ITO 1(1)(2), MUMBAI V. CYRUS INVESTMENT P.LTD, MUMBAI

ITA 299/MUM/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9889 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 13-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR
• Assessee Lawyers: BIHARI LAL
• Keywords: Business expenditure; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL C BENCH MUMB AI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH JUDICIAL MEMBER ITA NO. 299/MUM/2017 (ASSESSMENT YEAR 2013-14 ) ITO- 1(1)(2) 534, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S CYRUS INVESTMENTS PVT. LTD. 41/44, SHAHPOORJI PALLONJI CENTRE, MINOO DESAI MARG, COLABA, MUMBAI-400005. PAN: AAACC2880P APPELLANT RESPONDE NT APPELLANT BY : SHRI LOVE KUMAR (DR) RESPONDENT BY : SHRI BIHARILAL (AR) DATE OF HEARING : 17.09.2018 DATE OF PRONOUNCEMEN T : 26.09.2018 ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-2, MUMBAI DATED 27. 09.2016 FOR ASSESSMENT YEAR 2013-14. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 87,05,760/- AS DEEMED ANNUAL LETTABLE VALUE OF FLATS ? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITIONAL DISALLOWANCE TO THE TUNE OF RS. 2,55,72,795/- U/S. 14A R.W.R. 8D OF THE ACT? 2. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT THE GROUNDS OF APPEAL RAISED BY REVENUE ARE COVERED ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 2 IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 IN ITA NO. 6414/MUM/2016. F OR GROUND NO. 1 THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT SIM ILAR GROUND OF APPEAL WAS RESTORED TO THE FILE OF ASSESSING OFFICER BY TH E TRIBUNAL IN APPEAL FOR ASSESSMENT YEAR 2012-13. THEREFORE, THIS GROUND OF APPEAL MAY ALSO BE RESTORED TO THE FILE OF ASSESSING OFFICER WITH SIMI LAR DIRECTION. 3. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENUE AFTER GOING THROUGH THE CONTENTS OF DECISION OF TRI BUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13 FAIRLY CONCEDED TH AT THIS GROUND OF APPEAL MAY ALSO BE RESTORED TO THE FILE OF ASSESSIN G OFFICER WITH SIMILAR DIRECTION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD AND THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13. THE CO-ORDINA TE BENCH IN ASSESSEES OWN CASE IN APPEAL FOR ASSESSMENT YEAR 2 012-13 PASSED THE FOLLOWING ORDER: 13. WE HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD INCLUDING ORDERS OF THE AUTHORITIES BELOW AN D CASE LAWS CITED BY RIVAL PARTIES BEFORE THE BENCH. WE HAVE OBSERVED THAT THE ASSESSEE IS UNDISPUTEDLY OWNER OF TWO RESIDENTIAL FLATS BEARING FLAT NO. 3 ( 2170 SQUARE FEET) AND FLAT NO. 8 (3062 SQUARE FEET) BOTH SITUATED IN STERLING BAY CO - OPERATIVE HOUSING SOCIETY LIMITED, 103, WALKESHWAR ROAD, MUMBAI- 400006. THE RESIDENTIAL FLAT NO. 8 ADMEASURING 3062 SQUARE FEET SITUATED IN A RESIDENT IAL HOUSING SOCIETY STERLING BAY CO-OPERATIVE HOUSING SOCIETY LIMITED AT WALKESHWAR ROAD, MUMBAI IS LET OUT BY ASSESSEE TO ITS DIRECTOR NAMELY MR. SHAPOORJ I PALLONJI MISTRY AT A MONTHLY RENT OF RS. 10,000/- , I.T.A. NO.6414/MUM/2016 WHIL E FLAT NO. 3 SITUATED IN THE SAME RESIDENTIAL SOCIETY IS STATED TO BE LYING VACA NT. THE ASSESSEE COMPUTED ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 3 INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY W.R.T. BOTH THE FLATS TO BE RS.85,296/- WHILE THE AO BROUGHT TO TAX INCOME UNDE R THE HEAD INCOME FROM HOUSE PROPERTY FROM THESE TWO RESIDENTIAL FLATS TO THE TUNE OF RS .87,91,056/- . THE ASSESSEE RELIED UPON THE RATEABLE VALUE COMPUTE D BY MUNICIPAL AUTHORITIES WHICH AS PER THE ASSESSEE IS THE EXPECTED VALUE FOR WHICH THESE FLATS ARE EXPECTED TO BE LET FROM YEAR TO YEAR , THUS SATISFYING CONDI TIONS AS STIPULATED U/S 23(1)(A) OF THE 1961 ACT. THE AMENDMENTS WERE CARRIED OUT IN SECTION 23(1) BY THE TAXATION LAWS (AMENDMENT) ACT , 1975 BY INTRODUCTION OF CLAUSE(B) TO SECTION 23(1) WHEREIN IN CASE PROPERTY IS LET AND IF THE ACTUAL R ENT RECEIVED OR RECEIVABLE BY THE TAXPAYER IS HIGHER THAN SUM FOR WHICH THE PR OPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR, THE AMOUNT SO RECEIVED OR RECEIVABLE SHALL BE DEEMED TO BE ANNUAL VALUE OF THE PROPERTY. THE NEWL Y INSERTED CLAUSE(B) POSTULATED A SITUATION WHERE THE AMOUNT OF SUM FOR WHICH THE PROPERTY MIGHT BE EXPECTED TO BE LET FROM YEAR TO YEAR COULD BE LOWER THAN ACTUAL RENT RECEIVED OR RECEIVABLE FROM THE SAID PROPERTY BY LANDLORD AND I N THAT SITUATION ACTUAL RENT RECEIVED OR RECEIVABLE SHALL BE DEEMED TO BE ANNUAL VALUE OF THE PROPERTY FOR BRINGING THE SAME TO TAX AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY . WE ARE CONCERNED WITH THE AMENDED LAW AS YEAR UND ER CONSIDERATION BEFORE US IS AY 2012-13. IN THE INSTANT CASE, THE A CTUAL RENT RECEIVED OR RECEIVABLE BY THE ASSESSEE W.R.T. FLAT NO. 8 BEING HIGHER THAN MUNICIPAL RATEABLE VALUE, THE ASSESSEE HAS CONTENDED THAT THE SAME IS TO BE ACCEP TED AND BROUGHT TO TAX UNDER SECTION 23(1)(B) WHILE FOR FLAT NO. 3 WHICH WAS STATED TO BE LYING VACANT IT IS CONTENDED THAT ONLY MUNICIPAL RATEABLE VALUE CAN BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY WITHIN PROVISIONS OF SECTION 23(1)(A) , WHICH AS PER ASSESSEE CULMINATED INTO THE INCOME CHARGEAB LE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGGREGATING TO THE TUNE AT RS.85,296/- FROM BOTH OF THESE FLATS AFTER AVAILING STATUTORY DEDUCTIONS ETC. , WHICH VALUE WAS INFACT OFFERED FOR TAXATION BY THE ASSESSEE. THE AO BEING IN DISAGREEMENT WITH THE INCOME SO COMPUTED UNDER THE HEADINCOME FROM HOUSE PROPERTY BY THE ASSESSEE OF THESE TWO FLATS RELIED UPON RECENT DECI SION OF HON BLE BOMBAY HIGH COURT IN TIP TOP TYPOGRAPHY (SUPRA) WHICH WAS PRONO UNCED ON 08-08-2014 AND OBSERVED THAT MUNICIPAL RATEABLE VALUATION OF THE E NTIRE SOCIETY IS VERY LOW BEING RS. 4,91,804/- FOR THE YEAR 2011-12 AND IS NOT INDI CATIVE OF THE FAIR I.T.A. NO.6414/MUM/2016 MARKET VALUE AT WHICH THE FLATS MI GHT BE EXPECTED TO BE LET FROM YEAR TO YEAR AS IS CONTEMPLATED BY SECTION 23(1)(A) . THE AO OBSERVED THAT MUNICIPAL RATEABLE VALUE ADOPTED BY MUNICIPAL CORPO RATION FOR THE ENTIRE SOCIETY HAS IN- FACT FALLEN TO RS. 4,91,804/- IN THE YEAR 2 011-12 AS AGAINST RS. 5,88,985/- FOR THE YEAR 2004-05 WHICH ALSO INDICATE THAT THE S AID VALUATION IS NOT RELIABLE AS IT IS NOT INDICATIVE OF PREVAILING MARKET SITUATION. T HE AO THEN PROCEEDED TO ASCERTAIN PREVAILING MARKET RENTAL OF THESE FLATS I N THE AREA AND AFTER SEARCHING ON THE WEBSITES SUCH AS MAGICBRICK.COM, 99ACRES.COM ET C., ARRIVED AT A PREVAILING MARKET RENT OF THESE FLATS TO BE RS. 200 PER SQUARE FEET PER MONTH AT WHICH THESE FLATS WERE EXPECTED TO BE LET FROM YEAR TO YEAR DUR ING THE RELEVANT PREVIOUS YEAR, WHICH FAIR RENT WAS ADOPTED BY THE AO TO COMPUTE AL V W.R.T. BOTH THESE FLATS WHICH LED TO COMPUTING OF INCOME OF RS.87,05,760/- UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS AGAINST AN AMOUNT OF RS. 85,296/- COMPUTED BY T HE ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 4 ASSESSEE AS AN INCOME UNDER THE HEAD INCOME FROM H OUSE PROPERTY W.R.T. BOTH THE FLATS. THE MATTER WENT IN APPEAL BEFORE LEARNED CIT(A) WHO ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND GRANTED RELIEF TO T HE ASSESSEE BASED ON EARLIER DECISIONS OF