DCIT, CHENNAI V. M/s. Madhu Commercials Ltd., CHENNAI

ITA 2202/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5092 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 29-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN
• Assessee Lawyers: T BANUSEKAR
• Keywords: Fair market value; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI U.B. BEDI, J.M. AND SHRI N.S. SAINI, AM .. I.T.A. NO. 2202/MDS/2010 ASSESSMENT YEARS 2006-07 THE DY. C.I.T CIRCLE IV(1) CHENNAI VS. M/S MADHU COMMERCIALS LTD. 72,RA BUILDING ANNEXE MARSHALLS ROAD EGMORE, CHENNAI 600 008. (PAN NO. AAACM 9847 J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI T. BANUSEKAR DEPARTMENT BY : SHRI K.E.B RENGARAJAN O R D E R PER N.S. SAINI, A.M :- THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER PASSED BY THE LD. CIT(A)-V, CHENNAI DATED 27.09.2010 FOR ASSESSMENT YEAR 2006-07 . PAGE 2 OF 9 I.T.A. NO. 2202/MDS/2010 2. GROUND NO. 1 IS GENERAL IN NATURE AND REQUIRES N O ADJUDICATION FROM OUR SIDE. GROUND NOS. 2 AND 3 OF THE APPEAL A RE DIRECTED AGAINST THE ORDER FO THE LD. CIT(A) DIRECTING THE ASSESSING OFFICER TO ADOPT FAIR RENT AT RS. 15PER SQ FT AS AGAINST RS. 23 CHARGED B Y THE ASSESSING OFFICER. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSEE HAS SHOWN RENT RECEIPTS OF RS. 6 0,000/- P.A. FROM M/S SOUTHERN GROUP INDUSTRIES PVT. LTD. FROM THE AGREEM ENT, THE ASSESSING OFFICER FOUND THAT THE PREMISES WAS SITUATED AT RAJ AH ANNAMALAI BUILDING, IVTH FLOOR, 19 MARSHALLS ROAD AT THE HEART OF THE CI TY. PROPERTY WAS ABOUT 3430 SQ. FT. IN HIS VIEW, THE RENT RECEIVED BY THE ASSESSEE WAS LOWER THAN THE FAIR MARKET VALUE [FMV]. THEREFORE, HE DEPUTED AN INSPECTOR TO MAKE ENQUIRY FROM THE WELFARE ASSOCIATION OF RAJAH ANNAM ALAI BUILDING WHO STATED THAT THE FAIR MARKET RENT DURING THE PERIOD 1.4.2005 TO 31.3.2006 FOR THE SAID PREMISES WAS RS. 23/- PER SQ. FT AND D URING THE CURRENT PERIOD I.E., 29.5.2008 IT WAS RS. 28/- PER SQ FT. THE ASS ESSING OFFICER, THEREFORE, CALCULATED RENT BY ADOPTING RATE OF RS. 23/- PER SQ FT ON 3430 SQ. FT AND ARRIVED AT A MONTHLY RENT OF RS. 78,890/-. ACCORDI NGLY, HE COMPUTED THE FAIR RENT OF THE YEAR AT RS. 9,46,680/- AND ADDED T HE ESTIMATED INTEREST ON ADVANCE OF RS. 10 LAKHS BY ADOPTING RATE OF 8% P ER ANNUM WHICH PAGE 3 OF 9 I.T.A. NO. 2202/MDS/2010 WORKED OUT TO RS. 80,000/- AND BY REDUCING FROM THE FAIR MARKET RENT OF RS. 9,46,680/- AND BY ALLOWING CREDIT FOR RS. 60,00 0/- BEING RENT SHOWN BY THE ASSESSEE, HE MADE AN ADDITION OF RS. 8,06,680/- TO THE INCOME OF THE ASSESSEE. 4. BEING AGGRIEVED BY THE SAID ORDER OF THE ASSESSIN G OFFICER, ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A). ASSESSEE SUBMIT TED THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SAM PATHAMMAL CHORDIA 245 ITR 290 [MAD] HAS HELD THAT REASONABLENESS OF RE NT DEPENDS UPON LARGE NUMBER OF FACTORS, INCLUDING LOCATION, AGE AN D CONDITION OF THE BUILDING, ITS EXTENT, THE AMENITIES AVAILABLE, THE P REVAILING MARKET RATE OR RENTAL, THE AMOUNT OF THE ADVANCE OR DEPOSIT, ETC. THE LD. A.R. SUBMITTED THAT THE RENT WAS LOW CONSIDERING OTHER B ENEFITS SUCH AS, TENANT WAS PAYING MUNICIPAL TAXES AND BEARING ALL RE PAIRS AND MAINTENANCE COSTS, ETC. IT WAS SUBMITTED THAT THE A SSESSING OFFICER HAS PLACED UNDUE RELIANCE ON THE WORD OF THE MANAGER. A SSESSEE FURTHER SUBMITTED COPIES OF RENTAL AGREEMENTS OF TWO OTHER PROPERTIES IN THE SAME BUILDING, ONE LET OUT FOR RS. 16,500 P.M. FOR AN AREA OF 11000 SQ FT RESULTING IN PER SQ FT RATE OF RS. 15 AND ANOTHER PROPERTY OF 2365 SQ FT LET OUT FOR RS. 20,000 PER MONTH RESULTING IN A PER SQ FT RATE OF RS. 8.46 PER SQ FT AND CONTENDED THAT THE ASSESSING OFFICER HAS NOT PRODUCED ANY PAGE 4 OF 9 I.T.A. NO. 2202/MDS/2010 EVIDENCE FOR ESTIMATED RATE OF RS. 23/- OTHER THAN WHAT THE MANAGER STATED AND THEREFORE, RATE WAS WITHOUT ANY BASIS. