Atul Chandrakant Kirloskar, Pune V. Deputy Commissioner of Income-tax,

ITA 1767/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1175 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHABANA PARVEEN
• Keywords: Retrospective amendment; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO , AM . / ITA NO. 1767 /P U N/201 6 / ASSESSMENT YEAR : 20 07 - 08 ATUL CHANDRAKANT KIRLOSKAR 453, RADHA, GOKHALE ROAD, MODEL COLONY, PUNE 411016 . / APPELLANT PAN: ABIPK5776G VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 9, PUNE . / RESPONDENT / APPELLANT BY : SHRI C.H. NANIWADEKAR / RESPONDENT BY : MS SHABANA PARVEEN / DATE OF HEARING : 0 5 . 0 9 .201 8 / DATE OF PRONOUNC EMENT: 10 . 0 9 .201 8 / ORDER PER SUSHMA CHOWLA, J M : THE APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF CIT (A) - 7 , PUNE , DATED 0 6 .0 5 .2016 RELATING TO ASSESSMENT YEAR 20 07 - 08 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN S HORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND OF APPEAL: - ITA NO. 1767 /P U N/20 1 6 ATUL C. KIRLOSKAR 2 1. THE LEARNED CIT(APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING ADDITION OF PERQUISITES BEING NOTIONAL INTEREST ON INTEREST FREE DEPOSIT KEPT WITH THE LANDLORD WHILE GIVING RE NT FREE ACCOMMODATION TO THE ASSESSEE. THE REASONS ASSIGNED ARE ENTIRERELY WRONG AND WHOLLY UNTENABLE IN LAW. 3. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST ADDITION OF PERQUISITE MADE BEING NOTIONAL INTEREST ON INTEREST FREE DEPOSITS KEPT WIT H THE LANDLORD. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE IS MANAGING DIRECTOR OF KIRLOSKAR OIL ENGINES LTD. THE SAID COMPANY HAD PURCHASED ONE BUNGALOW FOR 2.46 CRORES IN FINANCIAL YEAR 2002 - 03 , WHICH WAS SOLD TO THE WIFE OF ASSESSEE MRS. ART I ATUL KIRLOSKAR FOR 4.27 CRORES ON 10.01.2006. THE COMPANY HAD TAKEN THE BUNGALOW ON LEASE THROUGH LEASE DEED DATED 01.12.2007 FOR ANNUAL LEASE RENTAL OF 18 LAKHS AND INTEREST FREE DEPOSIT OF 1 CRORE. THE LEASED BUNGALOW WAS PROVIDED AS RENT FREE ACCOMMODATION TO THE ASSESSEE. THE PERQUISITE VALUE OF THE SAID BUNGALOW AT 18 LAKHS WAS ADDED IN THE HANDS OF ASSESSEE. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE VALUE OF PERQUISITE SHOULD BE HIGHER IN VIEW OF THE INTEREST FREE DEPOSIT OF 1 CRO RE MADE TO THE WIFE OF ASSESSEE. HENCE, HE RE - COMPUTED THE VALUE OF PERQUISITE AT 28 LAKHS. 5. THE CIT(A) NOTED THAT THERE WAS AMENDMENT IN RULE 3 OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES), WHICH WAS APPLICABLE TO ASSESSMENT YEAR 2007 - 08 I.E . CAPTIONED ASSESSMENT YEAR AND HE UPHELD THE ORDER OF ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL. ITA NO. 1767 /P U N/20 1 6 ATUL C. KIRLOSKAR 3 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE PROVISIONS OF RULE 3 OF THE RULES AND POINTED OUT THAT PERQUISITE VALUE OF RESIDENTIAL ACCOMMODATION PROVIDED BY THE EMPLOYER WAS TO BE COMPUTED ON ACTUAL AMOUNT OF LEASE RENTAL PAID OR PAYABLE BY THE EMPLOYER AND NOT ON NOTIONAL BASIS. HE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT I N CIT VS. SHANKAR KRISHNAN (2012) 349 ITR 685 (BOM). 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT THE AMOUNT OF LEASE RENTAL AS PROVIDED IN RULE 3 OF THE RULES IS PAID OR PAYABLE. HE FURTHER PLACED RELIAN CE ON THE ORDER OF CIT(A) IN PARA 5.4.2 . 