M/s. LLARDO FINANCE P. LTD., MUMBAI V. ACIT C.C-10, MUMBAI

ITA 2508/MUM/2007

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49221 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 25-01-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-03-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BALAKRISHNA MENON
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Notional interest
• Section: 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ITA NO. 7206, 7207/MUM./2005 (ASSESSMENT YEARS : 2000-01, 2002-03 ) AND ITA NO. 2508 AND 6369/MUM./2007 (ASSESSMENT YEAR : 2003-04 AND 2004-05 ) DATE OF HEARING: 15.6.2011 LLARDO FINANCE PVT. LTD. 202, SANT TUKARAM ROAD CARNAC BUNDER, MASJID BUNDER (E) MUMBAI 400 009 AAACL3220G .. APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-10, MUMBAI .... RESPONDENT ASSESSEE BY : MR. ASHOK J. PATIL REVENUE BY : MR. BALAKRISHNA MENON O R D E R PER J. SUDHAKAR REDDY, A.M. THESE APPEALS PREFERRED BY ASSESSEE, ARE DIRECTED A GAINST THE IMPUGNED SEPARATE ORDERS PASSED BY THE COMMISSIONER (APPEALS), MUMBAI, FOR ASSESSMENT YEARS 2000-01, 2002-03, 2003-04 AND 2004-05 RESPECTIVELY. AS THE ISSUES ARISING IN ALL THE APPEALS ARE COMMON , FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND BEING DISP OSED OFF BY WAY OF THIS CONSOLIDATED ORDER. LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 2 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A COMPANY AND DERIVES INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY . IT HAS A FLAT SITUATED AT CUFFE PARADE ADMEASURING 1,500 SQ.FT., WHICH IS LET OUT AT A MONTHLY RENT OF ` 19,000 PER MONTH. THE ASSESSEE RECEIVED A DEPOSIT OF ` 1,05,00,000. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED TO JUSTIFY AND STATE THE ANNUAL LETTING VALUE OF THE P ROPERTY. AFTER CONSIDERING RESPONSE FROM THE ASSESSEE, THE ASSESSING OFFICER, RELYING ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN TIVOLI INVESTMENT & TRADING CO. P. LTD., DETERMINED THE MONTHLY RENT OF ` 1,26,000. THUS, IN PLACE OF THE ACTUAL ANNUAL RENT RECEIVED OF ` 1,20,000, THE ASSESSING OFFICER DETERMINED THE ANNUAL LETTING VALUE (ALV) AT ` 15,12,000. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN FIRST APPEAL, WHEREIN THE COMMISSIONER (APPEALS), RELYING ON THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S J.K. INVESTORS (BOMBAY) LTD., (2001) 248 ITR 723 (BOM.), HELD THAT NOTIONAL INTEREST ACCRUED FROM IN TEREST FREE DEPOSIT RECEIVED BY THE ASSESSEE CANNOT FORM PAT OF RENT UN DER SECTION 23(1)(B) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). HE HELD THAT INTEREST ACCRUED FROM INTEREST FREE SECURITY DEPOSIT CANNOT BE RECKO NED FOR THE PURPOSE OF DETERMINATION OF FAIR MARKET RENT UNDER SECTION 23( 1)(A). HE FURTHER RELIED ON THE FOLLOWING CASE LAWS (I) ITO V/S CHEM MECH P. LTD., (2002) 83 ITD 427 (MUM.); AND (II) ACIT V/S OMPRAKASH & CO., (2004) 8 7 TTJ 183 (MUM.) AND HELD THAT THE ANNUAL LETTING VALUE SHOULD BE DETERM INED @ 8.5% OF THE INVESTMENT MADE ON THE FLAT OR HOUSE PROPERTY. FURT HER AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL, ON THE F OLLOWING GROUNDS:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN ADOPTING ALV @ 8.5% COST OF ACQUISITIO N I.E., ` 15,29,150 AND ALLOWING DEDUCTION OF 30% THEREON ` 4,58,745 AND LEAVING BALANCE ` 10,70,405 TAXABLE UNDER INCOME FROM HOUSE PROPERT Y, WITHOUT ENQUIRING INTO THE FACTS AND CIRCUMSTANCES