPOSITS OR INVESTED IN IT S OWN BUSINESS IT COULD HAVE BEEN ARGUED FOR THE PURPOSES OF PENALTY U/S 271(1)(C) THAT THE ASSE SSEE WAS UNDER BONAFIDE BELIEF TO ADMIT INCOME AS PER LEASE AGREEMENT THOUGH THE INCOME OF THE HOU SE PROPERTY WAS TO ASSESSED AS PER PROVISIONS OF CLAUSE (A) OF SECTION 23(1) OF THE AC T. THE ASSESSEE PREFERRED TO DIVERT THE SECURITY DEPOSITS OF RS 67 CRORES TO GROUP CONCERNS FREE OF INTEREST. THE ASSESSEES VALUER HAS VALUED ANNUAL LETTING VALUE OF THE PROPERTY AT RS.75,63,36 0/- WHICH HAS BEEN ACCEPTED BY THE ASSESSEE AND THE SAME HAS NOT BEEN AGITATED BEFORE THE AP PELLATE AUTHORITIES. THEREFORE, THE ANNUAL LETTING VALUE OF THE PROPERTY AT RS.75,63,360/- HAS ATTAINED FINALITY. THE DIFFERENCE IN MARKET RENT AS DETERMINED BY APPROVED VALUER (RS 61.25/SQ.FT./A NNUM) AND RENT RECEIVED (RS.0.80/SQ.FT./ANNUM) IS TOO LARGE TO BELIEVE THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT MARKET RENT WAS RS.0.80 PER SQUARE FEET. FROM THESE FACTS IT EVIDENT THAT THE ASSESSEE HAD PLANNED ITS AFFAIRS IN SUCH A WAY THAT MINIMUM TAX WOULD BE PAYABLE. 12.1 IN CIT VS. ZOOM COMMUNICATION P. LTD. 327 ITR 510 (DEL .) IT HAS BEEN HELD THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATERIAL FACTS OR THE FACTUAL INFORMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, EVEN IF THE CLAIM MADE BY HIM IS UN-SUSTAINABLE IN LAW PROVIDED THAT HE EITHER SUBSTANTIATES THE EXPLANATI ON OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT SUBSTANTIATED IS FOUND TO BE BONAFIDE. IF THE EXPLANATION IS NEITHER SUBSTANTIATED NOR SHOWN TO BE BONAFIDE, EXPLANATION (1) TO SECTION 271(1)(C) W OULD COME INTO PLAY AND THE ASSESSEE WILL BE LIABLE TO PENALTY. 12.2 IN THE CASE BEFORE US THE ASSESSEE HAS NOT BE EN ABLE TO SUBSTANTIATE AS TO WHY THE RENT FOR WHICH THE PROPERTY WAS REASONABLY EXPECTED TO BE LE T FROM YEAR TO YEAR WAS NOT ADMITTED IN THE RETURN OF INCOME. IF THE ASSESSEE HAD OFFERED ANY I NCOME FROM SECURITY DEPOSITS IT COULD HAVE BEEN ARGUED FOR THE PURPOSES OF PENALTY U/S 271(1)( C) THAT THE ASSESSEE WAS UNDER BONAFIDE BELIEF TO ADMIT INCOME AS PER LEASE AGREEMENT THOUGH THE I NCOME OF THE HOUSE PROPERTY WAS TO ASSESSED AS PER THE PROVISIONS OF CLAUSE (A) OF SECTION 23(1 ) OF THE ACT. THE RENT RECEIVED WAS SUBSTANTIALLY UNDERVALUED BECAUSE OF HUGE INTEREST FREE ADVANCE O F RS 67 CRORES RECEIVED BY THE ASSESSEE 10 I. T. APPEAL NO. 1536 (DEL) OF 2010. WHICH WAS DIVERTED TO SISTER CONCERNS FREE OF INTER EST. THE EXPLANATION THAT ANNUAL VALUE OF RS 100000/- WAS EVIDENCED BY LEASE AGREEMENT CANNOT BE CONSIDERED AS BONAFIDE. SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IS NEITHER SUBS TANTIATED NOR SHOWN TO BE BONAFIDE, EXPLANATION (1) TO SECTION 271(1)(C) WOULD COME INT O PLAY AND THE ASSESSEE WILL BE LIABLE TO PENALTY. OUR VIEW IS SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION P. LTD.(SUPRA). IN VIEW OF A BOVE DISCUSSION IN OUR CONSIDERED OPINION LD CI(A) WAS JUSTIFIED TO CONFIRM PENALTY U/S 271(1 ) OF THE ACT. HENCE WE DO NOT ANY INFIRMITY IN THE ORDER PASSED BY LD CIT(A) IN CONFIRMING THE PEN ALTY. 13. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON: 04 TH FEBRUARY, 2011. SD/- SD/- [ R. P. TOLANI ] [ K. D. RA NJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 04 TH FEBRUARY, 2011. * MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.