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS MANAGING DIRECTOR OF THE CONCERN M/S. KIRLOSKAR OIL ENGINES LTD. THE ASSESSEE HAD RECEIVED RENT FREE ACCOMMODATION FROM THE SAID CON CERN. ON THE OTHER HAND, THE COMPANY HAD TAKEN ON LEASE A BUNGALOW OWNED BY THE WIFE OF ASSESSEE MRS. ARTI ATUL KIRLOSKAR AND HAD PAID ANNUAL RENT OF 18 LAKHS IN ADDITION TO THE INTEREST FREE SECURITY OF 1 CRORE. THE ASSESSEE HAD OFFERED THE PERQUISI TE VALUE OF RENT FREE ACCOMMODATION PROVIDED TO HIM BY THE COMPANY, AS TAXABLE IN ITS HANDS AT 18 LAKHS I.E. RENT PAID TO THE LANDLORD. HOWEVER, THE AUTHORITIES BELOW WERE OF THE VIEW THAT IN ADDITION TO THE RENT PAID, NOTIONAL INTEREST CHARGEABLE ON IN TEREST FREE DEPOSIT OF 1 CRORE WAS ALSO TO BE ADDED AS PERQUISITE IN THE HANDS OF ASSESSEE. HENCE, RE - COMPUTATION OF PERQUISITE VALUE RESULTING IN ADDITION OF 10 LAKHS. ITA NO. 1767 /P U N/20 1 6 ATUL C. KIRLOSKAR 4 9. THE COMPUTATION OF PERQUISITE VALUE OF RENT FREE ACCOMMODATION IS TO BE COMPUT ED AS PER RULE 3 OF THE RULES AS AMENDED BY THE INCOME TAX (22 ND AMENDMENT) RULES, 2001, PROVIDED THE FORMULAE FOR COMPUTING THE SAME. PLAIN READING OF RULE 3 OF THE RULES AT THE RELEVANT TIME LAID DOWN THAT PERQUISITE VALUE OF RENT FREE ACCOMMODATION PRO VIDED BY THE EMPLOYER WAS TO BE COMPUTED ON ACTUAL AMOUNT OF LEASE RENT PAID OR PAYABLE, BY THE EMPLOYER AND NO NOTIONAL INCOME ON ACCOUNT OF INTEREST DUE ON SECURITY DEPOSIT IS TO BE ADDED IN THE HANDS OF ASSESSEE. SUCH IS THE PROPOSITION LAID DOWN BY TH E HONBLE BOMBAY HIGH COURT IN CIT VS. SHANKAR KRISHNAN (SUPRA). WHERE THE ISSUE BEFORE THE HONBLE BOMBAY HIGH COURT RELATED TO ASSESSMENT YEAR 2001 - 02, IN THE FACTS OF THE SAID CASE, THE ASSESSEE HAD COMPUTED PERQUISITE VALUE OF ACCOMMODATION AT 1,20,000/ - BEING THE RENT PAID BY THE EMPLOYER TO THE LANDLORD. THE AS SESSING OFFICER HOWEVER, ADDED THE NOTIONAL INTEREST DUE ON INTEREST FREE DEPOSIT OF 30 LAKHS ADVANCED TO THE LANDLORD. THE HONBLE HIGH COURT TOOK NOTE OF THE PROVISIONS OF RULE 3 OF THE RULES AS AMENDED WITH RETROSPECTIVE EFFECT FROM 01.04.2001 AND HE LD AS UNDER: - 9. THUS, ON A PLAIN READING OF RULE 3, IT IS SEEN THAT THE PERQUISITE VALUE OF THE RESIDENTIAL ACCOMMODATION PROVIDED BY THE EMPLOYER IS TO BE COMPUTED ON ACTUAL AMOUNT OF LEASE RENTAL PAID OR PAYABLE BY THE EMPLOYER AND NOT ON NOTIONAL BASI S. THEREFORE, IN OUR OPINION, THE CONTENTION OF THE REVENUE THAT THE NOTIONAL INTEREST ON THE DEPOSITS PAID BY THE EMPLOYER TO THE LANDLORD HAS TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE PERQUISITE VALUE OF THE RESIDENTIAL ACCOMMODATION CANNOT BE A CCEPTED IN VIEW OF THE EXPRESS WORDS USED IN RULE 3 OF THE INCOME TAX RULES, 1962 AS AMENDED W.E.F. 1.4.01. 10. IN THE PRESENT CASE, ADMITTEDLY, THE ACTUAL AMOUNT OF LEASE RENT PAID BY THE EMPLOYER IS LESS THAN 10% OF THE SALARY OF THE ASSESSEE AND THERE FORE, THE DECISION OF THE ITAT IN HOLDING THAT THE ACTUAL AMOUNT OF LEASE RENT PAID BY THE EMPLOYER SHOULD BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE PERQUISITE VALUE OF THE RESIDENTIAL ACCOMMODATION CANNOT BE FAULTED. 10. THE ISSUE ARISING IN THE P RESENT APPEAL IS SIMILAR TO THE ISSUE BEFORE THE HONBLE BOMBAY HIGH COURT IN CIT VS. SHANKAR KRISHNAN (SUPRA) AND FOLLOWING ITA NO. 1767 /P U N/20 1 6 ATUL C. KIRLOSKAR 5 THE SAME PARITY OF REASONING, WE HOLD THAT THERE IS NO MERIT IN RE - WORKING THE PERQUISITE VALUE OF RENT FREE ACCOMMODATION PROVIDED BY THE EMPLOYER TO THE ASSESSEE AND HENCE, WE DELETE THE ADDITION MADE OF 10 LAKHS. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS, ALLOWED. 11 . IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 10 TH DAY OF SEPTEMBER , 201 8 . SD/ - SD/ - ( D.KARUNAKARA RAO ) (SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 10 TH SEPTEMBER , 201 8 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 7 , PUNE ; 4. THE PR. CIT - 6 , PUNE ; 5. 6. , , / DR A , ITAT, PUNE ; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PU NE