ITAT AND JURISDICTIONAL HIGH COURT RUL ING IN ASSESSEE S FAVOUR. THIS IS THE BACKGROUND OF THE ENTIRE ISSUE BEFORE US. RE VENUE IS IN APPEAL BEFORE US CHALLENGING THE RELIEF GRANTED BY LEARNED CIT(A). W E HAVE CAREFULLY GONE THROUGH THE ENTIRE CASE LAWS CITED BEFORE US. THE MUNICIPAL RATEABLE VALUE ADOPTED BY THE ASSESSEE AS PER COMPUTATION OF INCOME FILED IN PAPE R BOOK TRANSLATES INTO MUNICIPAL RATEABLE VALUE OF RS. 1.61 PER SQUARE FEE T PER MONTH WHICH AS PER MUNICIPAL VALUATION IS THE AMOUNT OF SUM WHICH THE PROPERTY IS EXPECTED TO BE LET FROM YEAR TO YEAR WHILE THE PREVAILING MARKET RENT AS PER WEBSITES OF MAGICBRICK.COM, 99ACRES.COM ETC. COMES TO RS. 200 P ER SQUARE FEET PER MONTH WHICH REFLECTS HUGE VARIATION BETWEEN THE TWO VALUA TION. IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS NEVER DISPUTED THIS MARKET RA TE OF RS. 200 PER SQUARE FEET PER MONTH WHICH THE AO DERIVED FROM WEBSITES BUT THE CO NTENTIONS ARE ONLY RAISED THAT THIS VALUATIONS CANNOT BE ACCEPTED AT LAW AND CONTENTIONS ARE ADVANCED TO APPLY MUNICIPAL RATEABLE VALUE FOR COMPUTING ALV OR IN CASE OF FLAT NO 8 WHERE THE ACTUAL RENT RECEIVED OR RECEIVABLE IS HIGHER TH AN MUNICIPAL RATEABLE, TO ADOPT ACTUAL RENT TO COMPUTE ALV. IT IS PERTINENT TO MENT ION THAT THE TENANT TO WHOM THE FLAT NO. 8 IS LET OUT IS A DIRECTOR OF THE ASSESSEE COMPANY AND HE IS PAYING RENT OF RS. 10,000 PER MONTH FOR A FLAT OF 3062 SQUARE FEET IN A SOCIETY SITUATED IN A I.T.A. NO.6414/MUM/2016 POSH SOUTH MUMBAI AREA IN WALKESHW AR ROAD, MUMBAI WHICH TRANSLATES INTO RENT OF RS. 3.27 PER SQUARE F EET PER MONTH AS AGAINST MARKET RATE OF RS. 200 PER SQUARE FEET PER MONTH AS REFLEC TED IN WEBSITES OF MAGICBRICK.COM , 99ACRES.COM ETC FOR SIMILAR FLATS IN THE AREA. WE WILL LIKE TO DRAW REFERENCE TO SOME OF THE CASES TO UNDERSTAND H OW THE ALV NEEDS TO BE COMPUTED. HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. R DALMIA (DECD.)(SUPRA ) OBSERVED AS UNDER: ' ......THERE MAY ,HOWEVER, BE CASES IN WHICH THE A NNUAL VALUE FIXED UNDER THE MUNICIPAL LAW MAY BE UNACCEPTABLE TO THE INCOME-TAX AUTHORITIES FOR GOOD REASONS. WE HAVE NOT LAID DOWN ANY GENERAL PRINCIPL E THAT THE INCOME-TAX AUTHORITIES MUST ADOPT THE MUNICIPAL VALUE AS BEING CORRECT. NORMALLY THE VALUE SHOULD BE ACCEPTED BUT IF THERE IS AN UNDER-VALUATI ON, IT IS CERTAINLY OPEN TO THE INCOME-TAX OFFICER TO FIX THE VALUE ON HIS OWN ON T HE BASIS OF EXPECTED REASONABLE RENT. ....' REFERENCE IS ALSO DRAWN TO THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF CORPORATION OF CALCUTTA V. SMT. PADMA DEBI , AIR 1962 SC 151,152 , WHEREIN THE HON BLE SUPREME COURT OBSERVED : 'A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING L ESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AFFORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DEFLATED RATE OF RENT BASED UPON FRAUD, EMERGENCY, RELATIONSHIP AND SUCH OTHER CONSIDERATION MAY TAKE IT OUT OF THE BOU NDS OF REASONABLENESS.' ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 5 IT IS ALSO PROFITABLE TO REFER TO THE RECENT DECISI ON OF HON BLE BOMBAY HIGH COURT IN THE CASE OF TIP TOP TYPOGRAPHY (SUPRA) WHEREIN H ON BLE BOMBAY HIGH COURT AFFIRMED THE FOLLOWING VIEW TAKEN BY FULL BENCH OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. MANI KUMAR SUBBA (2011) 333 ITR 38(DEL HC FB) AS UNDER: ' 45.....THUS THE RATEABLE VALUE , IF CORRECTLY DET ERMINED, UNDER THE MUNICIPAL LAW CAN BE TAKEN AS ALV UNDER SECTION 23(1)(A) OF THE A CT. TO THAT EXTENT WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL OF THE A SSESSEE. HOWEVER, WE MAKE IT CLEAR THAT