ABHIJIT RAJAN, MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 2483/MUM/2009

• Counselvise Citation: 248319914 RSA 2009
• Duration Of Justice: 2 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 17-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Keywords: Fair market value
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, A, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI R K PANDA, ACCOUNTANT MEMBER I T A NO: 2483/MUM/2009 (ASSESSMENT YEAR: 2005-06) ABHIJIT RAJAN, MUMBAI APPELLANT (PAN: AAEPR0342J) VS ASSISTANT COMMISSIONER OF INCOME TAX RESPONDENT CIRCLE 6(3), MUMBAI APPELLANT BY: MR FARROKH V IRANI RESPONDENT BY: MS ASHIMA GUPTA O R D E R R V EASWAR, PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSM ENT YEAR 2005-06. THE ASSESSEE IS AN INDIVIDUAL AND DERIVED SALARY, INCOME FROM HOUSE PROPERTY AND INCOME FROM OTHER SOURCES. THE APPEAL ARISES OUT OF THE ASSESSMENT MADE ON 28.11.2007 UND ER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND IS THAT THE INCOME TAX AUTHORIT IES ERRED IN DISALLOWING INTEREST OF ` 30,000/-. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT WHILE COMPUTING THE INCOME UNDER THE HEA D INCOME FROM OTHER SOURCES THE ASSESSEE CLAIMED INTEREST P AYABLE OF ` 30,000/- FROM THE INTEREST OF ` 22,392/- RECEIVED AS INTEREST ON FD, SAVINGS BANK INTEREST AND INTEREST FROM ICICI SAFET Y BONDS. THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO PROVE THE NEXUS ITA NO: 2483/MUM/2009 2 BETWEEN THE EXPENDITURE AND THE INCOME AS REQUIRED UNDER SECTION 57(III) OF THE ACT. THE ASSESSEE ADMITTED THAT HE WAS UNABLE TO PROVE THE NEXUS. THE ASSESSING OFFICER THEREFORE D ISALLOWED THE INTEREST CLAIM OF ` 30,000/- AND BROUGHT THE INTEREST OF ` 22,392/- TO ASSESSMENT. THE DISALLOWANCE WAS UPHELD IN APPEAL AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUN AL. 3. OUR ATTENTION WAS DRAWN BY THE LEARNED COUNSEL F OR THE ASSESSEE TO THE GROUNDS OF APPEAL AND STATEMENT OF FACTS FILED BEFORE THE CIT(A). THEREIN IT HAS BEEN STATED BY T HE ASSESSEE THAT HE BORROWED AN AMOUNT FROM MR SALDANHA MORE THAN 15 YEARS BACK AND THERE WAS NO CHANGE IN THE USE TO WHICH THE BOR ROWING WAS PUT IN ANY OF THE SUBSEQUENT YEARS AND THAT THE INTERES T WAS BEING ALLOWED AS A DEDUCTION FOR THE PAST SEVERAL YEARS I N COMPUTING THE INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IT WAS SUBMITTED ON THE STRENGTH OF THIS STATEMENT OF FACT S THAT CONSISTENT WITH THE PAST PRACTICE AND IN THE ABSENCE OF ANY JU STIFICATION FOR THE DEPARTURE; THE INTEREST CLAIM OUGHT TO HAVE BEEN AL LOWED. OUR ATTENTION WAS DRAWN TO THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001-02, IN WHICH YEAR ALSO THE CLAIM WAS ALLO WED AS A DEDUCTION IN THE ASSESSMENT MADE UNDER SECTION 143( 3) OF THE ACT. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF THE KAR NATAKA HIGH COURT IN THE CASE OF CIT VS. SRIDEV ENTERPRISES (19 91) 192 ITR 165 (KAR) TO CONTEND THAT IF INTEREST HAS BEEN ALLOWED AS A DEDUCTION IN THE EARLIER YEARS AND THERE IS NO EVIDENCE TO SHOW THAT THERE WERE FRESH BORROWINGS DURING THE RELEVANT ACCOUNTING YEA R, THE INTEREST ITA NO: 2483/MUM/2009 3 PAID BY THE ASSESSEE ON THE OPENING BALANCE OF THE CREDITORS ACCOUNT SHOULD NORMALLY BE ALLOWED AS A DEDUCTION. 