OF THE C ASE AND PROVISIONS OF THE INCOME TAX ACT, 1961, AND RULES THEREUNDER A ND IGNORING THE SUBMISSIONS MADE BY THE APPELLANT. LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 3 4. IN ASSESSMENT YEAR 2000-01, THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND THAT THE COMMISSIONER (APPEALS) ERRED IN ENH ANCING THE ASSESSMENT IN AN APPEAL AGAINST THE ORDER PASSED UNDER SECTION 154 OF THE ACT. 5. BEFORE US, THE LEARNED COUNSEL, MR. ASHOK J. PATIL, ON BEHALF OF THE ASSESSEE, SUBMITS THAT THE APPEAL FOR ASSESSMENT YE AR 2002-03, WAS FILED BELATEDLY BY TEN DAYS. HE FILED AN AFFIDAVIT EXPLAI NING THE DELAY IN FILING THE APPEAL AND ALSO A PETITION WITH A PRAYER FOR CONDON ATION OF DELAY. AFTER PERUSING THE SAME, WE CONDONE THE DELAY AND ADMIT T HE APPEAL, AS WE ARE CONVINCED THAT THE ASSESSEE IS PREVENTED BY REASONA BLE CAUSE FROM FILING THE APPEAL WITHIN THE TIME LIMIT. WE NOW PROCEED TO DEC IDE THE APPEAL ON MERIT. 6. LEARNED COUNSEL SUBMITS THAT FOR ASSESSMENT YEAR 20 00-01, THE ASSESSING OFFICER REFUSED TO GIVE CREDIT TO CERTAIN TDS CERTIFICATES. THE ASSESSEE FILED AN APPLICATION UNDER SECTION 154 OF THE ACT, REQUESTING THE ASSESSING OFFICER FOR ALLOWING CREDIT OF TDS TO THE EXTENT OF ` 44,000. THE SAME WAS REJECTED. ON APPEAL, THE FIRST APPELLATE A UTHORITY ALLOWED CREDIT. THEREAFTER, THE FIRST APPELLATE AUTHORITY ISSUED A NOTICE OF ENHANCEMENT AND ENHANCED THE ASSESSMENT. HE RELIED ON SECTION 251 O F THE ACT AND SUBMITS THAT THE COMMISSIONER (APPEALS) HAS NO SUCH POWER. 7. LEARNED COUNSEL, ON THE ISSUE ON MERIT, WHICH IS CO MMON FOR ALL THE YEARS IN APPEAL, FILED COPIES OF DECISIONS OF CO-OR DINATE BENCH OF THE TRIBUNAL IN CHEM MECH P. LTD. (SUPRA) AND OMPRAKASH & CO. (S UPRA) AND SUBMITS THAT NOWHERE UNDER THE BOMBAY RENTS, HOTEL AND LODG ING HOUSE RATES CONTROL ACT, 1947, IS THERE A PROVISION OF CALCULAT ING THE STANDARD RENT @ 8.5% OF THE TOTAL INVESTMENT IN THE PROPERTY. HE SU BMITS THAT THE BENCHES OF TRIBUNAL HAVE ERRONEOUSLY APPLIED THE JUDGMENT OF H ON'BLE SUPREME COURT IN SHIELA KAUSHISH V/S CIT, (1981) 131 ITR 435 (SC), W HEREIN THEIR LORDSHIPS WERE CONSIDERING THE PROVISIONS OF DELHI AND AJMER RENT CONTROL ACT, 1952, (CLAUSE (2), PARA (B) OF THE SAID ACT). HE SUBMITS THAT SIMILAR PROVISIONS ARE NOT AVAILABLE UNDER THE MAHARASHTRA RENT CONTROL AC T, 1999. LEARNED COUNSEL FURTHER SUBMITS THAT THE MAHARASHTRA RENT C ONTROL ACT, 1999, HAS BEEN SUPERSEDED BY THE PASSING OF MAHARASHTRA RENT CONTROL ACT, 1999. LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 4 HENCE, HE SUBMITS THAT THE COMMISSIONER (APPEALS) W AS WRONG IN DIRECTING DETERMINING OF ANNUAL RENT @ 8.5% OF THE INVESTMENT . WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, THE LEARNED COUNSEL RELIED O N THE DECISION OF DELHI SPECIAL BENCH OF THIS TRIBUNAL IN ACIT V/S MAYUR RE CREATIONAL & DEVELOPMENT LTD., (2008) 113 ITR (SB) 181 (DEL.), AND SUBMITS T HAT IN DETERMINING THE ALV, THE COST OF CONSTRUCTION ACTUALLY INCURRED BY THE PREVIOUS OWNER OR MORE SO BY THE ORIGINAL OWNER AND THE MARKET PRICE OF THE LAND AS ON THE DATE OF COMMENCEMENT OF CONSTRUCTION HAS TO BE TAKE N AND NOT THE COST OF THE PROPERTY OF THE ASSESSEE. HE PRAYED FOR RELIEF. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, MR. BALAKRISHN A MENON, ON THE OTHER HAND, SUBMITS THAT THE ISSUE IS COVERED IN FA VOUR OF THE REVENUE BY TWO DECISIONS OF THE JURISDICTIONAL TRIBUNAL RELIED ON BY THE COMMISSIONER (APPEALS) AND IT WOULD NOT BE PROPER FOR THE TRIBUN AL TO TAKE A DIFFERENT VIEW. ON THE ISSUE OF ENHANCEMENT, LEARNED DEPARTME NTAL REPRESENTATIVE SUBMITS THAT THE COMMISSIONER (APPEALS) HAS POWER T O ENHANCE THE ASSESSMENT UNDER SECTION 251(1)(C) OF THE ACT. 9. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS U NDER:- I) AS FAR AS THE ISSUE OF ENHANCEMENT IS CONCERNED, TH E ISSUE BEFORE THE COMMISSIONER (APPEALS) WAS AN ORDER PASSED UNDER SE CTION 154, REJECTING THE CLAIM OF THE ASSESSEE FOR CREDIT OF TAX DEDUCTI ON AT SOURCE FOR AN AMOUNT OF ` 44,000. THE ORDER UNDER SECTION 154, IS NOT AN ORD ER OF ASSESSMENT. THUS, THE COMMISSIONER (APPEALS) HAS NO POWER OF EN HANCEMENT, AS THE APPEAL DOES NOT FALL WITHIN THE PROVISIONS OF SECTI ON 251(1)(A). NOW, COMING TO THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRES ENTATIVE THAT IT WOULD FALL UNDER THE PROVISIONS OF SECTION 251(1)(C), WE FIND THAT SIMILAR WORDINGS APPEAR IN SECTION 254(1). THE COURTS HAVE HELD THAT THE TRIBUNAL HAS NO POWER OF ENHANCEMENT ON EXAMINATION OF THE SENTENCE PASSING SUCH ORDERS IN THE APPEAL AS IT THINKS FIT. WE, THUS, ALLOW THIS GROUND OF THE ASSESSEE FOR ASSESSMENT YEAR 2000-01. LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 5 II) COMING TO THE OTHER APPEALS, WE FIND THAT THE MAHAR ASHTRA RENT CONTROL ACT, 1999, APPLIES TO ALL THE YEARS UNDER A SSESSMENT. WHILE SO, THE COMMISSIONER (APPEALS) ERRED IN DIRECTING THE ASSES SING OFFICER TO FOLLOW THE DECISION OF A CO-ORDINATE BENCH OF THE TRIBUNAL, WH EREIN THE BOMBAY RENTS, HOTEL AND LODGING HOUSE RATES CONTROL ACT, 1947, WA S RELIED ON. HENCE SUCH DIRECTIONS CANNOT BE UPHELD. NOW THE ISSUE IS HOW T O DETERMINE ALV. III) RECENTLY, FULL BENCH OF HON'BLE DELHI HIGH COURT IN CIT V/S MONI KUMAR SUBBA & ORS., I.T. APPEAL NO.499/2008, VIDE JUDGMEN T DATED 30 TH MARCH 2011, HELD AS FOLLOWS:- HOWEVER, BY NO STRETCH OF IMAGINATION, THE NOTIONA L INTEREST OF INTEREST FREE SECURITY CAN BE TAKEN AS DETERMINATIV E FACTOR TO ARRIVE AT THE FAIR RENT. PROVISIONS OF SECTION 23(1)(A), DO N OT MANDATE THIS. IV) THEREAFTER, THEIR LORDSHIPS VIDE PARA-14, HELD AS F OLLOWS:- 14. IT IS, THUS, MANIFEST THAT VARIOUS COURTS HAVE HELD A CONSISTENT VIEW THAT NOTIONAL INTEREST CANNOT FORM PART OF ACT UAL RENT. HENCE, THERE IS NO JUSTIFICATION TO TAKE A DIFFERENT VIEW THAT WHAT HAS BEEN STATED IN ASIAN HOTELS LIMITED (SUPRA). V) NOW, WE COME TO PARAS-18 AND 19 OF THE SAID JUDGMEN T, WHICH READS AS FOLLOWS:- 18. SINCE THE PROVISIONS OF FIXATION OF ANNUAL REN T UNDER THE DELHI MUNICIPAL CORPORATION ACT ARE PARI MATERIA OF SECTI ON 23 OF THE ACT, WE ARE INCLINED TO ACCEPT THE AFORESAID VIEW OF THE CA LCUTTA HIGH COURT IN SATYA CO. LTD. (SUPRA) THAT IN SUCH CIRCUMSTANCES, THE ANNUAL VALUE FIXED BY THE MUNICIPAL AUTHORITIES CAN BE A RATIONA LE YARDSTICK. HOWEVER, IT WOULD BE SUBJECT TO THE CONDITION THAT THE ANNUAL VALUE FIXED BEARS A CLOSE PROXIMITY WITH THE ASSESSMENT Y EAR IN QUESTION IN RESPECT OF WHICH THE ASSESSMENT IS TO BE MADE UNDER THE INCOME TAX LAWS. IF THERE IS A CHANGE IN CIRCUMSTANCES BECAUSE OF PASSAGE OF TIME, VIZ., THE ANNUAL VALUE WAS FIXED BY THE MUNICIPAL A UTHORITIES MUCH EARLIER IN POINT OF TIME ON THE BASIS OF RENT THAN RECEIVED, THIS MAY NOT PROVIDE A SAFE YARDSTICK IF IN THE ASSESSMENT YEAR IN QUESTION WHEN ASSESSMENT IS TO BE MADE UNDER INCOME TAX ACT. THE PROPERTY