RATEABLE VALUE IS NOT BINDING ON THE ASS ESSING OFFICER. IF THE ASSESSING OFFICER CAN SHOW THAT RATEABLE VALUE UNDER MUNICIPA L LAWS DOES NOT REPRESENT THE CORRECT FAIR RENT, THEN HE MAY DETERMINE THE SAME O N THE BASIS OF MATERIAL/EVIDENCE PLACED ON RECORD. THIS VIEW IS FO RTIFIED BY THE DECISION OF PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARUKA V. CIT (1975) 101 ITR 810. THE ABOVE DISCUSSION LEADS TO THE FOLLOWING CONCLUS IONS: (I) ALV WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILLING LESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES. I.T.A. NO.6414/MUM/2016 (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCES , WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED/DEFLATED BY REASON OF E XTRANEOUS CONSIDERATION. (IV) SUCH ALV, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY. (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER, THEN IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMINE THE STANDARD REN T AS PER THE PROVISIONS OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT, IF THE F AIR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. WE WOULD LIKE TO REMARK THAT STILL THE QUESTION REM AINS AS TO HOW TO DETERMINE THE REASONABLE /FAIR RENT. IT HAS BEEN INDICATED BY THE SUPREME COURT THAT EXTRANEOUS CIRCUMSTANCES MAY INFLATE/DEFLATE THE 'FAIR RENT'. THE QUESTION WOULD, THEREFORE, BE AS TO THE WHAT WOULD BE CIRCUMSTANCES WHICH CAN BE TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER WHILE DETERMINING THE FAIR RENT. IT IS NOT NECESSARY FOR US TO GIVE ANY OPINION IN THIS BEHALF, AS WE ARE NOT C ALLED UPON TO DO SO IN THESE APPEALS. HOWEVER, WE MAY OBSERVE THAT NO PARTICULAR TEST CAN BE LAID DOWN AND IT WOULD DEPEND ON FACTS OF EACH CASE. WE WOULD DO NOT HING MORE THAN TO EXTRACT THE FOLLOWING PASSAGE FROM THE SUPREME COURT JUDGME NT IN THE CASE OF MOTICHAND HIRACHAND V. BOMBAY MUNICIPAL CORPORATION , AIR 1968 SC 441, 442: ' IT IS WELL RECOGNISED PRINCIPLE IN RATING THAT BO TH GROSS VALUE AND NET VALUE ARE ESTIMATED BY REFERENCE TO THE RENT AT WHICH THE PRO PERTY MIGHT BE REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. VARIOUS METHODS OF VALUATION ARE APPLIED IN ORDER TO ARRIVE AT SUCH HYPOTHETICAL RENT, FOR INST ANCE, BY REFERENCE TO THE ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHERS COMPARABLE TO IT OR WHERE THERE ARE NO RENTS BY REFERENCE TO THE ASSESSMENTS OF COMPARABLE PROPERTIES OR TO THE PROFITS CARRIED FROM THE PROPERTY OR TO THE COST OF CONSTRU CTION. ' ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 6 THE HON BLE BOMBAY HIGH COURT CONCURRED IN DECISION OF TIP TOP TYPOGRAPHY(SUPRA) WITH THE ABOVE DECISION OF FULL B ENCH OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. MANI KUMAR SUBBA (SUPRA). THE HON BLE BOMBAY HIGH COURT HELD IN TIP TOP TYPOGRAPHY(SUPRA) THAT W HEN THE MONTHLY RENTAL SHOWS A TOTAL MISMATCH OR DOES NOT REFLECT THE PREV AILING RENT, THEN AO IS NOT PREVENTED FROM CARRYING OUT NECESSARY INVESTIGATION S AND ENQUIRY TO FIND OUT THE GOING RENT OF THE PROPERTY IN QUESTION. THE AO MUST HAVE COGENT MATERIAL/EVIDENCES IN HIS POSSESSION THAT PARTIES H AVE CONCEALED THE REAL POSITION. THE AO IS REQUIRED TO DISCLOSE THE MATERIAL IN HIS POSSESSION TO THE TAX-PAYER FOR REBUTTAL BEFORE PROCEEDING TO ADOPT THE PREVAILING MARKET RENT. THE AO HAS TO MAKE COMPARATIVE ANALYSIS OF THE I.T.A. NO.6414/MUM /2016 COMPARABLE PROPERTIES OF SIMILAR NATURE BEFORE APPLYING THE PR EVAILING MARKET RENT OF THE PROPERTY UNDER QUESTION. THE SATISFACTION OF THE AO THAT THE BARGAINS REVEAL INFLATED OR DEFLATED RENT BASED