4. AFTER TAKING INTO CONSIDERATION THE RIVAL CONTEN TIONS PUT FORTH BEFORE US AND AFTER TAKING NOTE OF THE STATEMENT OF FACTS FILED BEFORE THE CIT(A), WHICH HAS NOT BEEN DISPUTED BY THE CIT( A) OR BEFORE US ON BEHALF OF THE DEPARTMENT, WE ARE OF THE VIEW THA T THE CONSISTENT PRACTICE ADOPTED BY THE DEPARTMENT SHOULD NOT BE DE PARTED FROM IN THE ABSENCE OF ANY CHANGE IN THE FACTS OR THE LEGAL POSITION. WE ALSO FIND THAT THE JUDGMENT OF THE KARNATAKA HIGH C OURT (SUPRA) SUPPORTS THE ASSESSEES CLAIM. WE ACCORDINGLY ALLO W THE ASSESSEES CLAIM FOR DEDUCTION OF ` 30,000/- AS INTEREST. THE GROUND IS ALLOWED. 5. THE ONLY OTHER GROUND IS AS UNDER: - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO IN DETERMINING AND ADDING ANNUAL RENTAL VALUE @ 10% OF FAIR MARKET VALUE OF THE TWO RESIDENTIAL HOUSES UNDER SECTION 23(1)(A) TO THE TOTAL INCOME OF THE APPELLANT, EVEN THOUGH THE SAID TWO FLATS REMAINED VACANT THROUGHOUT THE PREVIOUS YEAR DESPITE THE APPELLANTS BEST EFFORTS TO LET THE SAME ON RENT IN TERMS OF SECTION 23(1)(C). WITHOUT PREJUDICE, THE CIT(A) ERRED IN UPHOLDING THE DETERMINATION OF FAIR MARKET VALUE OF THE ANDHERI FLAT BY APPLYING THE RATE APPLICABLE FOR JUHU. THE BRIEF FACTS ARE THAT THE ASSESSEE OWNED THREE F LATS, ONE OF WHICH WAS OCCUPIED BY HIM AND THE OTHER TWO, NAMELY , CAPRI AND KODINAR WERE VACANT. IN THE RETURN OF INCOME THE A SSESSEE DECLARED THE INCOME FROM HOUSE PROPERTY IN THE FOLL OWING MANNER: - ITA NO: 2483/MUM/2009 4 II. INCOME FROM HOUSE PROPERTY A) RESIDENTIAL HOUSE AT RITURAJ NIL (SELF-OCCUPIED) B) RESIDENTIAL FLAT AT CAPRI, JUHU ANNUAL VALUE (RATEABLE VALUE) 32 65 LESS: @ 30% FOR REPAIRS UNDER SECTION 24 980 2285 C) RESIDENTIAL FLAT AT KODINAR CO-OPERATIVE HOUSING SOCIETY LTD. ANNUAL VALUE (RATEABLE VALUE) 72 55 LESS: @ 30% FOR REPAIRS UNDER SECTION 24 2177 5078 7363 IN THE ASSESSMENT ORDER THE ASSESSING OFFICER OBSER VED THAT THE FAIR MARKET RENT FOR THE FLATS IN CAPRI AND KODINAR AND THE STANDARD RENT SHOULD BE COMPARED AND THE HIGHER OF THE TWO S HOULD BE TAKEN AS THE ANNUAL LETTING VALUE OF THE FLATS. IN THE E NCLOSURE TO THE STATEMENT OF INCOME THE ASSESSEE HAD FILED CERTIFIC ATES DATED 26.08.2005 FROM THE BRIHANMUMBAI MAHANAGARPALIKA SH OWING THE RATEABLE VALUE OF KODINAR AT ` 7,255/- AND THE RATEABLE VALUE OF CAPRI AT ` 3,265/-. IT IS ON THE BASIS OF THESE FIGURES THAT THE ANNUAL LETTING VALUE WAS OFFERED IN THE RETURN. THE ASSESSING OFF ICER WAS HOWEVER OF THE VIEW THAT THE MUNICIPAL VALUATION DO ES NOT REFLECT THE FAIR MARKET RENT OF THE FLATS. THE ASSESSEE WOULD APPEAR TO HAVE CLAIMED THAT HE IS ENTITLED TO THE BENEFIT OF SECTI ON 23(1)(C) OF THE ACT, BUT THIS CLAIM WAS REJECTED BY THE ASSESSING O FFICER. HE THEREAFTER PROCEEDED TO DETERMINE THE FAIR MARKET R ENT FOR THE PROPERTIES. HE FOUND THAT THE FLAT AT KODINAR ADME ASURED 54.45 SQ. MTS. IT WAS IN ANDHERI (WEST). THE ASSESSING OFFI CER NOTED FROM ITA NO: 2483/MUM/2009 5 THE TIMES OF INDIA RATE CHART THAT ON 02.07.2005 TH E RATE IN VILE PARLE (WEST), WHICH WAS ADJOINING ANDHERI (WEST), V ARIED FROM ` 5,500/- TO ` 8,000/- PER SQ. FT. AND