RECAMAITON PROPERTIES ININDA P. LTD, MUMBAI V. DCIT 10(1), MUMBAI

ITA 2363/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56248 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: MRS ARATI VISSANJI
• Keywords: Business income; Notional interest; Set aside
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, A.M. AND SHRI V. DU RGA RAO, J.M. ITA NO. 2362/MUM/2010 ASSESSMENT YEAR: 2005-06 RECLAMATION REALTY (I) PVT. LTD., APPELLAN T 1103, STOCK EXHANGE TOWERS, DALAL STREET, MUMBAI 400 001 (PAN AAAC15643Q) VS. DY. COMMISSIONER OF INCOME-TAX-10(1), RESPON DENT AAYAKAR BHAVAN, MUMBAI 400 020. ITA NO. 2363/MUM/2010 ASSESSMENT YEAR: 2005-06 RECLAMATION PROPERTY (I) PVT. LTD., APPELLANT 1103, STOCK EXHANGE TOWERS, DALAL STREET, MUMBAI 400 001 (PAN AAAC15644Q) VS. DY. COMMISSIONER OF INCOME-TAX-10(1), RESPON DENT AAYAKAR BHAVAN, MUMBAI 400 020. APPELLANT BY : MRS. ARATI VISSANJI RESPONDENT BY : MR. C.G.K. NAIR DATE OF HEARING : 12/12/2011 DATE OF PRONOUNCEMENT : 16/12/2011 ORDER PER V. DURGA RAO, J.M.: THESE TWO APPEALS PERTAINING TO RECLAMATION GROUP O F COMPANIES AND THE SAME ARE DIRECTED AGAINST THE ORD ERS OF CIT(A)-21, MUMBAI, PASSED ON 09/12/2009 AND 08/12/2009 RESPECT IVELY FOR THE ASSESSMENT YEAR 2005-06. SINCE COMMON ISSUES INVOLV ED IN THESE TWO ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 2 APPEALS, THE SAME WERE HEARD TOGETHER AND, THEREFOR E, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. 2. TO DISPOSE OF THESE APPEALS, WE REFER TO THE FAC TS FROM ITA NO. 2362/M/10. GROUND NO. 1 IS COMMON IN BOTH THE APPEA LS, WHICH IS AGAINST THE ACTION OF THE CIT(A) IN UPHOLDING THE A OS ACTION OF ADOPTING ANNUAL VALUE/FAIR RENT DETERMINED IN THE C ASE OF ASSOCIATE CONCERN AS AGAINST ACTUALLY RECEIVED BY THE ASSESSE E. 3. THE FACTS IN BRIEF ARE THAT THE ASESSSEE IS IN R EAL ESTATE BUSINESS. IT OWNED A PROPERTY ADMEASURING ABOUT 15, 645/- SQ.FT. ON 11 TH FLOOR, MAFATLAL CENTRE, NARIMAN POINT, MUMBAI. THI S PROPERTY WAS LET OUT BY THE ASSESSEE AT ANNUAL RENT OF RS. 1,12, 64,400/-. THE ASESSSEE FILED ITS RETURN OF INCOME ON 27/10/05, TR EATING THE RENTAL INCOME AS BUSINESS INCOME, ON THE GROUND THAT THE C OMPANY WAS IN REAL ESTATE BUSINESS. THE SAID RETURN WAS SUBJECTED TO SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF APPELLANTS ASSOCIATE CONCERN M/S RECLAMATION REAL ESTATE COMPANY (I) PVT. LTD., IT WAS NOTICED BY THE AO THAT THE SA ID COMPANY WAS THE OWNER OF THE NINTH FLOOR AT MAFATLAL CENTRE, ADMEAS URING 15,645 SQ.FT. AND SIX PARKING SPACES AND THE SAID COMPANY HAD LET OUT THE PROPERTY TO JP MORGAN AND RECEIVED ANNUAL RENT OF RS. 2,87,8 7,660/- UP TO NOV. 2004 AND FROM NOV. 2004, FOR ANNUAL RENT OF RS . 2,54,40,710/-. THE AO NOTED THAT IN THE CASE OF ASSOCIATE CONCERN THE ANNUAL VALUE OF THE PROPERTY WAS FIXED AT RS. 2,90,65,922/- BUT THE ASSESSEE COMPANY OWNING THE PROPERTY SITUATED AT 11 TH FLOOR ON THE SAME BUILDING WITH SAME AREA AND PARKING SPACES HAD LET OUT THE PROPERTY FOR RS. 1,12,64,400/- TO ICICI BANK LTD. THE AO NOT ED THAT AS ACCORDING TO SECTION 23, THE ANNUAL VALUE OF THE AS SESSEES PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH PROPERT Y MIGHT REASON ABLY BE EXPECTED TO LET OUT YEAR TO YEAR OR (B) THE RENT RECEIVED OR RECEIVABLE IF THE SAME IS IN EXCESS OF THE SUM MENT IONED AT (A). AS PER THE AO, THE REASONABLE FAIR RENT, AS PER SECTION 23 (1)(A), OF ASSESSEES ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 3 PROPERTY SHOULD HAVE BEEN AT RS. 2,90,65,922/- SINC E SAME PROPERTY IN THE SAME BUILDING WAS LET OUT FOR THAT RENT. TH E AO FINALLY COMPLETED THE ASSESSMENT BY TAKING THE ANNUAL LETTI NG VALUE/FAIR RENTAL VALUE FOR THE ASSESSEE RENTED OUT PROPERTY A T RS. 2,90,65,922/- ON THE BASIS OF PROVISIONS OF SECTION 23(1)(A) OF T HE ACT. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A). 4. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN SU BMISSIONS WHEREIN THE ASSESSEE STATED THAT AS AGAINST THE REN TAL INCOME SHOWN BY THE ASSESSEE AT RS. 1,12,64,400/- THE AO ASSESSE D THE INCOME FROM HOUSE PROPERTY TREATING THE FAIR RENTAL/ANNUAL VALU E OF THE PROPERTY AT RS. 2,90,65,922/- U/S 23(1)(A) OF THE ACT. AFTER CO NSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) FOLLOWING H IS EARLIER ORDERS IN AY 2000-01, 2001-02, 2002-03 AND 2003-04 CONFIRMED THE ACTION OF THE AO. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE DECISIONS OF ITAT MUMBAI BENCHES IN THE GROUP CASES OF ASSESSEE FOR ASSESSMENT YEARS 2001 TO 2004-05. THE LEARNED DR, ON THE OTHER HAND, HAS NOT CONTROVERTED THE SUBMISSIONS MADE BY THE ASESSSEE. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE ISSUE IN DISPUTE IS SQ UARELY COVERED BY THE DECISIONS OF THE ITAT, MUMBAI BENCHES IN EARLIE R YEARS. IN THE CASE OF M/S ICICI REALTY LTD., (NOW KNOWN M/S RECLA MATION REALTY (I) P. LTD.) IN ITA NOS. 2193 TO 2196/MUM/10 ORDER DATE D 30 TH JUNE, 2010, THE COORDINATE BENCH HELD AS UNDER:- 7. AS REGARDS, THE SECOND ISSUE, I.E. WHETHER OR N OT THE IMPUGNED ADDITIONS CAN BE SUSTAINED ON MERITS, WE FIND THAT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE, BY TRIBUNALS DECISIONS IN THE CASE O F RECLAMATION REALTY INDIA PVT. LTD. VS. DCIT (ITA NO.1734/MUM/2007, A.Y. 2004 -05 ORDER DATED 26.11.2010), WHEREIN THE TRIBUNAL HAS OBSERVED AS F OLLOWS:- ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 4 30. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN TH E BUSINESS OF UNDERTAKING IN ONE OR MORE ACTIVITIES INVOLVING PURCHASE, SALE, LETTING OUT, INVESTMENT AND DEALING IN LAND, PREPARATION OF BUILDING SITES FOR CONSTRUCTION ETC. THIS ASSESSEE IS A GROUP COMPANY OF M/S. RECLAMATION REA L ESTATE COMPANY INDIA PVT. LTD., THE ASSESSEE IN ITA NO.1413/MUM/20 07, WHICH WE HAVE DECIDED IN THE EARLIER PARAGRAPHS. 31. THE FACTS AS FAR AS THIS ASSESSEE IS CONCERNED ARE THAT THE ASSESSEE OWNED THE ENTIRE 10 TH FLOOR OF THE PREMISES, MAFTALAL CENTRE NARIMAN POI NT, ADMEASURING ABOUT 15645 SQ.FT. TOGETHER WITH 6 CAR PARKING SPACE (HEREINAFTER REFERRED TO AS THE PROPERTY). IT HAD LET OUT THE PROPERTY TO ICICI LTD., ON AN ANNUAL RENT OF RS.1,12,64,400/-. IT IS NOT IN DISPUTE THAT INCOME FROMLETTING OUT OF THE PROPERTY HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ANNUAL VALUE (ALSO REFERR ED TO AS MUNICIPAL VALUATION) ADOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY WAS RS.27,50,835/-. THE ASSESSEE DETERMINED INCOME FRO M HOUSE PROPERTY BY ADOPTING THE ANNUAL VALUE AT RS.1,12,64,400/- WHICH IS THE ACTUAL RENT RECEIVED WHICH IS HIGHER THAN THE MUNICIPAL VALUATI ON. THE ASSESSEE HAD CLAIMED THAT THE ANNUAL VALUE HAS TO BE DETERMINED IN ACCORDANCE WITH SEC.23(1)(B). 32. THE AO AFTER MAKING A REFERENCE TO THE FACT THA T THE PROPERTY OWNED BY THIS ASSESSEE WAS LOCATED IN THE SAME BUILDING AND IS OF THE SAME SIZE AS THAT OF THE ASSESSEE M/S. RECLAMATION REAL ESTATE C OMPANY INDIA PVT.LTD.,( THE ASSESSEE IN ITA NO.1413/MUM/2007, WHICH WE HAVE DECIDED IN THE EARLIER PARAGRAPHS) WHICH WAS A GROUP OF THIS ASSES SEE, WAS OF THE VIEW THAT THE ANNUAL VALUE DETERMINED IN THE CASE OF M/S. REC LAMATION REAL ESTATE COMPANY INDIA (P) LTD. WOULD BE THE THE SUM FOR WH ICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, V IZ., RS.3,42,23,856/-. HE THEREFORE ADOPTED THE ANNUAL VALUE AT THE SAID FIGU RE APPLYING THE PROVISIONS OF SEC.23(1)(A) OF THE ACT. ON APPEAL BY THE ASSESS EE, THE CIT(A) FOLLOWING THE DECISION IN THE CASE OF M/S. RECLAMATION REAL E STATE COMPANY INDIA (P) LTD., HELD THAT MUNICIPAL VALUATION ALONE WILL BE R ELEVANT WHILE DETERMINING ANNUAL VALUE U/S.23(1)(A) OF THE ACT. HE HOWEVER WA S OF THE VIEW THAT THE RENT RECEIVED BY THIS ASSESSEE SHOULD BE ATLEAST EQUAL T O THE RENT DECLARED AS RECEIVED BY M/S.RECLAMATION REAL ESTATE COMPANY IND IA (P) LTD., FROM J.P. MORGAN CHASE BANK. HE THEREFORE SUBSTITUTED THE ACT UAL RENT RECEIVED BY THIS ASSESSEE BY THE RENT ACTUALLY RECEIVED BY M/S.RECLA MATION REAL ESTATE COMPANY INDIA (P) LTD., FROM J.P. MORGAN CHASE BANK , AT RS.2,87,87,600/- AS AGAINST ACTUAL RENT RECEIVED BY THIS ASSESSEE OF RS .1,12,64,400/-. AGGRIEVED BY THE RELIEF GRANTED TO THE ASSESSEE THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. AGGRIEVED BY THE ACTION OF CIT(A) IN SUBS TITUTING THE ACTUAL RENT RECEIVED BY IT BY THE RENT RECEIVED BY M/S.RECLAMAT ION REAL ESTATE COMPANY INDIA (P) LTD., FROM J.P. MORGAN CHASE BANK, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 33. WE HAVE HEARD THE RIVAL SUBMISSIONS, WHICH ARE THE SAME AS WAS PUT FORTH IN THE CASE OF M/S. RECLAMATION REAL ESTATE C OMPANY INDIA PVT.LTD.,( THE ASSESSEE IN ITA NO.1413/MUM/2007. FOR THE DETAI LS REASONS GIVEN IN THAT ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 5 CASE, WE HOLD THAT THE ANNUAL THE ANNUAL VALUE (ALS O REFERRED TO AS MUNICIPAL VALUATION/ RATEABLE VALUE) ADOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY AT RS.27,50,835 SHOULD BE THE DETERMIN ING FACTOR FOR APPLYING THE PROVISIONS OF SEC.23(1)(A) OF THE ACT. SINCE THE RE NT RECEIVED BY THE ASSESSEE WAS MORE THAN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, THE ACTUAL RENT RECEIVED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY U/S.23(1)(B) OF THE ACT. NOTIONAL INTE REST ON INTEREST FREE SECURITY DEPOSIT/RENT RECEIVED IN ADVANCE SHOULD NOT BE ADDE D TO THE SAME IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF J.K.INVESTORS (BOMBAY) LTD. (SUPRA). THE REVENUES APPEAL IS THERE FORE DISMISSED. 34. AS FAR AS ASSESSEES APPEAL IS CONCERNED, THE Q UESTION IS WHETHER THE REVENUE AUTHORITIES ARE JUSTIFIED IN SUBSTITUTING T HE ACTUAL RENT RECEIVED BY THIS ASSESSEE BY THE RENT ACTUALLY RECEIVED BY M/S.RECLA MATION REAL ESTATE COMPANY INDIA (P) LTD., FROM J.P. MORGAN CHASE BANK , AT RS.2,87,87,600/- AS AGAINST ACTUAL RENT RECEIVED BY THIS ASSESSEE OF RS .1,12,64,400/-. THE ARGUMENT OF THE LEARNED D.R. WAS THAT SINCE THE PRO PERTY IS LOCATED IN THE SAME BUILDING AND THE AREA LEASED OUT ARE ALSO IDEN TICAL, THERE