HERCULES HOISTS LTD, MUMBAI V. ADDL CIT RG 10(3), MUMBAI

ITA 3101/MUM/2011

• Counselvise Citation: 310119914 RSA 2011
• Duration Of Justice: 3 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 10-12-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 20-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: M A GOHEL
• Keywords: Depreciation; Earning of tax free income; Proportionate interest; Onus to prove
• Section: 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH . , !'# !$%&' , %! () BEFORE S/SH.D.MANMOHAN, VICE-PRESIDEN T & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.3101/MUM/2011, ! ! ! ! * * * * / ASSESSMENT YEAR-2006-07 HERCULES HOISTS LTD. BAJAJ BHAWAN, 2ND FLOOR, 226, JAMNALAL BAJAJ MARG, NARIMAN POINT, MUMBAI-400021 PAN: AAACH2706D ! VS. ADDL. CIT, RANGE 10(3), AAYAKAR BHAVAN, M.K.MARG, MUMBAI.-400020 ( !,- / APPELLANT) ( ./,- / RESPONDENT) !01 !01 !01 !01 2 2 2 2 % %% % / ASSESSEE BY : SHRI M.A.GOHEL !$) 3 2 % / REVENUE BY : SHRI VIJAY KUMAR BORA ! ! ! ! 3 33 3 1! 1! 1! 1! / DATE OF HEARING : 10 -12-2014 4* ! 3 1! / DATE OF PRONOUNCEMENT : 09 -01-2015 , 1961 3 33 3 !! !! !! !! 254(1) % %% % &151 &151 &151 &151 (%6 (%6 (%6 (%6 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. %! () !$%&' % ! : CHALLENGING THE ORDER DTD. 14.03.2011 OF THE CIT(A) -22,MUMBAI THE ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: I. DISALLOWANCE UNDER SECTION 14A OF THE ACT: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) [CIT (A)] ERRED IN DIRECTING THE LEAR NED ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND THERE BY DISALLOW PROPORTIONATE INTEREST. THE APPELLANT PRAYS THAT THE LEARNED ASSESSING OFFI CER BE DIRECTED TO DELETE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT OR ALTERNATIVELY, REDUCE THE SAME. II. INCOME FROM HOUSE PROPERTY RS.13,00,681: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 13,00,681 MADE ON AS SESSMENT BY COMPUTING INCOME FROM HOUSE PROPERTY UNDER SECTION 23(1)(A) OF THE ACT. THE APPELLANT PRAYS THAT THE ADDITION MADE BY THE L EARNED ASSESSING OFFICER MAY BE DELETED OR ALTERNATIVELY BE RESTRICTED TO THE MUNICIPAL RATABL E VALUE THEREOF. III. ERECTION AND COMMISSIONING CHARGES RS. 4 8,57,430: 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF ERECTION AND COMMISS IONING CHARGES OF RS. 48,57,430 MADE ON ASSESSMENT BY TREATING THE SAME AS CAPITAL EXPENDIT URE. THE APPELLANT PRAYS THAT THE DISALLOWANCE UPHELD BY THE LEARNED CIT(A) IS NOT JUSTIFIED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND BE ACCORDI NGLY DELETED. THE APPELLANT HEREBY RESERVES THE RIGHT TO ADD TO, ALTER OR AMPLIFY THE ABOVE GROUNDS OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF MATERIAL EQUIPMENTS AND GENERA- TION OF POWER,FILED ITS ORIGINAL RETURN OF INCOME O N 30.11.2006 DECLARING INCOME AT RS.5,64,06, 102/-.LATER ON IT FILED A REVISED ON 20.06.2008 DEC LARING TOTAL INCOME OF RS.6,15,15,996/-.THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT, ON 12.12.2008 DETERMINING TAXABLE INCOME AT RS.6,85,39,250/-. 2. FIRST GROUND OF APPEAL DEALS WITH DISALLOWANCE MADE U/S.14A R.W.RULE 8D OF THE INCOME TAX RULES,1962(RULES).DURING.THE COURSE OF ASSESSMENT P ROCEEDINGS,THE AO OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.20,92,350 /- AND CLAIMED IT AS EXEMPT.HE NOTED THAT 2 ITA NO. 3101/M/2011 HERCULES HOISTS LTD. ASSESSEE HAD NOT SHOWN ANY EXPENSES IN RESPECT OF T HE DIVIDEND INCOME SO EARNED FOR CONSIDERATION U/S. 14A OF THE ACT.HE WORKED OUT THE DISALLOWANCE U/S.14A READ WITH RULE 8D AT RS.5,58,228/- AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSSEE FILE D AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IT WAS ARGUED BEFORE HIM THAT AS PER PROVISIONS OF SECTION 14A OF THE ACT FOR PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THAT CH APTER NO DEDUCTION WOULD BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT,THAT THE PROVISIONS OF SECTION 14A ENVISAGED TWO STEPS THAT UNLESS IT WAS ESTABLISHED THAT EXPENSES WERE INCURRED IN R ELATION TO EARNING OF DIVIDEND NO DISALLOWANCE COULD BE MADE IN RESPECT OF SUCH EXPENSES,THAT INVE STMENT WAS OUT OF ASSESSEES OWN FUND AND NO BORROWED MONEY WAS UTILISED FOR MAKING INVESTMENT I N SHARES. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR)STATED THAT PROVISIONS OF RULE 8D WERE NOT APPLICAB -LE FOR THE YEAR UNDER CONSIDERATION, THAT IN THE E ARLIER YEAR THE TRIBUNAL HAD SET-ASIDE IDENTICAL ISSUE TO THE FILE OF THE AO. 2.3. WE HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT VIDE ITS ORDER DATED 7946/ MUM/2011) TRIBUNAL HAD REMITTED BACK THE MATTER TO THE FILE OF THE AO AS UNDER: 10. THE THIRD ISSUE IN THESE APPEALS (I.E., AY 200 7-08 & 2008-09) IS TOWARD DISALLOWANCE U/S.14A, WHICH HAS BEEN WORKED OUT WITH REFERENCE T O RULE 8D BY THE ASSESSING OFFICER.SECTION 14A BEING APPLICABLE FOR EACH OF THE RELEVANT YEARS , A DISALLOWANCE OF THE EXPENDITURE THAT COULD REASONABLY BE ATTRIBUTED TO THE EXEMPT INCOME, COUL D BE VALIDLY MADE. THE A.O.WORKED OUT THE DISALLOWANCE U/R. 8D, WHICH HAS BEEN HELD BY THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DY.CIT [2010] 328 ITR 81 (BOM), AS NOT RETROSPECTIVE IN ITS OPERATION (SO THAT IT WOULD APPLY FROM A.Y. 2008-09 ONWARDS), THOUGH HAS UPHELD THE RETROSPECTIVE APPLICATION OF SECTION 14A (W.E.F. 01.04.1962),AS W ELL AS OF A REASONABLE DISALLOWANCE WITH REFERENCE THERETO. THE MATTER, THUS, AGAIN FALLS IN THE REALM OF A FACTUAL DETERMINATION. THE LD. CIT(A) HAS IN THIS REGARD DIRECTED THE A.O. TO WORK OUT THE DISALLOWANCE QUA THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IN THE PROPORT ION OF THE RATIO OF THE TAX-EXEMPT INVESTMENTS TO THE TOTAL ASSETS, I.E., THE SAME PRESCRIPTION WHICH RULE 8D(2)(II) PROVIDES. THE ASSESSEE DISPUTES THE SAME, SEEKING TO SUBSTITUTE IT WITH A PERCENTAGE (A T 0.5%) OF THE AVERAGE INVESTMENT. WE OBSERVE THE A.O. TO HAVE APPLIED THE SAID PERCENTAGE AS WEL L, I.E., APART FROM THE PROPORTIONATE INTEREST EXPENDITURE, AS DIRECTED BY THE LD. CIT(A). THE SAI D PERCENTAGE IS ONLY TOWARD GENERAL ADMINISTRATIVE OR INDIRECT EXPENSES. THE DISPUTE, T HUS, ESSENTIALLY IS IN RESPECT OF THE DISALLOWANCE U/S.14A QUA THE INTEREST EXPENDITURE. RULE 8D, THOU GH NOT MANDATORY UP TO AY 2007-08, YET PROVIDES A REASONABLE BASIS FOR IMPUTING THE INTERE ST EXPENDITURE ATTRIBUTABLE TO THE EXEMPT INCOME ON THE BASIS OF THE PROPORTIONATE INVESTMENT , RECKONED ON AN AVERAGE BASIS FOR THE RELEVANT YEARS. SO, HOWEVER, IN OUR OPINION, BOTH FOR THE YEARS UP TO A.Y. 2006-07, I.E., PRIOR TO THE INSERTION OF SUB-SECTIONS (2) AND (3) TO SECTION 14A, AS WELL AS THEREAFTER, I.E., FOR A.Y. 2007-08, IT IS OPEN FOR THE ASSESSEE TO CLAIM THAT THE AVERAGE FORMULA IS N OT APPLICABLE, AND SUBJECT TO ITS PROVING THAT IT HAD SUFFICIENT FUNDS TO FINANCE THE TAX-EXEMPT INVE STMENT/S, SPECIFYING THE AVENUES WHERE IT FUNDS WERE UTILIZED FOR THE RELEVANT PERIOD, NO DISALLOWA NCE QUA THE INTEREST EXPENDITURE WOULD ARISE ON THE BASIS OF THE GENERAL POOL OF FUNDS HYPOTHESIS. THIS IS SO AS FUNDS ARE FUNGIBLE. ALSO, A SUBSEQUENT REPAYMENT OF BORROWINGS BY OWN CAPITAL, FOR INSTANCE, WOULD LEAD TO A SUBSTITUTION OF THE SOURCE OF FINANCE, WITH INVESTMENTS EVEN GENERA LLY BEING MADE FOR PARKING OR INVESTING SURPLUSES. THE MATTER IS FACTUAL, AND NO PRESUMPTIO N IN THIS REGARD COULD OBTAIN, AND WHICH WOULD ONLY BE ON NO EVIDENCE BEING LED BY THE ASSESSEE, V ALIDATING THE APPLICATION OF THE GENERAL POOL OF FUNDS BASIS. FOR A.Y. 2008-09, R. 8D BECOMES APPLIC ABLE. THE SAME IS MANDATORY. HOWEVER, IN OUR VIEW, THIS WOULD ONLY IMPACT THE BURDEN OF PROOF ON THE ASSESSEE, WHICH THUS BECOMES MORE STRINGENT, SO THAT RATHER THAN SHOWING EXISTENCE OF SUFFICIENT CAPITAL, THE MATTER WOULD BE REQUIRED TO BE EXAMINED FROM THE STAND-POINT OF UTILIZATION OF THE BORROWED INTEREST BEARING FUNDS. THAT IS, THE ASSESSEE WOULD HAVE TO EXHIBIT THAT NO INTEREST COST HAS, AS A MATTER OF FACT, BEEN INCURRED IN RESPECT OF THE SAID INVESTMENT, IF THE PRESCRIPTION OF THE RULE IS NOT TO APPLY. THE MATTER THUS HINGE S ON THE ABILITY OF THE ASSESSEE TO ESTABLISH ITS CLA IM/S IN THIS REGARD WITH REFERENCE TO ITS ACCOUNTS. 3 ITA NO. 3101/M/2011 HERCULES HOISTS LTD. WE SAY SO AS THE AO HAS, PRIOR TO THE APPLICATION O F S. 14A(1), MEET THE BAR OR STIPULATION OF S. 14A(2), EVEN AS EXPLAINED BY THE HONBLE COURT IN G ODREJ & BOYCE MFG. CO. LTD. (SUPRA). BUSINESSES NORMALLY HAVE DEDICATED FUNDS, AS FOR FI NANCING PROJECTS OR ASSET ACQUISITION OR FOR FINANCING WORKING CAPITAL, SO THAT WHERE SHOWN TO B E SO USED FOR THE RELEVANT YEAR, THE SAME WOULD (ALONGSIDE THE CORRESPONDING ASSETS) MERIT EXCLUSIO N IN APPLYING THE PROPORTIONATE METHOD. NEEDLESS TO ADD, GENERAL BORROWINGS, AS FOR BUSINE SS PURPOSES, WOULD ONLY STAND TO BE CONSIDERED AS FORMING PART OF THE GENERAL POOL OF F UNDS. UNDER THE CIRCUMSTANCES, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER FOR ALL THE YEARS IS RESTORED BACK TO THE FILE OF THE A.O. TO ALLOW THE ASSESSEE AN OPPORTUNITY TO SHOW AS WHY TH E INTEREST DISALLOWANCE U/S.14A(1) SHOULD NOT BE WORKED OUT FOLLOWING THE PROPORTIONATE METHOD, A S DIRECTED BY THE LD. CIT(A). WE DECIDE ACCORDINGLY. RESPECTFULLY,FOLLOWING THE SAME, THE MATTER IS SET- ASIDE TO THE FILE OF THE AO.HE IS DIRECTED TO PASS A FRESH ORDER AFTER AFFORDING A REASONABLE OPPORTUN ITY OF HEARING TO THE ASSESSEE. GROUND NO.1 IS DECIDED IN FAVOUR OF THE ASSESSEE, IN PART. 3. NEXT GROUND OF APPEAL DEALS WITH INCOME FROM HOUSE PROPERTY.DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD GOT PREMISES MEASURING 966 SQ.FT. AT NARIMAN POINT,MUMBAI WHICH WAS GIVEN ON LEASE TO M/S. IDBI ON MONTHLY COMPENSATION OF RS.1,80,710/- ,THAT IN THE PRECEDING YEAR THE INCOME FROM HOUSE P ROPERTY IN RESPECT OF SAID PROPERTY WAS TAXED U/S.22 AND 23 OF THE ACT CONSIDERING NOTIONAL INCOM E DERIVED FROM THE PROPERTY FOR THE WHOLE YEAR.ACCORDINGLY,THE AO APPLIED PROVISIONS OF SECT ION 23(1) AND WORKED OUT RENT RECEIVABLE AT RS 18,58,116/- AND AFTER ALLOWING DEDUCTION @ 30% THEREON ARRIVED AT TAXABLE INCOME OF RS 13,00,681/- UNDER THE HEAD FROM HOUSE PROPERTY. 3.1. THE ASSESSSEE PREFERRED AN APPEAL BEFORE THE FAA.AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSSEE AND ASSESSMENT ORDER,HE CALLED FOR A REMA ND REPORT FROM THE AO.HE HELD THAT THE CASE OF THE ASSESSEE WAS NOT COVERED U/S.23(1)(C)OF THE ACT ,THAT THE ASSESSEES PROPERTY WAS EARLIER LET OUT AND HENCE IT HAS TO BE TAXED ULS.23(1)(A),THAT THE MUNICIPAL VALUE COULD NOT BE ADOPTED,THAT CASE WAS NOT COVERED BY SECTION 23(1)(B) OF THE ACT,THAT IDENTICAL ISSUE HAD COME UP FOR AY.2005-2006 BEFORE HIS PREDECESSOR WHEREIN VIDE ORDER NO.CIT(A) CIT/286/2007-09 DATED 01.05.2009 THE ISSUE WAS DECIDED AGAINST THE ASSESSEE,THAT THE ASSESSEE COULD NOT BRING ANY EVIDENCE TO PROVE THAT ITS INTENTION DURING THE YEAR WAS TO LET OUT THE PROPER TY WHICH WAS FURTHER CORROBORATED BY THE FACT THAT TILL DATE SAME HAD NOT ACTUALLY BEEN LET OUT.I N VIEW OF THOSE FACTS,HE UPHELD THE ADDITION MADE BY THE AO. 3.3. BEFORE US,REPRESENTATIVES OF BOTH THE SIDES STATED THAT THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSSEE BY THE TRIBUNAL,WHILE PASSING ORDER FOR T HE AY.2007-08 AND 2008-09.WE FIND THAT THE TRIBUNAL HAD DELIBERATED UPON THE ISSUE WHILE PASSI NG ORDER FOR THE YEARS MENTIONED ABOVE AND HAD CONCLUDED AS UNDER: 7.THE NEXT ISSUE IN THIS APPEAL RELATES TO THE ASS ESSMENT OF INCOME BY THE A.O. UNDER THE HEAD INCOME FROM HOUSE PROPERTY FOR AYS 2007-08 & 2008 -09 AT RS.13,00,681. THE FACTS IN BRIEF ARE THAT THE ASSESSEE DID NOT RETURN ANY INCOME UNDER T HE SAID HEAD INRESPECT OF ITS PROPERTY SITUATE AT BAJAJ BHAVAN, NARIMAN POINT, MUMBAI, THE LEASE OF T HE RENT ARRANGEMENT IN RESPECT OF WHICH WITH IDBI PRINCIPAL ASSET MANAGEMENT (WHICH WAS AT A MON THLY RENT OF RS.1,54,843) HAD EXPIRED WAY BACK IN APRIL, 2004; THE SAME LYING VACANT. ON BEIN G SHOW CAUSED IN THE MATTER, IT WAS POINTED OUT BY THE ASSESSEE VIDE ITS LETTER DATED 18.11.2009 TH AT ITS SAID PREMISES, WHICH HAD BEEN CONTINUOUSLY LET OUT SINCE THE YEAR 1997 (UP TO 23. 04.2004), HAD REMAINED VACANT THROUGHOUT THE YEAR AS IT COULD NOT GET A REASONABLE TENANT. THERE WAS AS SUCH NO QUESTION OF BRINGING A NOTIONAL AMOUNT TO TAX AS ANNUAL LETTING VALUE (OF THE SAID PROPERTY). IT WAS WITHOUT PREJUDICE FURTHER SUBMITTED THAT THE ANNUAL LETTING VALUE (ALV) COULD ONLY BE COMPUTED IN TERMS OF SECTION 23(1)(A) OF THE ACT, SO THAT THE STANDARD RENT AS PER THE RE NT CONTROL HAD TO BE APPLIED IN DETERMINING THE RENT AT WHICH PROPERTY MAY REASONABLY BE EXPECTED T O BE LET OUT FROM YEAR TO YEAR, AND WHICH IS TO BE CONSIDERED AS ITS ALV. IN OTHER WORDS, A HIGHER VALUE, WHICH WAS BECAUSE THE PROPERTY WAS LET AT A HIGHER RATE IN THE PAST WOULD NOT NECESSARILY IMPLY THE SAME RATE FOR THE CURRENT YEAR AND, 4 ITA NO. 3101/M/2011 HERCULES HOISTS LTD. THUS, COULD NOT BE ASSUMED TO BE, A REASONABLE RATE AT MAY BE A PROPERTY MAY BE LET FROM YEAR TO YEAR. ANNUAL RATABLE VALUE, DULY CERTIFIED FROM THE CONCERNED SOCIETY, VIDE CERTIFICATE DATED 11.11.2009, AT RS.18,518, WAS SUBMITTED FOR THE PUR POSE, REQUESTING ITS INCOME TO BE, IF IT ALL, RESTRICTED TO THE SAME. HOWEVER, STATING THAT THE S AID PROPOSITION HAD SUPPORT OF SEVERAL DECISIONS BY THE HONBLE APEX COURT AND THE HIGH COURTS. THE SAME DID NOT FIND FAVOUR WITH THE AO IN VIEW OF THE PROVISION OF SECTION 23(1)(A), WHO DETERMINED T HE INCOME ASSUMING THE ALV AT RS.18,58,116 (ALLOWING A DEDUCTION @ 30% THEREON). IN APPEAL, TH E ASSESSEE REITERATED ITS SUBMISSIONS, REINFORCING THE SAME WITH SEVERAL DECISIONS BY THE TRIBUNAL IN RELATION TO THE ADOPTION OF THE STANDARD RENT WHERE RENT CONTROL ACT APPLIES, AND I N ITS ABSENCE, THE MUNICIPAL RATABLE VALUE, WHICH FIND MENTION AT PARA 4.2 OF THE IMPUGNED ORDE R; ALSO ENCLOSING A CERTIFICATE STATING THE RATABLE VALUE TO BE AT RS.22,142. THE SAME WAS, HOW EVER, REJECTED BY THE LD. CIT(A) FOLLOWING THE DECISION DATED 01.05.2009 OF HIS PREDECESSOR IN THE ASSESSEES CASE FOR A.Y. 2005-06, I.E., IN THE ORIGINAL PROCEEDINGS. AGGRIEVED, THE ASSESSEE I S AN APPEAL BEFORE US. 9. WE HAVE HEARD PARTIES, AND PERUSED THE MATERIAL ON RECORD AS WELL AS THE CASE LAW CITED. 9.1 WE FIND THE STAND OF BOTH THE PARTIES TO BE ONL Y PARTLY CORRECT. FIRSTLY, QUA THE ASSESSEES CLAIM OF THE PROPERTY BEING USED FOR THE PURPOSES OF ITS BUSINESS; THE SAME ONLY NEEDS TO BE STATED TO BE REJECTED. THE SAME IS NOT ONLY NOT BORNE OUT BY THE RECORD, AND STANDS ADVANCED BEFORE US FOR THE FIRST TIME DE HORS ANY MATERIAL, INTRODUCING A NEW DIMENSION TO THE CASE, BUT IS ALSO CONTRARY TO ASSESSEES CONSISTENT STAND THROUGHOUT THAT THE PRO PERTY WAS VACANT SINCE APRIL, 2004 AS IT COULD NOT FIND A SUITABLE TENANT. COULD A PROPERTY WHICH REMAINS VACANT FOR WANT OF A SUITABLE TENANT, COULD BE AT THE SAME TIME BE USED FOR OWN PURPOSES? IF SO, WHERE IS THE QUESTION OF VACANCY ALLOWANCE? AND ALL THAT THE ASSESSEE WAS REQUIRED T O DO IN THAT CASE, WAS TO ESTABLISH THE USER OF THE SAID HOUSE PROPERTY FOR THE PURPOSE OF ITS BUSI NESS, WHILE, AS AFORE-NOTED, THERE WAS NOT EVEN ANY CLAIM IN THIS RESPECT. IN FACT, THE LD. AR, IN ORDER TO RESPOND TO THE BENCHS QUERY REGARDING EVIDENCE AS TO USER, AS FOR EXAMPLE A CLAIM FOR DEP RECIATION, WHICH WOULD ORDINARILY ONLY FOLLOW USER OF THE ASSET FOR THE PURPOSE OF BUSINESS, HAD TO OBTAIN CLARIFICATION FROM HIS CLIENT, ONLY TO GI VE AN INDEFINITE REPLY. THE SAID CLAIM IS REJECTED. 9.2 WITH REGARD TO THE ISSUE OF CLAIM FOR ALLOWANCE FOR VACANCY, WE BEGIN BY REPRODUCING THE RELEVANT PART OF THE PROVISION, WHICH READS AS UNDE R: X X X X X X 9.3 THE QUESTION UNDER REFERENCE STANDS DEALT WITH COMPREHENSIVELY BY THE HONBLE HIGH COURT IN THE CASE OF VIVEK JAIN (SUPRA). ON THE PLEA OF THE PROPERTY UNDER REFERENCE BEING A LET OUT PROPERTY, THE HONBLE COURT MAKES IT ABUNDANTLY CLE AR THAT A PROPERTY INTENDED TO BE LET CANNOT BE CONSIDERED AS ACTUALLY LET, SO AS TO QUALIFY FOR IT S ALV OR ANNUAL VALUE (AV) BEING DETERMINED WITH REFERENCE TO S. 23(1)(B) AND, CONSEQUENTLY, U/S. 23 (1)(C). THE PLEA THAT THAT THE PROPERTY IS LET AN D THAT IT IS VACANT FOR WHOLE YEAR WERE FOUND BY IT AS INCONSISTENT IN-AS-MUCH AS IT IS ONLY THE PROPERTY THAT IS LET THAT COULD BE VACANT, FOR THE PROVISION OF S. 23(1)(C) TO APPLY IN RELATION THERE TO. IN OTHER WORDS, THE VACANCY ALLOWANCE U/S. 23(1)(C) , WHICH IS INBUILT IN THE WORKING OF THE AV, IS ONLY IN RESPECT OF A PROPERTY THE VALUE OF WHICH WO ULD OTHERWISE STAND TO BE BROUGHT TO TAX U/S. 23(1)(B), I.E., ON THE BASIS OF ACTUAL LETTING AND, FURTHER, AT A RENT HIGHER THAN THE FAIR MARKET REN T, AND NOT U/S.23(1)(A), I.E., ON THE BASIS OF NOTIONA L LETTING. IT NEEDS TO BE EMPHASIZED THAT THE PROVISION OF S. 23(1)(A), I.E., OF THE AV BEING DET ERMINED ON THE BASIS OF NOTIONAL LETTING, IS APPLICABLE EVEN WHERE THE PROPERTY IS ACTUALLY LET, THOUGH WOULD HOLD ONLY WHERE IT IS AT A RENT LOWER THAN THE FAIR RENT. THE SAME VIEW STANDS UNEQ UIVOCALLY EXPRESSED BY THE TRIBUNAL IN THE CASE OF RAMESH CHAND VS. ITO [2009] 29 SOT 570 (AGRA), S TATING THAT THE CONCEPT OF VACANCY FOLLOWS A CONDITION OR STATE OF ACTUAL LETTING, AND NOT NO TIONAL LETTING, AS CONTEMPLATED U/S. 23(1)(A), WHERE-UNDER THE ASSESSEES INCOME FROM HOUSE PROPER TY IS BEING SOUGHT TO BE ASSESSED IN THE INSTANT CASE.FURTHER, THAT THE AV OF A LET PROPERTY , DEPENDING ON THE FACTS OF THE CASE, COULD BE COMPUTED UNDER EITHER OF THE CLAUSES OF SECTION 23( 1), AND IT IS NOT NECESSARY THAT THE SAME WOULD BE COMPUTABLE ONLY WITH REFERENCE TO S. 23(1)(B) OR S. 23(1)( C), AS THE CASE MAY BE. REFERENCE IN THIS CONTEXT IS MADE TO PARAS 4.4 TO 4.6 OF THE SAI D ORDER. IT NEEDS TO BE APPRECIATED THAT THE PROVISION OF S. 23(1)(C) SAVES THE ASSESSEE A JEOPA RDY, I.E., OF ITS INCOME FROM HOUSE PROPERTY BEING DETERMINED AT A HIGHER ACTUAL RENT (THAN THE FAIR M ARKET RENT), EVEN AS THE SAID (HIGHER) RENT WOULD NOT STAND TO MATERIALIZE IN VIEW OF VACANCY. ON THE OTHER HAND, IF THE CONCEPT OF VACANCY WAS TO BE 5 ITA NO. 3101/M/2011 HERCULES HOISTS LTD. INCORPORATED IN THE CONCEPT OF NOTIONAL LETTING, TH E LATTER WOULD STAND DEFEATED AND INCAPABLE OF BEING APPLIED. 9.4 FINALLY, IT BEING THE ADMITTED POSITION THAT TH E PROPERTY WAS NOT LET FOR THE RELEVANT YEAR, THERE IS NO QUESTION OF APPLICATION OF SECTION 23(1)(B) A ND, CONSEQUENTLY, SECTION 23(1)(C), AND THE AV WOULD HAVE TO NECESSARILY BE DETERMINED ONLY WITH R EFERENCE TO SECTION 23(1)(A). THIS REPRESENTS THE CLEAR VIEW ON THE BASIS OF THE DECISIONS IN THE CASE OF VIVEK JAIN (SUPRA), WHICH BEING BY A HIGHER COURT WOULD HOLD. IN FACT, THIS ALSO REPRESE NTS THE PREDOMINANT VIEW OF THE TRIBUNAL, AS IN THE CASE OF RAMESH CHAND (SUPRA); INDRA S. JAIN VS. ITO (SUPRA); AND VIVEK JAIN (BY THE TRIBUNAL). AS SUCH, WHAT IS RELEVANT IS THE RENT FOR WHICH THE PROPERTY MAY REASONABLY BE LET FROM YEAR TO YEAR. TOWARD THIS, THE ASSESSEE CLAIMS AN ALV BASED ON THE MUNICIPAL RATEABLE VALUE ON THE BASIS THAT THE PROPERTY UNDER REFERENCE IS SUBJECT TO REN T CONTROL LEGISLATION. THERE IS NO EVIDENCE IN THIS REGARD. RATHER, IT IS INDEED SURPRISING AND UNEXPLA INED AS TO HOW A PROPERTY SUBJECT TO RENT CONTROL REGULATION WAS LET, AND FOR YEARS TOGETHER, AT RENT EXPONENTIALLY HIGHER THAN THE STANDARD RENT OR THE RATEABLE VALUE, EVEN AS RENTALS WOULD ORDINARIL Y WITNESS AN INCREASE WITH THE PASSAGE OF TIME. THE SAME ALSO CLEARLY EXHIBITS THE INAPPROPRIATENES S OF THE CLAIM PRESSED WITH REFERENCE TO MUNICIPAL VALUATION. IN FACT, EVEN THE TWO, I.E., T HE STANDARD RENT AND THE MUNICIPAL VALUATION, CANNOT BE CONSIDERED AT PAR. THIS IS AS WHILE THE R ENT CONTROL PLACES A RESTRICTION - BY WAY OF STANDARD RENT, ON THE RENT THAT A PROPERTY CAN FETC H ON BEING LET, AND IS THUS BINDING, THE MUNICIPAL VALUE IS ONLY A SURROGATE MEASURE OF THE RENT THAT THE PROPERTY CAN FETCH ON BEING LET FROM YEAR TO YEAR IN THE OPEN MARKET, I.E., ON AN ARMS LENGTH B ASIS, UNINFLUENCED BY ANY EXTRANEOUS CONSIDERATION, THE ALV BY DEFINITION.THE RATEABLE V ALUE COULD BE RELEVANT, PARTICULARLY WHERE THE RELEVANT PROVISION BEARS THE SAME ATTRIBUTES, AND I S WORKED OUT PROPERLY, BUT CANNOT BE REGARDED AS BINDING. IT IS DETERMINED FOR A SPECIFIC PURPOSE , I.E., FOR PROPERTY TAX (WHICH IS RATHER DEDUCTIBL E ON PAYMENT IN ARRIVING AT THE ALV), AND, FURTHER, C IRCUMSCRIBED BY THE RULES FRAMED IN THIS RESPECT. THE ACT, HOWEVER, PLACES NO BAR (EXCEPT OF COURSE A S TO REASONABILITY IN SUCH ESTIMATION), SO THAT EXCEPT WHERE THE PROPERTY CANNOT BE ACTUALLY LET BE YOND A PARTICULAR RATE UNDER LAW, THE A.O.IS ENTITLED; RATHER, OBLIGED UNDER LAW TO TAKE INTO AC COUNT ALL THE RELEVANT FACTORS IN ARRIVING AT SUCH VALUE, I.E., THE RENT AT WHICH THE HOUSE PROPERTY C AN REASONABLY BE EXCEPTED TO BE LET ON A YEAR TO YEAR BASIS. THIS REPRESENTS TRITE LAW, FOR WHICH TH E TRIBUNAL HAS IN THE CASE OF INDRA S. JAIN (SUPRA) REFERRED TO, AMONG OTHERS, THE DECISIONS IN THE CAS E OF MOTICHAND HIRACHAND & ORS. V. BOMBAY MUNICIPAL CORPORATION AIR 1968 SC 441,442 AND CIT V . J.K. INVESTORS (BOMBAY) LTD. (2001) 248 ITR 273 (BOM.). IN THE FACTS OF THAT CASE, THERE BE ING NOTHING ON RECORD TO SUGGEST THE APPROPRIATENESS OF THE ANNUAL VALUE AS ADOPTED BY T HE REVENUE, THE MATTER WAS SET ASIDE TO THE FILE OF THE A.O. TO DETERMINE THE FAIR RENTAL VALUE WITH REGARD TO THE COMPARABLE CASES, I.E., THE RENTALS OBTAINING IN THE LOCALITY FOR SIMILARLY PLACED PROP ERTIES FOR THE RELEVANT PERIOD. THE MATTER IS FACTUAL, RATHER THAN LEGAL. THERE IS NO MERIT IN TH E ASSESSEES ARGUMENT THAT THE PROPERTY BEING NOT ACTUALLY LET, THE NOTIONAL RENT COULD NOT BE BROUGH T TO TAX; IT BEING TRITE THAT IT IS NOT THE INCOME ACTUALLY REALIZED, BUT THAT WHICH COULD, FAIRLY SPE AKING, BE, OR THE INCOME POTENTIAL OF THE PROPERTY THAT IS BROUGHT TO TAX U/S.23 OF THE ACT AS ITS ANN UAL VALUE (AV). THE PROVISION OF SECTION 23(1)(B) COME INTO PLAY ONLY WHERE THE PROPERTY (OR PART THE REOF) IS ACTUALLY LET OUT, AND WHICH EXCEEDS THE FAIR RENTAL VALUE U/S.23(1)(A). IN FACT, THE ASSESS EE DOES NOT DISPUTE THIS POSITION, ADVANCING ITS CASE WITH REFERENCE TO ITS CLAIM FOR VACANCY ALLOWA NCE U/S. 23(1)(C), DISCUSSED HEREINABOVE. RESPECTFULLY,FOLLOWING THE ABOVE ORDER FOR THE AY.2 007-08 AND 2008-09,WE DECIDE GROUND NO.2 AGAINST THE ASSESSSEE. 4 .LAST GROUND OF APPEAL IS WITH REGARD TO CLAIM MADE UNDER THE HEAD ERECTION AND COMMISSIONING CHARGES.DURING THE COURSE OF ASSESSMENT PROCEEDINGS .THE AO OBSERVED THAT ASSESSEE HAD CLAIMED A SUM OF RS.48,57,430/-AS ERECTION AND COMMISSIONIN G CHARGES AS PER SCHEDULE 18 OF THE P & L.A/C.,THAT IT HAD CLAIMED THE SAID EXPENSES AS REV ENUE EXPENDITURE.HE ASKED THE ASSESSSEE TO JUSTIFY ITS CLAIM,AS PER ORDER SHEET ENTRY DATED 10 .12. 2008.AS PER THE AO THE ASSESSEE DID NOT FURNISH ANY EXPLANATION.CONSIDERING THE ABOVE FACTS ,THE AO ALLOWED DEPRECIATION @ 15% FOR THE AMOUNT IN QUESTION AND ADDED BALANCE OF RS.41,28,81 5/- TO THE TOTAL INCOME RETURNED BY THE ASSESSEE. IN THE APPELLATE PROCEEDINGS,THE FAA HELD THAT THE ASSESSSEE HAD NOT FURNISHED THE NECESSARY DOCUMENTARY EVIDENCES BEFORE THE AO,THAT THE AO WAS JUSTIFIED IN CONFIRMING THE ADDITION. 6 ITA NO. 3101/M/2011 HERCULES HOISTS LTD. 4.1. BEFORE US, AR STATED THAT EXPENDITURE INCURRED BY T HE ASSESSEE WAS NOT CAPITAL IN NATURE, THAT THE AO HAD NOT COMMENTED UPON THE NATURE OF THE EXP ENDITURE, THAT THE ASSESSEE HAD FURNISHED ALL THE NECESSARY DETAILS BEFORE THE AO AND THE FAA.HE REFERRED TO PAGE NOS. 26 TO 40 OF THE PAPER BOOK.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE FAA HAD CONFIRMED THE ORDER OF THE AO BECAUSE HE WAS OF THE OPINION THAT ASSESSEE HAD NOT FURNISHED THE NECESSARY DETAILS.WE FIND THAT THE ASSESSEE HAD SUBMITTED DETAILS OF ERECTION AND COMMISSION - ING CHARGES(PAGE NO. 26 TO 42 OF THE PAPER BOOK).WH ILE ADJUDICATING THE APPEAL, THE FAA HAD NOT CONSIDERED THE DOCUMENTS SUBMITTED BY THE ASSESSEE .THEREFORE, IN THE INTEREST OF JUSTICE, WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION. HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE A ND DECIDE THE ISSUE ACCORDINGLY. GROUND NO.3 IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. AS A RESULT,APPEAL FI LED BY THE ASSESSEE STANDS PARTLY ALLOWED. 718 !01 9!! (!: 3 5 618 $; 3 $ !1 < . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH ,JANUARY,2015. (%6 3 4* ! % &!! = >(! 09.01. 201 5 3 5 ? SD/- SD/- ( . / D. MANMOHAN) ( !$%&' / RAJENDRA) !'# / VICE PRESIDENT %! %! %! %! () () () () / ACCOUNTANT MEMBER / MUMBAI, >(! /DATE: 09.01.2015 SK (%6 (%6 (%6 (%6 3 33 3 .1@ .1@ .1@ .1@ A%@*1 A%@*1 A%@*1 A%@*1 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / !,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ B C , 4. THE CONCERNED CIT / B C 5. DR H BENCH, ITAT, MUMBAI / @D!5 .1 ,P ,P,P ,P , . . &!! . 6. GUARD FILE/ 5! 7! /!@1 .1 //TRUE COPY// (%6!! / BY ORDER, / ! $! DY./ASST. REGISTRAR , /ITAT, MUMBAI