ON THE BASIS OF THE RATE OF ` 5,500/- PER SQ. FT., THE COST OF THE FLAT CAME TO ` 30,00,250/-. HE FURTHER OBSERVED THAT GENERALLY PROPERTIES ARE EXPE CTED TO DERIVE A RENT OF 10% PER ANNUM OF THE CAPITAL VALUE AND THUS THE ANNUAL RENT WOULD BE ` 3,00,000/-, WHICH GIVES A RENT OF ` 25,000/- PER MONTH, WHICH IS A REASONABLE FIGURE OF RENT. IN RESPECT O F THE PROPERTY AT CAPRI IN JUHU, THE ASSESSING OFFICER NOTED THAT IT MEASURED 731 SQ. FT. AGAIN FROM THE TIMES OF INDIA PROPERTY CHART H E NOTED THAT THE LOWEST VALUE OF ` 5,500/- PER SQ. FT. FOR PROPERTIES AT VILE PARLE (W EST) CAN BE TAKEN AS THE BASIS AND ADOPTING THAT FIGURE HE ARRIVED AT THE CAPITAL VALUE OF THE FLAT AT ` 40,20,500/-. APPLYING 10% OF THE SAME, THE ANNUAL RENT WAS ESTIMATED AT ` 4,00,000/-, WHICH ACCORDING TO THE ASSESSING OFFICER WAS A REASONABLE FIGURE FOR P ROPERTY LOCATED IN JUHU. 6. THE ASSESSING OFFICER THUS ADOPTED THE ANNUAL RE NTAL VALUE OF CAPRI AT ` 4,00,000/- AND KODINAR AT ` 3,00,000/- AND PROCEEDED TO COMPUTE THE PROPERTY INCOME ON THAT BASIS. 7. ON APPEAL THE ASSESSEE OBJECTED ON THE GROUND TH AT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN RELYING ON T HE TIMES OF INDIA REPORT. HE FURTHER CLAIMED THAT UNDER SECTION 23(1 )(C) THE ASSESSEE WAS ENTITLED TO COMPUTE THE INCOME FROM PROPERTIES WHICH ARE VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR ON THE LESSER OF THE ACTUAL RENT RECEIVED OR RECEIVABLE AN D THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET. ITA NO: 2483/MUM/2009 6 ACCORDINGLY IT WAS CLAIMED THAT THE ASSESSEE RIGHTL Y OFFERED THE RATEABLE VALUE OF THE FLATS AS DETERMINED BY THE MU NICIPAL CORPORATION OF MUMBAI. RELIANCE WAS PLACED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL DELIVERED ON 31.05.200 7 IN THE CASE OF PREMSUDHA EXPORTS PVT. LTD. VS. ACIT IN ITA NOS: 6277 AND 6278/ MUM/2006 (ASSESSMENT YEAR 2003-04). WITHOUT PREJUDICE TO THIS CLAIM THE ASSESSEE ALSO RAISED CONTENTIONS ON THE MERITS OF THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE TIM ES OF INDIA REPORT FOR ESTIMATING THE RENTAL VALUE OF THE PROPE RTIES. 8. THE CIT(A) HELD THAT THE ASSESSEE DID NOT MAKE A NY EFFORT TO LET OUT THE BUILDING FOR RENT AND THEREFORE THE ORD ER OF THE TRIBUNAL CITED SUPRA WAS NOT APPLICABLE. HE FURTHER HELD TH AT SINCE THE ASSESSEE DID NOT ADDUCE ANY EVIDENCE, THE ASSESSING OFFICER WAS JUSTIFIED IN TAKING THE MARKET VALUE OF THE PROPERT Y FROM THE REPUTED PUBLICATION, NAMELY, TIMES OF INDIA AND DETERMINED THE FAIR RENT ON THAT BASIS. HE THUS AFFIRMED THE DECISION OF THE A SSESSING OFFICER. 9. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL. WE HAVE CONSIDERED THE FACTS AND THE RIVAL CONTENTIONS . THE ISSUE, AS POINTED OUT ON BEHALF OF THE ASSESSEE, IS COVERED B Y A NUMBER OF DECISIONS OF THE MUMBAI BENCHES OF THE TRIBUNAL, SO ME OF WHICH HAVE BEEN AFFIRMED BY THE HONBLE BOMBAY HIGH COURT . IN THE CASE OF S C FINANCE AND INVESTMENTS PVT. LTD. VS. DCIT ( ITA NOS: 4177 AND 4178/MUM/1999) DATED 13.01.2004, IT WAS HELD TH AT THE STANDARD RENT DETERMINABLE UNDER THE PROVISIONS OF THE RENT LEGISLATION SHOULD BE TAKEN AS THE ANNUAL LETTING V ALUE OF THE PROPERTY. THIS ORDER OF THE TRIBUNAL HAS BEEN CONF IRMED BY THE ITA NO: 2483/MUM/2009 7 ORDER OF THE HONBLE BOMBAY HIGH COURT DATED 26.09. 