WAS NO REASON FOR THIS ASSESSEE TO RECEIVE A LESSER RENT. THE LEA RNED COUNSEL FOR THE ASSESSEE BESIDES REITERATING THE ARGUMENTS AS WERE MADE IN THE EARLIER CASE FOR ADDING NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT FURTHER RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AKSHAY TEXTILES (SUPRA). IT WAS ALSO SUBMITTED THAT THE QU ANTUM OF RENT IS PURELY DECIDED ON THE BASIS OF MUTUAL AGREEMENT BETWEEN TH E PARTIES. WHEN THE ANNUAL VALUE IS DETERMINED U/S.23(1)(B) OF THE ACT, THE ACTUAL RENT RECEIVED ALONE SHOULD BE CONSIDERED. 35. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN TH E CASE OF AKSHAY TEXTILES (SUPRA), THE FACTS BEFORE THE HONBLE BOMBAY HIGH C OURT WAS THAT A OWNER OF THE PROPERTY LET OUT THE SAME TO B. B SUB-LET THE P ROPERTY TO C. WHILE DETERMINING THE ANNUAL VALUE OF THE PROPERTY IN THE CASE OF A, THE AO SUBSTITUTED THE RENT PAID BY C TO B BECAUSE THE REN T PAID BY B TO A WAS LESS COMPARED TO THE RENT PAID BY C TO B. THE HONBLE BO MBAY HIGH COURT HELD THAT ANNUAL VALUE IS THE ACTUAL RENT RECEIVED OR RE CEIVABLE BY THE OWNER FROM THE TENANT IRRESPECTIVE WHETHER TENANT ON SUCH LETT ING HAS RECEIVED HIGHER RENT. WE ARE ALSO OF THE VIEW THAT THE EXPRESSION U SED IN SEC. 23(1)(B) IS THE RENT RECEIVED OR RECEIVABLE. THE EXPRESSION RECEIVA BLE CANNOT MEAN ANYTHING MORE THAN WHAT IS ACTUALLY RECEIVED. THE CIT(A) IN OUR VIEW HAS OVERLOOKED THIS ASPECT IN SUBSTITUTING THE ACTUAL RENT RECEIVE D BY THIS ASSESSEE BY THE RENT ACTUALLY RECEIVED BY M/S.RECLAMATION REAL ESTA TE COMPANY INDIA (P) LTD., FROM J.P. MORGAN CHASE BANK. WE THEREFORE HOL D THAT THE ANNUAL VALUE HAS TO BE ADOPTED AT THE ANNUAL RENT ACTUALLY RECEI VED BY THE ASSESSEE FROM ICICI LTD., VIZ., RS.1,12,64,400/-. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE FAIRLY A CCEPTS THAT THE ISSUE IS COVERED, AS SUCH, IN FAVOUR OF THE ASSESSEE THOUGH HE VEHEMENTLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND JUSTIF IES THE SAME. ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 6 9. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. 10. FOR THE REASONS SET OUT, WE UPHOLD THE GRIEVANC E OF THE ASSESSEE ON MERIT AS WELL. THE IMPUGNED ADDITIONS CANNOT THUS B E SUSTAINED ON THE MERITS EITHER. THIS GRIEVANCE IS ALSO UPHELD. 7. SINCE THE ISSUE UNDER CONSIDERATION IS MATERIALL Y IDENTICAL TO THAT OF THE SAID CASE DECIDED BY THE CO-ORDINATE BE NCH, WE RESPECTFULLY FOLLOW THE SAME AND IN THE LIGHT OF TH AT WE SET ASIDE THE ORDER OF THE CIT(A) AND HOLD THAT THE ANNUAL VALUE HAS TO BE ADOPTED AT THE ANNUAL RENT ACTUALLY RECEIVED BY THE ASSESSEE F ROM ICICI LTD., VIZ., RS.1,12,64,400/-. WE ORDER ACCORDINGLY. THUS, THE G ROUND NO. 1 RAISED IN BOTH THE APPEALS ARE ALLOWED. 8. GROUND NO. 2 IN BOTH THE APPEALS IS PERTAINING T O CHARGING OF INTEREST U/S 234B. CHARGING OF INTEREST U/S 234B IS CONSEQUENTIAL IN NATURE, THEREFORE, THE AO IS DIRECTED ACCORDINGLY. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF DECEMBER, 2011. SD/- SD/- (J. SUDHAKAR REDDY) (V. DU RGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 16 TH DECEMBER, 2011 KV ITA NO. 2362 & 2363/M/2010 RECLAMATION REALTY (I) P. LTD. RECLAMATION PROPERTIES (I) PVT. LTD. 7 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, D BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.