IS LET- OUT AT A MUCH HIGHER RENT. THUS, THE AO IN A GIVEN CASE CAN IGNORE THE MUNICIPAL VALUATION FOR DETERMINING ANNUAL LETTING VALUE IF HE FINDS THAT THE SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETE RMINING THE FAIR RENT IN THE MARKET AND THERE IS SUFFICIENT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. WE MAY PROFITABLY REPRODUCE THE FOLLOWING LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 6 OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF CO RPORATION OF CALCUTTA VS. SMT. PADMA DEBI, AIR 1962 SC 151: A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AF FORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DE FLATED RATE OF RENT BASED UPON FRAUD, EMERGENCY, RELATIONS HIP AND SUCH OTHER CONSIDERATIONS MAY TAKE IT OUT OF TH E BOUNDS OF REASONABLENESS. 16. THUS THE RATEABLE VA LUE, IF CORRECTLY DETERMINED, UNDER THE MUNICIPAL LAWS CAN BE TAKEN AS ALV UNDER SECTION 23(1)(A) OF THE ACT. TO THAT EXTENT WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE ASSESSEE. HOWEVER, WE MAKE IT CLEAR THAT RATEABLE VALUE IS NOT BINDING ON THE ASSESSING OFFI CER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPAL LAWS DOES NOT REPRESENT THE CORRECT FAIR RENT, THEN HE MAY DETERMINE THE SAME ON THE BASIS OF MATERIAL/ EVIDENCE PLACED ON RECORD. THIS VIEW IS F ORTIFIED BY THE DECISION OF PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT [1975] 101 ITR 810. 17. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CON CLUSIONS: (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLU ENCED BY ANY EXTRANEOUS CIRCUMSTANCES, (II) AN INFLATED OR DEFLA TED RENT BASED ON EXTRANEOUS CONSIDERATION MAY TAKE IT OUT OF THE BOU NDS OF REASONABLENESS, (III) ACTUAL RENT RECEIVED, IN NOR MAL CIRCUMSTANCES, WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INF LATED/DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION, (IV) SUCH ALV, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LE GISLATION APPLICABLE TO THE PROPERTY, (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER, THEN IT IS THE DUTY OF THE ASSESSING OF FICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT, (VI) THE STANDARD RENT IS THE UPPER LIMIT, IF THE FAIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 19. WE MAY ALSO ADD THAT IN PLACE LIKE DELHI, THIS HAS NOW BECOME REDUNDANT INASMUCH AS THE VERY BASIS OF FIXING PROP ERTY TAX HAS UNDERGONE A TOTAL CHANGE WITH AMENDMENT OF THE MUNI CIPAL LAWS BY AMENDMENT ACT, 2003. NOW THE PROPERTY TAX IS ON UNI T METHOD BASIS. VI) WE SET ASIDE THE ISSUE IN ALL THE THREE APPEALS FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05, AND RESTORE THE MATTE R TO THE FILE OF ASSESSING OFFICER FOR DENOVO ADJUDICATION IN LINE W ITH THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN MONI KUMAR SUBBA & ORS. (SUPRA). LLARDO FINANCE P. LTD. A.Y 00-01, 02-03 TO 04-05 7 10. IN THE RESULT, APPEALS IN ITA NO.7207/MUM./2005, 25 08/MUM./2007 AND ITA NO.6369/MUM./2007, ARE ALLOWED IN PART, WHE REAS APPEAL IN ITA NO.7206/MUM./2005, IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29-6-11. SD/- V. DURGA RAO JUDICIAL MEMBER SD/- SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 29-6-11. COPY TO : (1) THE ASSESSEE; (2) THE RESPONDENT; (3) THE CIT(A), MUMBAI, CONCERNED; (4) THE CIT, MUMBAI CITY CONCERNED; (5) THE DR, A BENCH, ITAT, MUMBAI. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI