ACIT - 17(2), MUMBAI V. MOTI GOVIND BHATIA, MUMBAI

ITA 2348/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0117 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 29-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHARDR
• Section: 143(3)

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./2348/MUM/2016, / ASSESSMENT YEAR: 2011-12 ACIT-17(2) ROOM NO.134, AAYAKAR BHAVAN M.K. ROAD, MUMBAI-400 020. VS. SHRI MOTI GOVIND BHATIA 10-F, HARBOUR HEIGHTS, 20, N.A. SAWANT MARG COLABA, MUMBAI-400 005. PAN:AABPB 3132 H ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI V. VIDHYADHAR-DR /ASSESSEE BY: NONE / DATE OF HEARING: 13/12/2017 / DATE OF PRONOUNCEMENT: 01.03.2018 , / PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 22/02/2016 OF THE CIT( A)- 28,MUMBAI,THE ASSESSING OFFICER (AO)HAS FILED THE PRESENT APPEAL.ASSESSEE,AN INDIVI DUAL, DERIVES INCOME FROM HOUSE PROPERTY. HE FILED HIS RETURN OF INCOME ON 18/7/2012,DECLARIN G TOTAL INCOME OF RS.60,46,020/-. THE AO COMPLETED ASSESSMENT U/S. 143(3) OF THE ACT,ON 25/0 3/2014,DETERMINING ITS INCOME AT RS.1, 59,12,458/-. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS.78 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD CLAIMED THAT HIS PROPERTY (LAND AND BUILDING)AT GOA WAS USED FOR PURPOSE OF BUSINES S OF A FIRM,NAMELY COCO GOA,WHEREIN HE WAS A PARTNER.HE CALLED FOR FURTHER DETAILS IN T HAT REGARD.AFTER CONSIDERING THE SAME,HE HELD THAT THE PROPERTY WOULD BE CONSIDERED AS USED FOR BUSINESS PURPOSES ONLY WHEN THE ASSESSEE HIMSELF USED IT AND NOT WHEN THE FIRM USE D THE PROPERTY.HE RELIED UPON THE CASES OF PORDIP KUMAR BOTHARA(244 CTR366)AND PRAKASH VASANTB HAI GOLVALA(ITA/558/AHD/ 2013, DTD.11.10.2013). HE ESTIMATED THE MARKET RENT @ RS. 6,50,000/- PER MONTH AND ASSESSED THE ALV OF THE PROPERTY AT RS.78 LAKHS AGAINST THE NIL ALV DECLARED BY THE ASSESSEE . 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA) AND MADE ELABORATE SUBMISS IONS.AFTER CONSIDERING THE AVAILABLE MATERIAL,HE HELD THAT THE AO HAD NOT CONDUCTED ANY INQUIRY,THAT IT WAS NOT KNOWN AS TO HOW THE AO HAD ARRIVED AT THE SAID FIGURE, THAT THE AS SESSEE WAS THE OWNER OF THE PLOT OF LAND AND BUILDING, THAT A FIRM IN WHICH HE WAS A PARTNER, WA S RUNNING A HOTEL ON THE SAID PLOT OF LAND, THAT THE ASSESSEE DID NOT CHARGE ANY RENT FROM THE FIRM.HE REFERRED TO THE ORDER OF THE TRIBUNAL 2348/M/16 MOTI GOVIND BHATIA 2 IN THE CASE OF INDIRA S. JAIN(21 TAXMANN.COM 471) W HEREIN THE CONTROVERSY ABOUT USE OF OFFICE PREMISES BY THE FIRM WHEREIN THE ASSESSEE IS A PART NER WAS DEALT WITH AT LENGTH. RELYING UPON THE SAID ORDER,HE ALLOWED THE APPEAL FILED BY THE A SSESSEE AND DELETED THE ADDITION BY AO. 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)RELIED ON THE ORDER OF AO. AS STATED EARLIER, NONE APPEARED ON BEHALF OF THE ASSESSEE . WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. W E FIND THE ASSESSEE IS OWNER OF PLOT OF LAND /BUILDING LOCATED AT GOA, THAT A FIRM NAMELY C OCO GOA WAS RUNNING A HOTEL ON THE SAID PREMISES,THAT THE ASSESSEE IS A PARTNER IN THAT FI RM,THAT HE DID NOT CHARGE ANY RENT FROM THE FIRM,THAT THE AO ESTIMATED MARKET RENT AT RS.6.5 LA KHS PER MONTH AND MADE AN ADDITION OF RS.78 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER APPEAL. WE FIND THAT THE BASIC CONTROVERSY IS AS TO WHETHER THE OFFICE PREMISES OCCUPIED AND USED BY A FIRM IN WHICH THE ASSESSEE WAS A PARTNER WAS OUT OF THE PURVIEW OF SECTION 22 OF THE ACT. WE WOULD LIKE TO REPRODUCE THE ORDER OF THE TRIBUNA L IN THE CASE OF INDIRA S. JAIN (SUPRA), AND IT READS AS UNDER: 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVA L CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING COMPUTATION OF ANNUAL VALUE OF PROPERT Y KNOWN AS 'VARSHA' WHICH WAS OWNED BY THE ASSESSEE. THE ONLY UNDISPUTED FACTS ARE THAT THE PROPERTY CONSISTED OF 5 FLOORS OF WHICH MEZZANINE FLOOR, FIRST FLOOR AND SECOND FLOOR REMAI NED VACANT THROUGHOUT THE YEAR. THE THIRD AND FOURTH FLOORS WERE OCCUPIED BY THE PARTNERSHIP FIRM AND COMPANY FOR CARRYING OUT BUSINESS. THE ISSUE RAISED IS AS TO WHETHER ANNUAL VALUE CAN BE ASSESSED IN RESPECT OF PORTION WHICH WAS VACANT THROUGHOUT THE YEAR AND WHETHER PO RTION OCCUPIED BY THE COMPANY AND THE PARTNERSHIP FIRM COULD BE EXCLUDED FROM THE PURVIEW OF COMPUTATION OF INCOME WHILE COMPUTING INCOME FROM HOUSE PROPERTY. THE OTHER REL ATED ISSUE IS METHOD OF DETERMINATION OF ANNUAL VALUE. THE ID. AR HAS ARGUED THAT THE PORTIO N WHICH REMAINED VACANT THROUGHOUT THE YEAR HAS TO BE EXCLUDED FROM THE PURVIEW OF COMPUTA TION OF INCOME OF HOUSE PROPERTY UNDER THE PROVISIONS OF SECTION 23{L}(C). HOWEVER, THE CL AIM OF THE ASSESSEE IS CONTRARY TO JUDGMENT OF HON'BLE HIGH COURT OF ANDHRA PRADESH IN THE CASE VIVEK JAIN( SUPRA) IN WHICH IT HAS BEEN HELD THAT IN CASE THE PROPERTY IS NOT LET OUT AT AL L DURING THE PREVIOUS YEAR, NO VACANCY ALLOWANCE CAN BE GIVEN UNDER SECTION 23(L)(C). IN O THER WORDS, VACANCY ALLOWANCE CAN BE GIVEN ONLY WHEN THE PROPERTY IS LET AND VACANT FOR PART OF THE YEAR. NO CONTRARY JUDGMENT OF ANY OTHER HIGH COURT OR THE HON'BLE APEX COURT HAS BEEN BROUGHT TO OUR NOTICE. THE CLAIM OF VACANCY ALLOWANCE IN RESPECT OF VACANT PORTION IS T HEREFORE, REJECTED. 5.1 AS REGARDS THE PORTION USED FOR THE BUSINESS PU RPOSES, SECTION 22 PROVIDES THAT ANY PORTION OF THE PROPERTY WHICH THE ASSESSEE MAY OCCU PY FOR THE PURPOSE OF ANY BUSINESS OR OCCUPATION HAS TO BE EXCLUDED FROM THE INCOME UNDER THE HEAD 'HOUSE PROPERTY'. THE HON'BLE HIGH COURT OF ALLAHABAD IN CASE OF MUSTAFA KHAN (SU PRA) AND HON'BLE HIGH COURT OFGUJARAT IN THE CASE OF RASIKLAL BALABHAI (SUPRA) HAVE TAKEN THE VIEW THAT THE PROPERTY USED BY THE PARTNERSHIP FIRM IN WHICH THE ASSESSEE IS A PARTNER HAS TO BE TREATED AS THE USER FOR PURPOSE OF BUSINESS OF THE ASSESSEE. THE HON'BLE HIGH COURTS H AD FOLLOWED THE VIEW EARLIER TAKEN BY THE HON'BLE HIGH COURTS OF BOMBAY IN THE CASE OFSHANTIK UMAR NAROTTAM MORARJI V. CIT [1955] 27 ITR 69 IN WHICH IT WAS HELD THAT WHEN PARTNERSHIP CARRIED ON BUSINESS, EACH PARTNER THEREOF CARRIED ON THAT BUSINESS AND A PARTNER THUS CARRIED ON BUSINESS ALTHOUGH THAT BUSINESS HAPPENED TO BE PARTNERSHIP BUSINESS. FOLLOWING THES E JUDGMENTS, WE HOLD THAT PORTION OF THE PROPERTY USED BY THE PARTNERSHIP FIRM IN WHICH ASSE SSEE IS A PARTNER HAS TO BE EXCLUDED FROM 2348/M/16 MOTI GOVIND BHATIA 3 THE TOTAL INCOME. AS REGARD THE PORTION USED BY THE COMPANY IN WHICH THE ASSESSEE WAS SHARE ,HOLDER AND DIRECTOR, THE SAME IN OUR VIEW CANNOT B E CONSIDERED FOR EXCLUSION AS COMPANY HAS SEPARATE AND DISTINCT IDENTITY AND BUSINESS BEING C ARRIED ON BY THE COMPANY CAN NOT BE CONSIDERED AS BUSINESS DONE BY SHARE HOLDER OR DIRE CTOR. THEREFORE, THE PORTION OCCUPIED BY THE COMPANY FOR ITS BUSINESS HAS TO BE CONSIDERED W HILE COMPUTING HOUSE PROPERTY. 5.2 THE ONLY OTHER ISSUE LEFT IS DETERMINATION OF ANNUA L VALUE OF THE PROPERTY. UNDER THE PROVISIONS OF SECTION 22, ANNUAL VALUE OF A PROPERT Y IS DEEMED TO BE THE SUM FOR WHICH PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR AND IN CASE RENT ACTUALLY RECEIVED IS GREATER THE SAID VALUE, THE ACTUAL RENT RECEIVED IS TO BE TAKEN AS ANNUAL VALUE. THE AO HAS TAKEN THE ANNUAL VALUE ON THE BASIS OF 8.5% RETURNED ON THE INVESTMENT MADE OF THE PROPERTY. THE CASE OF THE ASSESSEE IS THAT MUNICIPA L RATEABLE VALUE (MRV) SHOULD BE TREATED AS ANNUAL VALUE. THE ASSESSEE HAS PLACED RELIANCE O N THE FULL BENCH JUDGMENT OF THE HON'BIE HIGH COURT OF DELHI IN THE CASE OF MONI KUMAR SUBBA ( SUPRA). 5.3 WE HAVE CAREFULLY PERUSED THE SAID JUDGMENT OF THE HON 'BLE HIGH COURT OF DELHI. IN THE SAID CASE, THE HON'BIE HIGH COURT HELD THAT MRV IF DETERMINED CORRECTLY COULD BE TAKEN AS ALV BUT THE SAME WAS NOT BINDING ON THE AO. HON'BIE HIGH COURT ALSO HELD THAT IN CASE AO COULD SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRESENT CORRECT FAIR RENT THEN, HE MAY DETERMINE THE SAME ON THE BASIS OF MAT ERIAL PLACED ON RECORD. IN THIS CONTEXT, THE HON'BIE HIGH COURT HAD ALSO REFERRED TO THE JUD GMENT OF MOTICHAND HIRACHAND V. BOMBAY MUNICIPAL CORPN. AIR 1968 5C 441 IN WHICH IT WAS HELD THAT FAIR RENT COULD BE ARRIVED AT WITH REFERENCE TO ACTUAL RENT PAID FOR T HE PROPERTY OR ANY OTHER COMPARABLE PROPERTY AND WHERE THERE WERE NO COMPARABLE CASES W ITH REFERENCE TO PROFITS EARNED FROM THE PROPERTY OR TO THE COST OF CONSTRUCTION. THE HON'BI E HIGH COURT HAD ALSO REFERRED TO THE JUDGMENT OF HON'BIE HIGH COURT OF BOMBAY IN THE CAS E OF CIT V. J.K. INVESTORS (BOMBAY) LTD. [2000] 248 ITR 723/112 TAXMAN 107 IN WHICH THE HON' BIE HIGH COURT HELD THAT, WHILE DECIDING FAIR RENT, THE VARIOUS FACTORS COULD BE TA KEN INTO ACCOUNT. THEREFORE, IN OUR VIEW, THE FAIR RENTAL VALUE HAS TO BE DETERMINED ON THE BASIS OF COMPARATIVE CASES IN THE LOCALITY AND OTHER RELEVANT FACTORS. THE RETURN ON INVESTMENT MA Y NOT ALWAYS BE A RELIABLE INDICATOR OF FAIR RENT OF THE PROPERTY WHICH DEPENDS UPON MARKET COND ITIONS SUCH AS DEMAND AND SUPPLY POSITION IN AN AREA, A COMPARATIVE CASE IN THE LOCA LITY WILL BE THE BEST GUIDE FOR DETERMINATION OF FAIR RENT. THE ISSUE REGARDING DETERMINATION OF FAIR ALV, THEREFORE, IN OUR VIEW REQUIRES FRESH CONSIDERATION. WE, THEREFORE RESTORE THIS ISS UE TO THE FILE OF AO. THE AO WILL PASS AFRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF O BSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE FIND THA T THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. CONFIRMING THE SAME, WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY AO STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST MARCH,2018. 01 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 01 .03.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ 2348/M/16 MOTI GOVIND BHATIA 4 //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.