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE LD. A.R. OBSERVED THAT THE ASSESSING OFFICER HAS NOT PRODUCE D ANY EVIDENCE OTHER THAN STATEMENT OF THE MANAGER THAT THE FMV IN THE A REA IS AROUND RS. 23/- PER SQ. FT. HE ALSO OBSERVED THAT THE RENT DEP ENDS UPON THE LOCATION OF THE BUILDING, ITS AGE, OTHER AMENITIES GIVEN, ET C., AND THE ASSESSEE HAS SUBMITTED LEASE AGREEMENT FOR OTHER PREMISES IN THE SAME BUILDING WHEN THE MAXIMUM RATE WAS RS. 15/- PER SQ. FT DIRECTED TH E ASSESSING OFFICER TO RECOMPUTE THE FAIR MARKET RENT BY ADOPTING THE R ATE OF RS. 15/- SQ. FT. WHICH IS THE SAME RATE AS THAT CHARGED FOR ANOTHER PROPERTY IN THE SAME BUILDING WHEN THE MAXIMUM RATE WAS RS. 15 PER SQ. F T. DIRECTED THE ASSESSING OFFICER TO MAKE APPROPRIATE ADJUSTMENT FO R NOTIONAL INTEREST AT 8% ON THE DEPOSIT RECEIVED FROM THE TENANT AND TO A LLOW BENEFIT OF STANDARD DEDUCTION U/S 24 OF THE ACT. 6. THE LD. D.R. SUPPORTED THE ORDER OF THE ASSESSIN G OFFICER WHEREAS THE LD. A.R. VERY FAIRLY SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR MAKING PROPER ENQUIRY SUCH AS THE LOCATION OF THE BUILDING, AGE AND OTHER AMENITIES P ROVIDED BY THE ASSESSEE PAGE 5 OF 9 I.T.A. NO. 2202/MDS/2010 AND THEREAFTER ALSO CONSIDERING THE RENT CHARGED FO R OTHER PROPERTIES IN THE SAME BUILDING AND DECIDE THE ISSUE AFRESH AS PE R LAW. 7. THE LD. A.R. DID NOT RAISE ANY OBJECTIONS TO THE SUBMISSIONS OF THE LD. D.R. OF THE ASSESSEE. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER, BESI DES THE STATEMENT OF THE MANAGER OF THE WELFARE ASSOCIATION OF RAJAH ANN AMALAI BUILDING THAT THE MARKET RENT OF THE PREMISES DURING THE PERIOD 1 .4.2005 TO 31.3.2006 WAS RS. 23/- PER SQ. FT., HAS BROUGHT NO OTHER MATE RIAL ON RECORD TO JUSTIFY THE ESTIMATION OF THE MARKET RENT OF THE PREMISES AT RS. 23/- PER SQ. FT. ON THE OTHER HAND, THE ASSESSEE HAD FILED AGREEMENT FOR OTHER PREMISES IN THE SAME BUILDING, WHEREIN RENT @ RS. 1 5/- PER SQ. FT. AND RS. 8.46 PER SQ FT. WAS CHARGED. FURTHER, THE RENT OF THE PROPERTY DEPENDS UPON THE LOCATION OF THE PROPERTY, ITS AGE AND OTHE R AMENITIES AVAILABLE, ETC. IN OUR CONSIDERED OPINION, THE ASSESSING OFFIC ER HAS NOT TAKEN INTO CONSIDERATION ALL THE ABOVE FACTORS BEFORE ARRIVING AT THE FAIR MARKET RENT OF THE PROPERTY. THEREFORE, AS BOTH THE PARTIES HA VE AGREED, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND REMAND THE MATTER BACK TO THE PAGE 6 OF 9 I.T.A. NO. 2202/MDS/2010 FILE OF THE ASSESSING OFFICER TO RE ADJUDICATE THE APPEAL AFRESH AFTER CONSIDERING AL THE EVIDENCES FILED BY THE ASSESSEE AND ALSO MAKING PROPER ENQUIRY AND THEREAFTER DETERMINE THE FAIR RENTAL VA LUE OF THE PROPERTY. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL ALLOW PROPER OPPORTUNITY TO THE ASSESSEE BEFORE ADJUDICATING THE ISSUE. THEREFO RE, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 9. GROUND NO 4. OF THE APPEAL IS DIRECTED AGAINST T HE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION THE ADDITION OF SHOR T TERM CAPITAL GAINS ON TRANSFER OF ASSESSEES PROPERTY. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON REC ORD. IN THE INSTANT CASE, THE ASSESSING OFFICER RECEIVED INFORMATION F ROM CIB THAT THE ASSESSEE HAD ENTERED INTO A TRANSACTION OF RS. 87,0 0,000/- AND HAD SOLD PLOT OF LAND ON 16.9.2005 VIDE DOCUMENT NO. 2167/20 05. ON QUERY FROM THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT IT HAD NOT SOLD ANY PROPERTY DURING THE YEAR UNDER CONSIDERATION BUT HA D SOLD LAND IN THE IMMEDIATELY PRECEDING YEAR AND PRODUCED COPIES OF D OCUMENTS OF SALE MADE DURING THE PRECEDING YEAR. THE ASSESSING OFFI CER REJECTED THE PAGE 7 OF 9 I.T.A. NO. 2202/MDS/2010 SUBMISSIONS OF THE ASSESSEE AND MADE ADDITION OF RS . 87 LAKHS TO THE INCOME OF THE ASSESSEE. 11. BEFORE THE LD. CIT(A), THE ASSESSEE SUBMITTED THA T IT HAS BEEN ALLOTTED TOTAL AREA OF 3583.9 SQ. FT IN PURSUANCE T O MEMORANDUM OF UNDERSTANDING BETWEEN THE CO OWNERS IDENTIFIED AS C ONTAINED IN THE NUMBERED PLOTS 5E AND 4D. THE ASSESSEE SOLD ITS SH ARES IN ASSESSMENT YEAR 2005-06, HAD DISCLOSED CAPITAL GAINS IN THAT Y EAR AND PAID TAX THEREON. IT WAS NOT ENTITLED TO ANY SHARES IN THE L AND. ASSESSEE ALSO BROUGHT COPY OF SCHEDULE OF THE PROPERTY WITH THE P ARTICULARS OF ALLOTMENT TO EACH CO OWNER AND COPY OF THE RETURN O F INCOME FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 WHEREIN TH E CAPITAL GAINS EARNED BY THE ASSESSEE WAS DISCLOSED. THE LD. CIT(A ), AFTER CONSIDERING THE SUBMISSIONS AND EVIDENCES FILED BY THE ASSESSEE , OBSERVED THAT THE ASSESSING OFFICER HAS MADE ADDITION ON THE WRONG BE LIEF THAT THE ASSESSEE HAS SOLD PROPERTY DURING THE YEAR. DOCUMENTS SUBMI TTED SHOW THAT ASSESSEE WAS ACTUALLY ENTITLED TO SPECIFIED PORTION IN THE PROPERTY AND THAT IT HAD SOLD ITS SHARES IN THE EARLIER YEAR. CA PITAL GAINS ON SALE OF ITS ENTITLEMENT IN LAND WAS DECLARED IN THE EARLIER RET URN OF INCOME. IT WAS A CO-OWNER OF THE PROPERTY ONLY ON PAPER. FOR THIS A LONE, INCLUSION OF ITS NAME IN THE DOCUMENT OF SALE DURING THE YEAR UNDER APPEAL WAS PAGE 8 OF 9 I.T.A. NO. 2202/MDS/2010 NECESSITATED. WHEN THE UNDERLYING DOCUMENTS ARE CL EARLY INDICATING THAT THE ASSESSEE DID NOT HOLD ANY MORE SHARES IN THE PL OT, MERE INCLUSION OF ITS NAME FOR DOCUMENTATION PURPOSES CANNOT BE GROUN D FOR SUBJECTING IT TO TAX ON THE CAPITAL GAINS ON THE SALE AND DELETED THE ADDITION OF RS. 87 LAKHS. 12. AT THE TIME OF HEARING, THE LD. D.R. FAIRLY CON CEDED THAT THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION AS THE ASSESSEE HAD SHOWN INCOME BY WAY OF CAPITAL GAIN FROM THE SALE O F ITS SHARES IN PLOT OF LAND IN THE EARLIER YEAR. NAME OF THE ASSESSEE WAS INCLUDED AS ONE OF THE CO-OWNERS OF THE LAND IN THE SALE DOCUMENT BUT SALE OF LAND PERTAINED TO THE OTHER CO-OWNER AND DID NOT PERTAIN TO THE ASSES SEE WHICH IS CLEARLY INDICATED IN THE DOCUMENT OF SALE. IN THE ABOVE CIR CUMSTANCES, WE FIND NO MERIT IN THE GROUND OF APPEAL OF REVENUE AND HEN CE THE SAME IS DISMISSED. 13. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S PARTLY ALLOWED FOR STATISTICAL PURPOSES. PAGE 9 OF 9 I.T.A. NO. 2202/MDS/2010 ORDER PRONOUNCED IN THE OPEN COURT ON THE CONCLUSIO N OF HEARING ON 12.05.2011. SD/- SD/- (U.B.S BEDI ) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 12 TH MAY, 2011. VL COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE