ACIT- 7(2)(1), MUMBAI V. MAHALAXMI ENGINEERING COMPANY PVT.LTD., MUMBAI

ITA 3071/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7275 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 27-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: RUTUJA PAWARAR
• Keywords: Business income

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -CBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./3071/MUM/2016, / ASSESSMENT YEAR: 2012-13 ACIT-7(2)(1) R.NO.573, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. MAHALAXMI ENGINEERING COMPANY PVT. LTD. L.J. CROSS ROAD, MAHIM MUMBAI-400 016. PAN:AAACM 3986 C ( /APPELLANT ) ( / RESPONDENT) / REVENUE BY: SHRI RAJAT MITTAL-CIT-DR /ASSESSEE BY: MS. RUTUJA PAWAR-AR / DATE OF HEARING: 07/02/2018 / DATE OF PRONOUNCEMENT: 2/5/2018 , - PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 26/02/2016,OF THE CIT ( A)13,MUMBAI THE ASSESSING OFFICER(AO)HAS FILED THE PRESENT APPEAL.ASSESSEE-CO MPANY FILED ITS RETURN OF INCOME ON 14/09/2012,DECLARING INCOME AT RS.47.10 LAKHS.THE A O COMPLETED THE ASSESSMENT U/S.143 (3) OF THE ACT,ON 18/02/ 2015,DETERMINING ITS INCOME AT RS.4.64CRORES. 2. FIRST GROUND OF APPEAL IS ABOUT DELETING THE ADDITI ON MADE BY THE AO UNDER THE HEAD RENT RECEIVED FROM LEAVE AND LICENCE FEES AND MAINTENANC E CHARGES. DURING ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD LET OUT A BUILDING, THAT IT HAD CHARGED LICENCE FEES OF RS. 43.27 LAKHS AND MAINTENANCE CHA RGES OF RS. 1.10 CRORE FROM SEVEN OF ITS TENANTS,THAT FOUR OF THE TENANTS WERE CLOSELY HELD GROUP COMPANIES,THAT THE GROUP COMPANIES ENTERED HAD SUBLET ITS PROPERTIES AT MUCH HIGHER RE NTS TO CERTAIN THIRD PARTIES, THAT THE RENTAL INCOME RECEIVED BY THE SISTER CONCERNS WAS RS. 7.18 CRORE. HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY RENT RECEIVED/RECEIVABLE BY THE GROUP COM PANIES SHOULD NOT BE CONSIDERED ITS INCOME FROM HOUSE PROPERTY AND CHARGED TO TAX ACCOR DINGLY FOR THE YEAR UNDER CONSIDERATION. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, T HE AO TOOK NOTICE OF THE INCOME RETURNED BY THE GROUP CONCERNS AND HELD THAT LOW INCOMES WER E DECLARED AGAINST THE BACKDROP OF HIGHER RENTAL INCOMES BY THE GROUP COMPANIES, THAT SUBSTANTIAL EXPENDITURE HAD BEEN DEBITED UNDER VARIOUS HEADS BY THOSE ENTITIES, THAT USING A COLOURABLE DEVICE THE ASSESSEE HAD AVOIDED PAYMENT OF HIGHER TAXES, THAT NONE OF THE FOUR COMP ANIES HAD DECLARED THE LEASE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY,THAT THEY HAD S HOWN THE INCOME UNDER THE HEAD BUSINESS INCOME. HE REFERRED TO THE CASE OF TIP TOP TYPOGRAPHY (368 ITR 330) OF THE 3071/M/16 MAHALAXMI ENGINEERING COMPANY (P.) LTD. 2 HONBLE BOMBAY HIGH COURT AND ASSESSED THE ANNUAL V ALUE OF THE PROPERTY RIGHTS INCLUDING RENT RECEIVED BY ALL THE FOUR TENANTS APART FROM TH E THREE PROTECTED TENANTS. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) AND MADE ELABORATE SUBMIS SIONS IT ALSO RELIED UPON CERTAIN CASE LAWS. AFTER CONSIDERING THE AVAILABLE MATERIAL, THE FAA HELD THAT THE ONLY REASON FOR MAKING THE ADDITION WAS THAT AS PER THE AO THE TENANT- COM PANIES HAD RETURNED CONSIDERABLE SMALLER INCOME IN THEIR HANDS, THAT THE ASSESSEE AND THE FO UR TENANT-COMPANIES WERE COMPLETELY SEPARATE AND DISTINCT LEGAL ENTITIES,THAT THEY ALL WERE FILING RETURNS OF INCOME FOR LAST SEVERAL ASSESSMENT YEARS,THAT CERTAIN SHAREHOLDERS OF THE A SSESSEE COMPANY ALSO OWNED CERTAIN SHARES IN THE FOUR TENANT-COMPANIES, THAT THERE WAS NO PAR ITY WHATSOEVER IN THE SHAREHOLDING PATTERN, THAT THE INCOME FROM HOUSE PROPERTY BOTH IN THE HAN DS OF THE ASSESSEE AS WELL AS THE TENANT COMPANIES HAD BEEN SPLIT INTO RENTAL INCOME AND MAI NTENANCE CHARGES, THAT EXPENDITURE AGAINST RENTAL INCOME COULD ONLY BE ALLOWED AFTER S TANDARD DEDUCTION AS PER THE PROVISIONS OF SECTION 24 OF THE ACT, THAT MAINTENANCE EXPENSES HA D TO BE DEBITED AGAINST THE MAINTENANCE INCOME OF THE ASSESSEE AS WELL AS THE TENANT-COMPAN IES, THAT THE AO HAD CLUBBED THE MAINTENANCE CHARGES AND THE RENTAL INCOME /SUBLEASE INCOME IS RENTAL INCOME IN THE HANDS OF THE ASSESSEE WITHOUT GRANTING ANY MAINTENANCE EXPEN SES, THAT THE AO HAD LOST SIGHT OF THE FACT THAT TENANT-COMPANIES WERE NOT THE OWNER OF THE SUB LEASED PROPERTIES, THAT THEY HAD SHOWN THE RENTAL INCOME UNDER THE HEAD BUSINESS INCOME. H E FURTHER OBSERVED THAT THE ASSESSEE HAD FILED AN EXTENSIVE COMPILATION, INCLUDING CHARTS SH OWING PARTICULARS OF ASSESSMENT PROCEEDINGS IN THE CASE OF THE ASSESSEE AS WELL AS THE TENANT-COMPANIES ALONG WITH THE ACKNOWLEDGEMENTS OF THE RETURNS OF INCOME, THAT COM PUTATIONS OF INCOME, THE BALANCE SHEETS AND THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION FOR THE ASSESSEE AND THE FOUR OF THE ENTITIES. HE HELD THAT THERE HAD BEEN TRANSP ARENCY AND NO SELECTIVE FURNISHING OF INFORMATION BY THE APPELLANT FOR THE FOUR TENANT-CO MPANIES, THAT AO WAS NOT JUSTIFIED IN HOLDING THAT THERE HAD BEEN SELECTIVE RETURN OF INC OME BY THE GROUP COMPANIES.REFERRING TO THE CASE OF TIP TOP TYPOGRAPHY (SUPRA), HE HELD THA T THE RELIANCE PLACED BY THE AO ON THE JUDGMENT WAS MISPLACED, THAT THE RATIO OF THE DECIS ION WAS THAT ANNUAL LETTING VALUE OF THE PROPERTY COULD NOT EXCEED THE STANDARD RENT. FINALL Y HE HELD THAT THERE WAS NO EVIDENCE/MATERIAL BROUGHT ON RECORD BY THE AO WHICH COULD LEAD THE JUSTIFICATION FOR CLUBBING OF ALL SUBLEASED INCOMES IN THE HANDS OF T HE ASSESSEE. ACCORDINGLY, HE DELETED THE ADDITION MADE BY THE AO. 3071/M/16 MAHALAXMI ENGINEERING COMPANY (P.) LTD. 3 4. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE (DR)SUPP ORTED THE ORDER OF THE AO.THE AUTHORISED REPRESENTATIVE(AR)RELIED UPON THE ORDER OF THE FAA AND CONTENDED THAT GROUP COMPANIES WERE PAYING TAXES REGULARLY AND NO QUESTI ON ABOUT THEIR EXISTENCE WAS EVER RAISED . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD RENTED OUT IT ITS PROPERTY TO SEVEN TE NANTS INCLUDING FOUR OF ITS GROUP CONCERNS, THAT THE AO WAS OF THE OPINION THAT BY USING A COLO URABLE DEVICE THE ASSESSEE GROUP HAD RETURNED LESSER INCOME,THAT THE AO CLUBBED THE INCO MES RECEIVED BY THE TENANT-COMPANIES WITH THE INCOME OF THE ASSESSEE AND MADE AN ADDITIO N TO THE INCOME OF THE ASSESSEE, THAT HE RELIED UPON THE CASE OF TIP TOP TYPOGRAPHY (SUPRA) OF THE HONORABLE DIVISION HIGH COURT,THAT THE FAA TOOK NOTICE OF THE RETURNS OF IN COME FILED BY THE GROUP CONCERNS,THAT HE HELD THAT THE CASE RELIED UPON BY THE AO ACTUALLY S UPPORTED THE CONTENTION RAISED BY THE ASSESSEE. IT IS A FACT ASSESSEE WAS SHOWING HOUSE P ROPERTY INCOME RECEIVED FROM SEVEN TENANTS, INCLUDING FOUR TENANT COMPANIES, FOR LAST FOR MANY YEARS AND THE ASSESSMENTS WERE MADE UNDER SECTION 143 (3)OF THE ACT FOR SOME YEARS ,THAT THE AO HAS ACCEPTED THE INCOME RETURNED BY THE ASSESSEE IN THE EARLIER YEARS,THAT THE AO HAD NOT MADE ANY ADDITION ON ACCOUNT OF THE RENTAL INCOME RECEIVED BY THE GROUP COMPANIES.WE ARE AWARE THAT PRINCIPLES OF RES JUDICATA DO NOT APPLY TO THE INCOME TAX PROC EEDINGS. BUT,THE AO.S ARE REQUIRED TO EXPLAIN AS TO WHY THEY WERE COMPELLED TO DEVIATE FR OM THE PATH FOLLOWED BY THEIR PREDECESSOR,IF THEY WANT TO TAKE A NEW COURSE OF AC TION FOR ASSESSING THE SAME INCOME.WITHOUT BRINGING THE DISTINGUISHING FEATURES THAT JUSTIFIES TAXING A PARTICULAR ITEM/HEAD OF THE INCOME OR CHANGING THE HEADS OF IN COME IN THE SUBSEQUENT YEARS,AS COMPARED WITH THE EARLIER YEAR,THE AO.S CANNOT QUES TION THE INCOME SHOWN BY THE ASSESSEES.CONSISTENCY IS ALSO ONE OF THE RECOGNISED RULE OF TAX PROCEEDINGS LIKE THE PRINCIPLE OF RES JUDICATA.SECONDLY,THE AO WHILE ASSESSING THE INCOME OF THE GROUP CONCERNS IN THE HANDS OF THE ASSESSEE HAD NOT GIVEN DISCOUNT FOR MA INTENANCE CHARGES.THE FAA HAS RIGHTLY POINTED OUT THE MAINTENANCE CHARGES HAVE TO CONSIDE RED AS PER THE ESTABLISHED PRINCIPLES OF ACCOUNTANCY.THE AO.S OF THE GROUP ENTITIES HAVE NOT DOUBTED ABOUT THEIR EXISTENCE OR GENUINENESS OF THE INCOME SHOWN BY THEM IN THEIR RE TURNS OF INCOME.CONSIDERING THESE FACTS CUMULATIVELY,WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY. NOW WE WOULD LIKE TO REFER TO THE CASE OF TIP TOP T YPOGRAPHY(SUPRA).IN THAT MATTER THE HONBLE HIGH COURT HAS HELD AS UNDER: 3071/M/16 MAHALAXMI ENGINEERING COMPANY (P.) LTD. 4 INCOME FROM HOUSE PROPERTY HAS TO BE COMPUTED BY COMPUTING THE ANNUAL VALUE OF THE PROPERTY. THE ANNUAL VALUE FIRSTLY TO BE THE SUM FO R WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. IN THE EVENT, THE PROPERTY WHICH CONSISTS OF ANY BUILDINGS OR LANDS APPURTENANT THERETO, IF THE ACTUAL RENT RE CEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAU SE (A), IT IS THAT AMOUNT SO RECEIVED OR RECEIVABLE WHICH SHALL BE DEEMED TO BE THE ANNUAL V ALUE FOR THE PURPOSES OF COMPUTING THE TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. TH E PRINCIPLES APPLICABLE IN DETERMINING THE ANNUAL LETTING VALUE ARE : (I) THE ANNUAL LETTI NG VALUE WOULD BE THE SUM AT WHICH THE PROPERTY MAY BE REASONABLY LET OUT BY A WILLING LES SOR TO A WILLING LESSEE UNINFLUENCED BY ANY EXTRANEOUS CIRCUMSTANCES ; (II) AN INFLATED OR DEFL ATED RENT BASED ON EXTRANEOUS CONSIDERATIONS MAY TAKE IT OUT OF THE BOUNDS OF REA SONABLENESS ; (III) THE ACTUAL RENT RECEIVED, IN NORMAL CIRCUMSTANCES, WOULD BE A RELIABLE EVIDEN CE UNLESS THE RENT IS INFLATED OR DEFLATED BY REASON OF EXTRANEOUS CONSIDERATIONS ; (IV) SUCH ANNUAL LETTING VALUE, HOWEVER, CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LE GISLATION APPLICABLE TO THE PROPERTY ; (V) IF THE STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CO NTROLLER, THEN IT IS THE DUTY OF THE ASSESSING OFFICER TO DETERMINE THE STANDARD RENT AS PER THE P ROVISIONS OF RENT CONTROL ENACTMENT ; (VI) THE STANDARD RENT IS THE UPPER LIMIT, AND IF THE FA IR RENT IS LESS THAN THE STANDARD RENT, THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS THE ANNUAL LE TTING VALUE AND NOT THE STANDARD RENT. IT IS A WELL-RECOGNISED PRINCIPLE IN RATING THAT BOTH GROSS VALUE AND NET ANNUAL VALUE ARE ESTIMATED BY REFERENCE TO THE RENT AT WHICH THE PROPERTY MIGH T REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR. VARIOUS METHODS OF VALUATION ARE APPL IED IN ORDER TO ARRIVE AT SUCH HYPOTHETICAL RENT, FOR INSTANCE, BY REFERENCE TO THE ACTUAL RENT PAID FOR THE PROPERTY OR FOR OTHER COMPARABLE TO IT OR WHERE THERE ARE NO RENTS BY REF ERENCE TO THE ASSESSMENTS OF COMPARABLE PROPERTIES OR TO THE PROFITS CARRIED FROM THE PROPE RTY OR TO THE COST OF CONSTRUCTION. CONSIDERING THE DIFFICULTIES FACED IN EITHER RETRIE VING IMMOVABLE PROPERTIES IN METRO CITIES AND