2007 IN INCOME TAX APPEAL NO: 831 OF 2004. A SIMILAR ORDER WAS PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. M/S SHAPOORJI & CO. (RAJKOT) PVT. LTD. (ITA NO: 40/MUM/ 1999) ON 17.09.2003. IN THIS ORDER THE TRIBUNAL REFERRED TO ITS EARLIER ORDER DATED 29.07.2003 FOR THE ASSESSMENT YEAR 1994-95 IN THAT ASSESSEES CASE AND HELD THAT IN MUMBAI IT IS THE A NNUAL RATEABLE VALUE AS FIXED BY THE MUNICIPAL CORPORATION ACT, WH ICH IS TAKEN AS ANNUAL VALUE BECAUSE THE SAME IS BASED ON THE COST OF CONSTRUCTION OF THE BUILDING. IT WAS FURTHER HELD THAT ANNUAL M UNICIPAL VALUE IF AVAILABLE ITSELF COULD BE THE ANNUAL LETTING VALUE AND IF THE ACTUAL RENT RECEIVED OR RECEIVABLE IS MORE THAN THE ANNUAL MUNICIPAL VALUE, THEN THE ACTUAL RENT MAY BE TAKEN AS THE ANNUAL VAL UE. THIS ORDER OF THE TRIBUNAL HAS ALSO BEEN AFFIRMED BY THE HONB LE BOMBAY HIGH COURT BY ORDER DATED 26.09.2007 IN INCOME TAX APPEA L NO: 752 OF 2004. IN THE CASE OF BHANSALI INTERNATIONAL PVT. L TD. VS. ITO, BY JUDGMENT DATED 29.08.2009, IN INCOME TAX APPEAL NO: 758, 759 AND 866 OF 2008, THE HONBLE BOMBAY HIGH COURT, WHI LE DEALING WITH THE QUESTION WHETHER THE ANNUAL RATEABLE VALUE FOR THE PURPOSE OF SECTION 23(1)(A) OF THE ACT SHOULD BE DIFFERENT THAN THAT DETERMINED BY THE MUNICIPAL AUTHORITIES FOR THE PUR POSE OF IMPOSING PROPERTY TAX, HAS HELD THAT THE CALCULATION OF THE ANNUAL RATEABLE VALUE SHALL BE BASED ON THE VALUE DETERMINED BY THE MUNICIPAL AUTHORITIES. A COPY OF THIS JUDGMENT HAS ALSO BEEN FILED IN THE PAPER BOOK. ITA NO: 2483/MUM/2009 8 10. IN THE LIGHT OF THE AFORESAID BINDING DECISIONS , WE ARE OF THE VIEW THAT THE INCOME TAX AUTHORITIES WERE NOT JUSTI FIED IN RECALCULATING THE ANNUAL LETTING VALUE OF THE CAPRI AND KODINAR FLATS OWNED BY THE ASSESSEE, AND WHICH WERE VACANT DURING THE ENTIRE PREVIOUS YEAR. IT HAS BEEN HELD BY THE TRIBUNAL IN ONE OF THE ORDERS CITED ABOVE THAT THE MUNICIPAL CORPORATION ALSO FIX ES THE ANNUAL VALUE ON THE BASIS OF THE COST OF CONSTRUCTION OF T HE BUILDING. THE ASSESSEE HAS FURNISHED THE CERTIFICATES GIVEN BY TH E BRIHANMUMBAI MAHANAGARPALIKA SHOWING THE RATEABLE VALUE OF THE F LATS AND THESE CERTIFICATES WERE ENCLOSED TO THE RETURN OF INCOME. THE CALCULATION OF THE ASSESSEE WAS BASED ON THESE CERTIFICATES. I N THE LIGHT OF THESE CERTIFICATES THE ASSESSING OFFICER WAS NOT JU STIFIED IN RE- DETERMINING THE ANNUAL LETTING VALUE OF THE FLATS O N THE BASIS OF THE TIMES OF INDIA PROPERTY CHART. WE ACCORDINGLY UPHO LD THE ASSESSEES CONTENTIONS AND DIRECT THE ASSESSING OFF ICER TO ACCEPT THE INCOME RETURNED BY THE ASSESSEE IN RESPECT OF C APRI AND KODINAR. THE GROUND IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. NO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R K PANDA) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 27 TH APRIL 2011 SALDANHA ITA NO: 2483/MUM/2009 9 COPY TO: 1. ABHIJIT RAJAN RITURAJ, 2, MITTAL PARK, 1, MILITARY ROAD JUHU. MUMBAI 400 049 2. ACIT, CIRCLE 6(3), MUMBAI 3. CIT-6, MUMBAI 4. CIT(A)-VI, MUMBAI 5. DR A BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI