ITO 3(1)(2), MUMBAI V. BOMBAY SEALINK BUILDERS P.LTD, MUMBAI

ITA 3118/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0866 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Bench Allotted: G
• Next Hearing Date: 23-02-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 25-05-2015
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Keywords: Notional interest
• Section: 11

Judgement Text

' IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA , ACCOUNTANT MEMBER ITA NO. 3 1 17 /MUM/201 5 : (A.Y : 200 6 - 0 7 ) ITA NO. 3 118 /MUM/201 5 : (A.Y : 200 2 - 03 ) ITO 3(1)(2) R.NO.6 66/6668 - A 6 TH FLOOR , AAYAKAR BHAVAN M.K.ROAD MUMBAI 400 020 VS. M/S BOMBAY SEALINK BUILDERS P VT . LTD 121, MAKER CHAMBERS VI 2 ND FLOOR , NARIMAN POINT MUMBAI 400 021 PAN : AA A C B2701Q ITA NO. 3596 /MUM/201 5 : (A.Y : 200 2 - 03 ) M/S BOMBAY SEALINK BUILDERS P VT . LTD 121, MAKER CHAMBERS VI 2 ND FLOOR , NARIMAN POINT MUMBAI 400 021 PAN : AA A C B2701Q VS. ITO 3(1)(2) R.NO.6 66/6668 - A 6 TH FLOOR , AAYAKAR BHAVAN M.K.ROAD MUMBAI 400 020 ( / APPELLANT) ( / RESPONDENT) / A SSESSEE BY : SHRI VIMAL PUNMIYA / RE VENUE BY : SHRI RAJAT MITTAL / DATE OF HEARING : 2 3 /0 2 /2017 / DATE OF PRONOUNCEMENT : 26/ 04 / 2017 2 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. / O R D E R PER C.N.PRASAD (J.M.) : TH E SE APPEALS ARE FILED BY REVENUE FOR THE ASSESSMENT YEARS 2006 - 07 AND 2002 - 03 AGAINST THE ORDER OF THE LD. CIT (APPEALS) - 8, MUMBAI DATED 27.02.2015 . THE S E ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2002 - 03 AND REVENUES APPEAL FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE ONLY COMMON GROUNDS OF APPEAL EXCEPT FOR THE FIGURES IN ITA NOS.3117/MUM/2015 AND 3118/MUM/2015 FOR THE ASSESSMENT YEARS 2006 - 07 AND 2002 - 03 RESPECTIVELY ARE AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO DELETE THE ADDITION OF RS.35,00,000/ - , EVEN THOUGH THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE RENT DETERMINED IN ITS CASE IS MORE THAN SUM WHICH MIGHT REASONABLY BE EXPECTED FROM YEAR TO YEAR UNDER SECTION 23(1)(A) OF THE I.T.ACT - 1961. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY ROUND OR ADD A NEW GROUND WHICH MAY BE NEC ESSARY. 3 . BRIEFLY STATED , THE FACTS ARE THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.3.5 CRORES AS INTEREST FREE SECURITY DEPOSIT FROM HSBC BANK FOR THE PROPERTY RENTED OUT BY THE ASSESSEE FOR RS.9 LAKHS PER ANNUM. THE ASSESSING OFFICER WAS OF THE VIEW THAT 10% OF THE SECURITY DEPOSIT SHOULD BE CONSIDERED AS REASONABLE PERCENTAGE OF INTEREST AND THIS SHOULD BE ADDED TO THE RENTAL VALUE OF THE PROPERTY FOR ARRIVING AT ANNUAL LETTING VALUE OF THE PROPERTY . THE LD. CIT 3 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. (APPEALS) DELETED THE ADDITION MADE TO THE RENTAL VALUE FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY [ 48 TAXMANN.COM 191 ] . 4 . THE LD. DR VEHEMENTLY SUBMITS THAT THE ASSESSEE HAS SHOWN THE RE NTAL VALUE LE SS AND ASSESSEE HAS RECEIVED INTEREST FREE RENTAL DEPOS IT TO THE TUNE OF RS.3.5 CRORES, T HEREFORE, THE ASSESSING OFFICER IS JUSTIFIED IN ASSESSING 10% OF THE DEPOSIT AS NOTIONAL INTEREST FR OM THE INTEREST FREE DEPOSIT AS ALV APART FROM THE RENTAL INCOME. 5 . THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDERS OF THE LD. CIT (APPEALS) AND ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY (SUPRA) AND SUBMITS THAT THE LD. CIT(APPEALS) IS JUSTIFIED IN DELETING THE ADDITION. 6 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH IN THE CASE OF DCIT VS. DINESH M SHAH IN ITA NO.2562/MUM/2015 DATED 22.02.2017, WHEREIN ON SIMILAR CIRCUMSTANCES, THE ASSESSING OFFICER CONSIDERED 10% INTEREST FREE DEPOSIT AS PART OF RENTAL INCOME ON ACCOUNT OF LETTING OUT OF PROPERTIES W HILE COMPU TING ALV . THE COORDINATE BENCH FOLLOWING THE DECISION S OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY (SUPRA) AND CIT VS. JK INVESTORS [248 ITR 723] HELD AS UNDER : 4 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND FIND THAT THIS ASPECT OF THE MATTER HAS BEEN CONSIDERED BY THE LD. CIT (APPEALS) AND DELETED THE ADDITION MADE TOWARDS NOTIONAL INTEREST WHILE COMPUTING ANNUAL LETTING VALUE OBSERVING AS UNDER : 9.1 DURING THE COURSE OF APPELL ATE PROCEEDINGS, THE AUTHORISED REPRESENTATIVE RELIED ON THE FOLLOWING CASE LAWS WHEREIN IT HAS BEEN HELD THAT NO ADDITION CAN BE MADE TO THE ANNUAL VALUE ON THE BASIS OF NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT: I) CIT VS. TIP TOP TYPOGRAPHY (201 4) 48 TAXMANN.COM 191 (BOM.) II) CIT VS . MONI KUMAR SUBBA [2011] 10 TAXMANN.COM 195 (DELHI) (FB) III) CIT VS . SATYA CO. LTD (1994) 75 TAXMAN 193 (CAL.) III) CIT VS. J K INVESTORS (BOMBAY) LTD (2000) 248 ITR 723 (BOM.) 9.2 I HAVE CONSIDERED THE SUBMISSION OF THE AUTHORISED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE CASE LAWS CITED BY THE AUTHORISED REPRESENTATIVE. IT IS SEEN THAT THE TOTAL RENTAL INCOME RECEIVED BY THE ASSESSEE IN RESPECT OF THE IMP UGNED PROPERTIES IS RS.1,16,10,000/ - PER ANNUM AND THE ASSESSEE HAS RECEIVED INTEREST FREE SECURITY DEPOSIT OF RS.72,00,000/ - . FROM THESE FIGURES, IT IS CLEAR THAT THE AMOUNT OF SECURITY DEPOSIT IS NOT DISPROPORTIONATELY HIGHER COMPARED TO THE RENT RECEIVE D BY THE ASSESSEE. IT IS EQUIVALENT OF APPROX 7.5 MONTHS RENT, WHICH IS NOT ABNORMAL CONSIDERING THE GENERAL MARKET PRACTICE OF TAKING 6 - 9 MONTHS RENT AS SECURITY DEPOSIT. IT IS SETTLED LAW THAT THE NOTIONAL INTEREST ON THE INTEREST FREE DEPOSIT CANNOT BE ADDED TO THE RENTAL INCOME UNLESS IT IS DEMONSTRATED THAT THE SECURITY DEPOSIT WAS TAKEN AS A COLOURABLE DEVICE TO REDUCE THE RENT AND THE INCIDENCE OF TAX HANDS OF THE ASSESSEE. IN CASES WHERE THE SECURITY DEPOSIT IS ABNORMALLY HIGH I.E. MANY TIMES THE RE NTAL INCOME, BECAUSE OF WHICH THE RENTAL FIXED IS ABNORMALLY LOW, SUCH A DECISION COULD BE JUSTIFIED. HOWEVER, IN THE PRESENT CASE, SINCE THE SECURITY DEPOSIT IS NOT OUT OF PROPORTION OF THE RENTAL INCOME AND IT IS NOT THE ALLEGATION OF THE ASSESSING OFFIC ER THAT DUE TO THE SECURITY DEPOSIT THE RENTAL FIXED HAS BEEN LOWERED WITH A VIEW TO DECREASE THE INCIDENCE OF TAX, ADDING NOTIONAL INTEREST ON SUCH INTEREST FREE DEPOSIT, CANNOT BE JUSTIFIED. THE CASE LAWS CITED BY 5 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. THE AUTHORISED REPRESENTATIVE ALSO SUPPO RT THIS VIEW. IN VIEW OF THE FACTS OF THE CASE, MECHANICALLY ADDING NOTIONAL INTEREST @10% ON SECURITY DEPOSIT IS THEREFORE NOT JUSTIFIED AND IS HEREBY DIRECTED TO BE DELETED. GROUND OF APPEAL NO.6 IS THEREFORE ALLOWED. FURTHER THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF JK INVESTORS (SUPRA) HELD THAT SECTION 23(1)(B) OF THE I.T. ACT PROVIDES THAT WHEN ACTUAL RENT RECEIVED IS MORE THAN THE FAIR RENT THE ACTUAL RENT WOULD BE THE ANNUAL VALUE AND THEREFORE THE NOTIONAL INTEREST WOULD NOT FORM PART OF ACTU AL RENT RECEIVED OR RECEIVABLE UNDER SECTION 23(1)(B) OF I.T.ACT. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT WE HOLD THAT NOTIONAL INTEREST SHOULD NOT FORM PART OF ANNUAL VALUE. THIS GROUND OF THE REVENUE IS REJECTED. RESPECTFULLY FOLLOWING THE SAID DECISION S , WE AFFIRM THE ORDER OF THE LD. CIT (APPEALS) ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7 . THE ONLY GROUND LEFT FOR ADJUDICATION IN THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002 - 03 IN ITA NO.3596/MUM/2015 IS REGARDING DISALLOWANCE OF DEDUCTION OF SOCIETY CHARGES OF RS.2,92,615/ - FROM RENTAL INCOME U/S 23 OF THE ACT. 8 . THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT REJECTED THE CLAIM OF THE ASSESSEE FOR ALLOWING SOCIETY CHARGES WH ILE COMPUTING THE ANNUAL VALUE OF THE PROPERTY U/S 23 OF THE ACT. THE ASSESSING OFFICER HELD THAT ONLY THE PROPERTY TAXES PAID TO LOCAL AUTHORITIES ARE ALLOWABLE AND NOT THE SOCIETY CHARGES PAID BY THE ASSESSEE. THE LD. CIT (APPEALS) SUSTAINED THE DISALL OWANCE AGREEING WITH THE VIEW OF THE ASSESSING OFFICER. 6 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. 9 . BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SAIF ALI KHAN VS. ACIT IN ITA NO. 1653/MUM/2009 AND IN THE CASE OF SHARMILA TAGORE, 150 TAXMANN 4 HELD THAT MAINTENANCE CHARGES PAID TO HOUSING SOCIETY HAVE TO BE DEDUCTED EVEN WHILE ARRIVING AT ANNUAL LETTING VALUE OF PROPERTY U/S 23 OF THE ACT. 10 . THE LD. DR SUBMITS THAT IN THE AS SESSEES OWN CASE, THE MATTER HAS BEEN REMANDED TO THE ASSESSING OFFICER IN THE APPEALS FOR THE ASSESSMENT YEARS 2006 - 07 AND 2002 - 03 AGAINST THE ORIGINAL ASSESSMENTS MADE U/S 143 (3). 1 1 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. WE ALSO FIND FROM THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE IN ITA NOS.7210/MUM/2007 & 3552/MUM/2009 FOR THE ASSESSMENT YEARS 2002 - 03 & 2006 - 07 THAT THIS ISSUE HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR N ECESSARY VERIFICATION AND DECIDING THE ISSUE AFRESH OBSERVING AS UNDER : 2.2 THE SECOND DISPUTE WHICH IS RELEVANT FOR ALL THE FOUR YEARS IS REGARDING ALLOWABILITY OF DEDUCTION ON ACCOUNT OF SOCIETY CHARGES PAID BY THE ASSESSEE TO THE SOCIETY. THE AUTHORI TIES BELOW HAD DISALLOWED THE SAME HOLDING THAT THERE WAS NO BUSINESS IN EXISTENCE AND THEREFORE THE EXPENSES COULD NOT BE ALLOWED. AGGRIEVED BY THE DECISION OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2.2.1 WE HAVE HEARD BOTH THE PARTI ES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF MAINTENANCE CHARGES PAID BY THE ASSESSEE TO SOCIETY AS AN OWNER OF THE FLAT IN THE SOCIETY. WE HAVE ALREADY HELD THAT THE RENTAL INCOME FROM FLAT HAS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY. THE INCOME UNDER THE HEAD 'HOUSE PROPERTY' IS ASSESSED IN RESPECT OF BONAFIDE LETTING OUT VALUE OF THE 7 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. PROPERTY AND NOT ANY INCOME FROM ANY OTHER SERVICES. THEREFORE IN CASE, AS PER THE AG REEMENT, RENT FIXED BETWEEN THE PARTIES ALSO INCLUDES CHARGES FOR ANY SERVICES RENDERED BY THE SOCIETY, SUCH CHARGES INCLUDED IN THE RENT HAVE TO BE EXCLUDED AND ONLY THE PART OF THE RENT RELATING TO THE LETTING OUT OF THE PROPERTY HAS TO BE ASSESSED A S HOUSE PROPERTY INCOME. IN THIS CASE IT IS NOT CLEAR WHETHER THE RENT RECEIVED BY THE ASSESSEE ALSO INCLUDED CHARGES FOR COMMON SERVICES PROVIDED BY THE SOCIETY. THE MATTER THEREFORE REQUIRES VERIFICATION. WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY VERIFICATION AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE COORDINATE BENCH, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 26 TH DAY OF APRIL 2017 . SD/ - SD/ - ( ASHWANI TANEJA ) ( C.N.PRASAD ) / / ACCOUNTANT MEMBER JUDICIAL MEMBER / MUMBAI; / DATED 26 .04. 2017 LR, SPS 8 ITA NOS . 3117, 3318, 3596/MUM/2015 (A.YS 2006 - 07, 2002 - 03 AND 2002 - 03 RESPLY.) M/S BOMBAY SEALINK BUILDERS PVT. LTD. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) , / ITAT, MUM 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. // TRUE COPY / /