ON FRAUD, EMERGENCY , RELATIONSHIP AND OTHER CONSIDERATIONS WHICH MAKE IT UNREASONABLE MUST PREC EDE THE UNDERTAKING OF ABOVE EXERCISE. THE HON BLE BOMBAY HIGH COURT THEN HELD IN TIP TOP TYPOGRAPHY (SUPRA) THAT THE AO HAS TO THEN COMPLY W ITH THE PRINCIPLES OF FAIRNESS AND JUSTICE AND MAKE THE DISCLOSURE TO THE TAXPAYER SO AS TO OBTAIN TAXPAYERS VIEW. THE HON BLE BOMBAY HIGH COURT THEN HELD THAT MARKET RATE IN THE LOCALITY IS AN APPROVED METHOD FOR DETERMINING THE FAIR RENT AL VALUE BUT IT IS ONLY WHEN THE AO IS CONVINCED THAT THE CASE BEFORE HIM IS SUSPICI OUS, DETERMINATION BY PARTIES IS DOUBTFUL AND THEN THE AO CAN RESORT TO ENQUIRE A BOUT THE PREVAILING RATE IN THE LOCALITY. THE HON BLE BOMBAY HIGH COURT IN THE SAID CASE HELD THAT MU NICIPAL RATEABLE VALUE MAY NOT BE BINDING ON THE AO IN SUCH CASE. IT WAS ALSO HELD THAT THE AO CANNOT BRUSH ASIDE THE RENT CONTROL LEGISLATION IF THE SAME IS APPLICABLE TO PREMISES IN QUESTION. THEN IN THAT EVENT THE AO HAS TO UNDERTAKE THE EXERCISE CONTEMPLATED BY THE RENT CONTROL LEGISLATION FOR FI XATION OF STANDARD RENT. IT WAS HELD THAT EITHER THE AO SHOULD PROCEED TO DETERMINE THE STANDARD RENT HIMSELF IN TERMS OF THE MAHARASHTRA RENT CONTROL ACT, 1999 OR LEAVE THE PARTIES TO DETERMINE THE SAME BY THE COURT OF TRIBUNAL UNDER THAT ACT. I N THE INSTANT CASE BEFORE US, THE TWO RESIDENTIAL FLATS OWNED BY THE ASSESSEE ARE SITUATED IN ONE OF THE POSH AREAS OF SOUTH MUMBAI AT WALKESHWAR ROAD. THE RESID ENTIAL FLAT NO. 8 ADMEASURING 3062 SQUARE FEET IS LET OUT BY THE ASSE SSEE TO ITS RELATED PARTY I.E. ITS DIRECTOR MR. SHAPOORJI PALLONJI MISTRY AT A MEAGRE MONTHLY RENT OF RS. 10,000/-. THE AO WAS NOT SATISFIED WITH THIS MONTHLY RENTAL W HICH WAS CHARGEABLE FROM ITS DIRECTOR AS IN HIS OPINION THE RENTAL WERE DEFLATED BY THE ASSESSEE DELIBERATELY FOR LETTING OUT TO ITS DIRECTOR. THE AO MADE ENQUIRY FR OM THE WEBSITES OF REAL ESTATE COMPANIES SUCH AS MAGICBRICK.COM, 99ACRES.COM ETC A ND CAME TO THE FINDING THAT THE PREVAILING MARKET RENTAL OF SIMILAR FLATS IN TH IS AREA IS RS.200/- PER SQUARE FEET PER MONTH AGAINST WHICH THE ASSESSEE WAS CHARGING R ENT OF RS.3.27 PER SQUARE FEET PER MONTH FROM ITS DIRECTOR. THE ASSESSEE HAS NOT D ISPUTED THIS VALUE OF RS. 200 PER SQUARE FEET PER MONTH BEING EXCESSIVE THAN PREV AILING MARKET RATE BUT CONTENTIONS ARE ADVANCED THAT THE SAME CAN NOT BE A CCEPTED AS MUNICIPAL RATEABLE VALUE IS BINDING ON THE AO TO IDENTIFY THE SUM FOR WHICH THE PROPERTY MIGHT ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 7 BE I.T.A. NO.6414/MUM/2016 EXPECTED TO LET FROM YEA R TO YEAR AS THE OBJECTIVE OF MUNICIPAL RATEABLE VALUE BY MUNICIPAL AUTHORITIES A RE ALSO SAME AS THE LANGUAGE USED IN THE SAID ACT IS PARA MATERIA TO WHAT IS USE D BY THE 1961 ACT. THERE IS A HUGE GAP BETWEEN THE TWO RENTALS I.E. WHAT IS CHARG ED BY THE ASSESSEE FROM ITS DIRECTOR AND THE MARKET VALUE PER WEBSITE OF REAL E STATE COMPANIES .THE FLAT IN QUESTION BEING FLAT NO. 8 IS LET OUT BY THE ASSESSE E TO ITS DIRECTOR WHICH PRIMA- FACIE REVEALS THAT INTENTIONALLY RATES ARE DEFLATED DUE TO RELATIONSHIP WITH ITS TENANT AND REAL POSITION IS NOT REFLECTED IN THE VALUATION OF RENTAL CHARGED FROM ITS DIRECTOR .THE MUNICIPAL RATEABLE VALUE FIXED FOR TH E YEAR FOR THE ENTIRE SOCIETY WAS TO THE TUNE OF RS.4,91,804/- FOR FY 2011-12 WHI LE THE SAME WAS RS. 5,88,985/- FOR FY 2004-05. THE ASSESSEE ADOPTED MUN ICIPAL RATEABLE VALUE OF RS. 5,88,985/- WHICH TRANSLATES INTO RATEABLE VALUE OF RS.1.61 PER SQUARE FEET PER MONTH, WHICH IS ALSO NOT INDICATIVE OF THE REAL POS ITION OF MARKET RENTAL IF COMPARED