TOWNS, AND THE TIME SPENT IN LITIGATION, IT IS EXPEDIENT TO EXECUTE LEAVE AND LICENCE AGREEMENTS. THESE ARE USUALLY FOR FIXED PERIODS AND RENEWABLE. IN SUCH CASES AS WELL, THE CONCEDED POSITION IS THAT THE ANNUAL LETTING VALUE WILL HAVE TO BE DETERMINED ON THE SAME BASIS AS NOTED ABOVE. IN THE EVENT A SECURITY DEPOS IT COLLECTED AND REFUNDABLE INTEREST-FREE AND THE MONTHLY COMPENSATION SHOWS A TOTAL MISMATCH OR DOES NOT REFLECT THE PREVAILING RATE OR THE ATTEMPT IS TO DEFLATE OR INFLATE THE RENT BY SUCH METHODS, THE ASSESSING OFFICER IS NOT PREVENTED FROM CARRYING OUT NECESSARY INVESTIGATION AND ENQUIRY. HE MUST HAVE COGENT AND SATISFACTORY MATERIAL IN HIS POSSESSION WHICH WILL INDICATE THAT THE PARTIES HAVE CONCEALED THE REAL POSITION. HE MUST NOT MAKE A GUESS WORK OR ACT ON CONJECTURES AND SURMISES. THERE MUST BE DEFINITE AND POSITIVE MATERIAL TO INDICATE THAT THE PARTIES HAVE SUPPRESSED THE PREVAILING RATE. THEN THE ENQUIRIES THAT THE ASSESSING OFFICER CAN MAKE, WOULD BE FOR ASCERTAINING THE GOING RATE. HE CAN MAKE A COMPARATIVE STUDY AND AN ANALYSIS. IN THAT REGARD, TRANSACTIONS OF IDENTICAL OR SIMILAR NATURE CAN BE ASCERTAINED BY O BTAINING THE REQUISITE DETAILS. HOWEVER, THERE ALSO THE ASSESSING OFFICER MUST SAFEGUARD AGA INST ADOPTING THE RATES STATED THEREIN STRAIGHTAWAY. HE MUST FIND OUT WHETHER THE PROPERTY WHICH HAS BEEN LET OUT OR GIVEN ON LEAVE AND LICENCE BASIS IS OF A SIMILAR NATURE, NAMELY, C OMMERCIAL OR RESIDENTIAL. HE SHOULD ALSO SATISFY HIMSELF WHETHER THE RATE OBTAINED BY HIM FR OM THE DEALS AND TRANSACTIONS AND DOCUMENTS IN RELATION THERETO CAN BE APPLIED OR WHE THER A DEPARTURE THEREFROM CAN BE MADE. BEFORE THE ASSESSING OFFICER DETERMINES THE RATE BY THE ABOVE EXERCISE OR SIMILAR PERMISSIBLE PROCESS HE IS BOUND TO DISCLOSE THE MATERIAL IN HIS POSSESSION TO THE PARTIES. HE MUST NOT PROCEED TO RELY UPON THE MATERIAL IN HIS POSSESSION AND DISBELIEVE THE PARTIES. THE SATISFACTION OF THE ASSESSING OFFICER THAT THE BARGAIN REVEALS A N INFLATED OR DEFLATED RATE BASED ON FRAUD, EMERGENCY, RELATIONSHIP AND OTHER CONSIDERATIONS MA KES IT UNREASONABLE MUST PRECEDE THE UNDERTAKING OF THE ABOVE EXERCISE. EVEN A CURSORY GLANCE AT THE JUDGMENT PROVES THAT T HE STAND TAKEN BY THE AO BY REFERRING TO THE JUDGMENT WAS NOT CORRECT AND THE FAA HAD RIGHTL Y ANALYSED THE PRINCIPLES ENUMERATED BY 3071/M/16 MAHALAXMI ENGINEERING COMPANY (P.) LTD. 5 THE HONBLE COURT.SO,CONFIRMING HIS ORDER WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MAY, 2018. 2 , 2018 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 02.05.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.