WITH MARKET RENT AS PER WEBSITES OF REAL E STATE COMPANIES WHICH REFLECT MARKET RENT OF RS. 200 PER SQUARE FEET PER MONTH FO R WHICH THESE FLATS MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR AS IS CONTEMPLATED U/S 23(1)(A). THE FLAT NO. 3 IS LYING VACANT AND ALV IS TO BE COM PUTED AS PER SECTION 23(1)(A) ON SIMILAR LINES AS TO THE SUM FOR WHICH THE SAID FLAT MIGHT REASONABLY BE EXPECTED TO BE LET ON YEAR TO YEAR BASIS. THE PLEA THAT THE MUNICIPAL RATEABLE VALUE WAS FINALLY ACCEPTED IN EARLIER YEARS WHILE COMPUTI NG ALV U/S 23(1)(A) AND SINCE THE ACTUAL RENT OF FLAT NO. 8 WAS HIGHER THAN THE M UNICIPAL RATEABLE VALUE, THE SAME WAS ADOPTED WHILE COMPUTING ALV AS IS CONTEMPLATED U/S 23(1)(B) IS OF NO AVAIL TO THE ASSESSEE AS PRINCIPLES OF RES JUDICATA ARE N OT APPLICABLE TO THE INCOME TAX PROCEEDINGS ALTHOUGH WE ARE AWARE THAT CONSISTENCY IS REQUIRED TO BE MAINTAINED. REFERENCE IS DRAWN TO THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (1992) 193 ITR 321(SC). THE DECISIONS AS IS REFERRED TO BY THE ASSESSEE CANNOT BE ACCEPTED AS T HESE DECISIONS IN THE CASE OF CIT V. PRABHABATI BANSALI (SUPRA) , M.V SONAVALA V. CIT (SUPRA) AND DEWAN DAULAT RAI KAPOOR V. NDMC (SUPRA) WERE DULY CONSIDERED BY HON BLE BOMBAY HIGH COURT IN TIP TOP TYPOGRAPHY (SUPRA) TO ARRIVE AT CONCLUSION . THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF SMT. PADMA DEBI(SU PRA) HAS ALSO STRESSED UPON FINDING OUT A BARGAIN BETWEEN A WILLI NG LESSOR AND A WILLING LESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES MAY AF FORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DEFLATED RATE OF REN T BASED UPON FRAUD, EMERGENCY, RELATIONSHIP I.T.A. NO.6414/MUM/2016 AND SUCH OTHER CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. THE RELIANCE O F THE ASSESSEE IN THE CASE OF CIT V. R. DALMIA (SUPRA) ALSO SHALL BE NO AVAIL AS IN THIS CASE THE HON BLE DELHI HIGH COURT HAS ALREADY HELD THAT THERE MAY BE CASES IN WHICH THE ANNUAL VALUE FIXED UNDER THE MUNICIPAL LAW MAY BE UNACCEPT ABLE TO THE INCOME-TAX AUTHORITIES FOR GOOD REASONS. THE HON BLE DELHI HIGH COURT HELD THAT THEY HAVE NOT LAID DOWN ANY GENERAL PRINCIPLE THAT THE INCOME -TAX AUTHORITIES MUST ADOPT THE MUNICIPAL VALUE AS BEING CORRECT. NORMALLY THE VALU E SHOULD BE ACCEPTED BUT IF THERE IS AN UNDER-VALUATION, IT IS CERTAINLY OPEN T O THE INCOME-TAX OFFICER TO FIX THE VALUE ON HIS OWN ON THE BASIS OF EXPECTED REASO NABLE RENT. REFERENCE AT THIS STAGE IS ALSO DRAWN TO DECISION OF HON BLE SUPREME COURT IN THE CASE OF JOSHI TECHNOLGIES INTERNATIONAL INC. V. UOI REPORTED IN (2015) 57 TAXMANN.COM ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 8 290(SC) WHEREIN THE TAXPAYER WAS DENIED THE BENEFIT OF SECTION 42 FOR THE YEAR UNDER CONSIDERATION AS THE TAXPAYER WAS FOUND TO BE NOT ENTITLED FOR THE SAID BENEFIT, DESPITE THE FACT THAT BENEFIT OF SECTION 42 WAS GRANTED BY REVENUE TO THE TAXPAYERS IN THE EARLIER YEARS. THUS, UNDER THESE C IRCUMSTANCES KEEPING IN VIEW FACTUAL MATRIX OF THE CASE DISCUSSED IN EXTENSO ABO VE AND RECENT DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF TIP TOP TYPOGR APHY(SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THIS MATTER NEED TO BE RESTORED BACK TO THE FILE OF THE AO FOR MAKING MAKING DENOVO ASSESSMENT AFTER MAKE N ECESSARY ENQUIRES AND INVESTIGATION IN LINE WITH DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF TIP TOP TYPOGRAPHY(SUPRA) AND AFTER PROVIDING PROPE R AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . THE EVIDENCES/EXPL ANATION SUBMITTED BY THE ASSESSEE IN ITS DEFENCE SHALL BE ADMITTED BY THE AO AND ADJUDICATED ON MERITS IN ACCORDANCE WITH LAW. THIS GROUND NO. 1 OF THE REVEN UE IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 5. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2012-13, WHEREIN SIMILAR GROUND OF APPEAL IS RESTORED TO THE FILE OF ASSESSING OFFICER. THEREFORE, RESPECTFU LLY FOLLOWING THE DECISION OF CO-ORDINATE BENCH, THIS GROUND OF APPEA L IS ALSO RESTORED TO THE FILE OF ASSESSING OFFICER WITH SIMILAR DIRECTION. 6. GROUND NO.2 RELATES TO DELETING THE DISALLOWANCE UN DER SECTION 14A. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE FACT FOR TH E YEAR UNDER CONSIDERATION ARE SIMILAR AS OF FACT FOR ASSESSMENT YEAR 2012-13 AND SIMILAR DISALLOWANCE WAS MADE BY ASSESSING OFFICER WHICH WAS DELETED BY LD. CIT(A) AND ON APPEAL BEFORE THE TRIBUNAL, THE D ISALLOWANCE WAS RESTRICTED TO SUO MOTU DISALLOWANCE. 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE AFTER GOING THROUGH THE DECISION OF TRIBUNAL IN ASSESSMENT YEAR 2012-13 FAI RLY CONCEDED THAT GROUND NO.2 OF THE APPEAL IS ALSO COVERED IN FAVOUR OF ASSESSEE. ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 9 8. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2012-13 AN D ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE WAS RESTRICTED TO SUO-MOTU DISALLOWANCE AND ON FURTHER APPEAL, THE APPEAL OF THE REVENUE WA S DISMISSED BY TRIBUNAL WITH THE FOLLOWING OBSERVATION: 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD INCLUDING ORDERS OF AUTHORITIES BELOW AND PAPER BOO K FILED BY THE ASSESSEEE. WE HAVE OBSERVED THAT THE ASSESSEE IS AN RBI REGIST ERED (NBFC) INVESTMENT COMPANY. THE ASSESSEE HAS RECEIVED DIVIDEND OF RS. 32.57 CRORES WHICH WAS CLAIMED AS AN EXEMPT INCOME. THE ASSESSEE SUO-MOTU DISALLOWED EXPENDITURE OF RS. 5,44,975/- OF ITS OWN VOLUNTARILY U/S 14A OF THE 1961 ACT BEING INCURRED IN RELATION TO EARNING OF AN EXEMPT INCOME , WHICH INCLUDED DIRECT EXPENSES OF RS. 143/- AND BALANCE RS. 5,44,832/- TO WARDS INDIRECT EXPENSES WHICH WERE DISALLOWED BY THE ASSESSEE VOLUNTARILY S UO-MOTU U/S 14A. THE AO INVOKED PROVISION OF SECTION 14A R.W.R. 8D AND DISALLOWED RS. 2,41,07,023/- MAINLY BY INVOKING RULE 8D(2)(III) R.W.S. 14A OF TH E 1961 ACT DESPITE THE FACT THAT THE ASSESSEE HAS INCURRED TOTAL EXPENSES OF RS . 15.03 LAC DURING THE ENTIRE YEAR WHICH IS REFLECTED IN PROFIT AND LOSS ACCOUNT, OUT OF WHICH RS. 4,13,486/- WAS VOLUNTARILY DISALLOWED BY THE ASSESS EE AND NEVER CLAIMED AS BUSINESS DEDUCTION, WHILE OUT OF THE BALANCE REMAIN ING EXPENSES TO THE TUNE OF RS. 10,89,665/- , 50% OF THE SAID EXPENSES AGGREGAT ING TO RS. 5,44,832/- WERE DISALLOWED BY THE ASSESSEE VOLUNTARILY U/S 14A OF T HE 1961 ACT WHILE REST 50% OF THE EXPENSES WERE CLAIMED BY THE ASSESSEE AS AN BUSINESS EXPENSES/DEDUCTION .(REFER PAGE 8- 17/PB) . THE ASS ESSEE ALSO DISALLOWED RS. 143/- TOWARDS DEMAT CHARGES BEING DIRECT EXPENSES F OR EARNING AN EXEMPT INCOME WHICH IS NOT A MATTER OF DISPUTE BETWEEN RIV AL PARTIES. THE TOTAL DISALLOWANCE OF EXPENDITURE OF RS. 5,44,975/- U/S 1 4A IS ALSO CERTIFIED BY TAX- AUDITORS IN THEIR TAX AUDIT REPORT TO BE CORRECT DI SALLOWANCE OF EXPENDITURE U/S 14A INCURRED IN RELATION TO EARNING OF EXEMPT INCOM E (REFER PAGE 63 AND 75/PB). WE HAVE OBSERVED FROM THE PERUSAL OF THE BA LANCE SHEET THAT THE ASSESSEE HAS INVESTMENTS IN PROPERTIES AS WELL AS I N SHARES, DEBENTURES, PARTNERSHIP FIRMS, MUTUAL FUNDS, AND INCOME IS ARIS ING FROM THESE ACTIVITIES. THE AO HAS NOT RECORDED ANY SATISFACTION U/S 14A(2) AS TO WHY DISALLOWANCE OFFERED BY THE ASSESSEE SUO MOTU VOLUNTARILY IS NOT A CORRECT DISALLOWANCE U/S 14A AND THE SAME NEEDS I.T.A. NO.6414/MUM/2016 TO B E DISCARDED . THE AO MECHANICALLY APPLIED RULE 8D AND ARRIVED AT DISALLO WANCE OF RS. ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 10 2,41,07,023/- U/S 14A R.W.R. 8D NOTWITHSTANDING THA T THE ASSESSEE HAS INCURRED TOTAL EXPENSES OF RS. 15,03,151/- DURING RELEVANT Y EAR WHICH WAS CLAIMED AS AN EXPENSES IN PROFIT AND LOSS ACCOUNT (PB/PAGE 40). OUT OF THESE TOTAL EXPENSES OF RS. 15,03,151/- , THE ASSESSEE VOLUNTARILY DISALLOWED RS. 4,13,486/- AND NEVER CLAIMED THE SAM E AS BUSINESS DEDUCTION , WHILE OUT OF THE BALANCE REMAINING EXPENSES OF RS. 10,89,665 , THE ASSESSEE COMPUTED DISALLOWANCE OF RS. 5,44,832/ U/S 14A TOWA RDS INDIRECT EXPENSES RELATABLE TO EARNING OF AN EXEMPT INCOME WHILE ALSO THE ASSESSEE VOLUNTARILY ADDITIONAL DISALLOWED AN EXPENDITURE OF RS. 143/- D IRECTLY RELATABLE TO AN EXEMPT INCOME, THUS TOTAL DISALLOWANCE OF EXPENDITU RE TO THE TUNE OF RS. 5,44,975/- WAS OFFERED BY THE ASSESSEE SUO MOTU VOL UNTARILY U/S 14A TO HAVE BEEN INCURRED FOR EARNING AN EXEMPT INCOME. THE AO DID NOT RECORDED ANY SATISFACTION U/S 14A(2) AS TO WHY DISALLOWANCE OFFE RED BY THE ASSESSEE TO THE TUNE OF RS. 5,44,975/- U/S 14A WHICH WAS WORKED OUT BY THE ASSESSEE HAVING REGARDS TO ITS ACCOUNTS IS NOT A CORRECT WORKING OF DISALLOWANCE OF EXPENDITURE IN RELATION TO EARNING OF AN EXEMPT INCOME HAVING R EGARDS TO ACCOUNTS OF THE ASSESSEE AND THE SAME NEEDED TO BE DISCARDED AND RU LE 8D IS TO BE APPLIED INSTEAD. THE SAID WORKING OF THE ASSESSEE WAS ALSO APPROVED BY TAX-AUDITORS OF THE ASSESSEE IN THEIR TAX AUDIT REPORT SUBMITTED WH ICH IS PART OF PAPER BOOK(PAGE 63 AND 75). THE AO HAS NOT RECORDED ANY REASONING FOR DISC ARDING THE WORKING SUBMITTED BY THE ASSESSEE AS TO DISALLOWANCE OF EXP ENDITURE OF RS. 5,44,975/- U/S 14A. THE AO MECHANICALLY APPLIED RULE 8D AND MA DE DISALLOWANCE TO THE TUNE OF RS. 2.14 CRORES WITHOUT UNDERSTANDING THAT SECTION 14A CLEARLY SPEAKS OF DISALLOWANCE OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF AN EXEMPT INCOME AND NO NOTIONAL EXPENDI TURE CAN BE DISALLOWED U/S 14A WHICH HAD NOT EVEN BEEN INCURRED AT ALL BY THE ASSESSEE. ALSO THERE IS NO ALLEGATION OR INCRIMINATING MATERIAL ON RECORD T HAT THE ASSESSEE INCURRED ANY EXPENDITURE OUT OF BOOKS OF ACCOUNTS WHICH WAS NOT RECORDED IN BOOKS OF ACCOUNTS WARRANTING ANY ADDITIONS TO INCOME TO BRIN G TO TAX THE SAID UNRECORDED EXPENDITURE. UNDER THESE FACTS SITUATION KEEPING IN VIEW TOTALITY OF THE CIRCUMSTANCES AND SUO MOTU DISALLOWANCE OF 50% EXPENSES OFFERED BY THE ASSESSEE AND NON RECORDING OF SATISFACTION BY THE A O U/S 14A(2) BEFORE INVOKING RULE 8D, WE ARE OF THE CONSIDERED VIEW THA T THE APPELLATE ORDER OF LEARNED CIT(A) NEEDS TO BE I.T.A. NO.6414/MUM/2016 UPHELD/SUSTAINED WHICH WE SUSTAIN AND HENCE THE DISALLOWANCE OFFERED BY THE ASSESSEE U/S 14A SUO-MOTU VOLUNTARILY TO THE TUNE OF RS. 5,44,975/- STOOD ACCEPTED. REVENUE FAILS ON THIS GROUND AND HENCE GROUND NO. 3 IS ADJU DICATED AGAINST REVENUE. WE ORDER ACCORDINGLY. ITA NO. 299 MUM 2017-M/S CYRUS INVESTMENTS PVT. LTD . 11 9. THUS, CONSIDERING THE DECISION OF TRIBUNAL IN ASSES SEES OWN CASE, THEREIN THE FACTS OF THE YEAR UNDER CONSIDERATION ARE NOT A T VARIANCE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL, TH E ASSESSING OFFICER IS DIRECTED TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A AT SUO-MOTU DISALLOWANCE MADE BY ASSESSEE. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26/09/2018. SD/- SD/- G.S. PANNU PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 26.09.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI