ITO 8(1)4, MUMBAI V. GIGANTIC TRADING CO P.LTD, MUMBAI

ITA 3279/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48480 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 27-04-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V SAMPAT KUMAR
• Keywords: Business income; Opportunity of being heard; Fair market value
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G : MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ITA. NO. 3279/MUM/2010 ASSESSMENT YEAR 2003-2004 ITO 8 (1)-4 MUMBAI 20 VS. GIGANTIC TRADING CO. PVT. LTD. MUMBAI-56 PAN AAACF6239R (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI K.V. SAMPAT KUMAR FOR RESPONDENT : -NONE- ORDER PER D. MANMOHAN, V.P. 1. THIS APPEAL IS FILED AT THE INSTANCE OF THE REV ENUE AND IT PERTAINS TO THE ASSESSMENT YEAR 2003-2004. FOLLOWIN G GROUNDS WERE URGED BY THE REVENUE. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE A.O. TO ADOPT THE FAIR MARKET RENT OF RS.12,00,000/- AS THE ANNUAL RENT INSTEAD OF RS.27,64,465/- TO COMPUTE THE INCOME FROM HOUSE PROPERTY AFTER ALLOWING THE STATUTORY DEDUCTION U/S. 24 WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE ASSESSEE COMPANY HAD LET OUT ITS HOUSE PROPERTY ON LEAVE AND LICENSE BASIS TO IT SISTER CONCERN M/S. BHOGILAL WESTEND AT LOWER THAN THE FAIR MARKET RENT. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN STATING THAT THE PROPERTY IS COVERED UNDER THE MAHARASHTRA RENT CONTROL ACT WITHOUT CONSIDERING THE FACTS OF THE CASE. 4. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ITO/AC/DCIT BE RESTORED. 2. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE. HOWEVER, UNSIGNED WRITTEN SUBMISSIONS STA TED TO HAVE BEEN FILED ON BEHALF OF THE ASSESSEE WERE PLACED ON RECO RD, WHEREIN IT WAS STATED THAT IN ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2004-2005 IDENTICAL ISSUE HAD COME UP BEFORE THE ITAT, G BE NCH, MUMBAI AND THE BENCH WAS PLEASED TO SET ASIDE THE DEPARTMENTAL APPEAL TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PE R LAW. IT WAS FURTHER STATED THAT ASSESSEES AUTHORISED SHARE CAPITAL IS BELOW RS. 1 CRORE AND THEREFORE, IT IS COVERED BY THE MAHARASHTRA REN T CONTROL ACT, 1999 AND PLACED RELIANCE UPON THE DECISION OF THE I TAT, D BENCH, MUMBAI IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD. (ITA. NO. 1411/MUM/2007 AND BATCH DATED 26-11-2010) WHEREIN T HEY HAVE FOLLOWED THE DECISION OF THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. J.K. INVESTORS BOMBAY LTD. 248 ITR 723. 3. LEARNED DR SUBMITTED THAT THE ASSESSEE-COMPANY LET OUT THE PROPERTY TO A SISTER CONCERN AT LESS THAN THE F AIR RENTAL VALUE AND HENCE ASSESSING OFFICER WAS JUSTIFIED IN WORKING OU T THE FAIR RENTAL VALUE UNDER SECTION 23 OF THE ACT. IN THIS REGARD, HE RELIED UPON THE DECISION OF THE APEX COURT IN THE CASE OF SMT. PADM A DEBI AND THE OBSERVATIONS THEREIN, AS STATED AT PAGE 1281 IN CHA TURVEDI & PITHISARIA, FIFTH EDITION, READS AS UNDER : ORDINARILY, A BARGAIN BETWEEN A WILLING LESSOR AND A WILLING LESSEE UNINFLUENCED BY ANY EXTRANEOUS 3 CIRCUMSTANCES MAY AFFORD A GUIDING TEST OF REASONABLENESS. AN INFLATED OR DEFLATED RATE OF RENT BASED UPON FRAUD, EMERGENCY, RELATIONSHIP AND SUCH OTHER CONSIDERATIONS MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS {CORPORATION OF CALCUTTA V. SMT. PADMA DEBI AIR 1962 SC 151, 153; CED V. RADHA DEVI JALAN (1968) 67 ITR 761, 766-7 (CAL) }. 4. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE AND REFERRED TO THE CASE LAW PLACED BEFORE US. FACTS IN SHORT ARE THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF RESA LE OF TILES. DURING THE YEAR UNDER CONSIDERATION, IT HAD DECLARED INCOM E FROM HOUSE PROPERTY AS BUSINESS INCOME. ASSESSEE-COMPANY LET O UT 2/3 RD OF ITS PROPERTY AT VILEPARLE, MUMBAI TO M/S. BHOGILAL WEST END, A SISTER- CONCERN OF THE ASSESSEE. AS PER THE LEAVE AND LICEN SE AGREEMENT, SISTER-CONCERN AGREED TO PAY RS.1 LAKH PER MONTH AS A COMPENSATION FOR THE USE OF THE PROPERTY ADMEASURING 3150 SQ. FE ET. ACCORDING TO THE ASSESSING OFFICER, THE PREVAILING RENT IN THE A REA WAS HIGHER THAN WHAT WAS BEING CHARGED BY THE ASSESSEE FROM ITS SIS TER-CONCERN. HE, THEREFORE, CALLED-UPON THE ASSESSEE TO SHOW CAUSE A S TO WHY RENT @ RS.4,51,255/- PER MONTH SHOULD NOT BE TAKEN AS THE BASIS FOR ARRIVING AT THE FAIR RENT/ANNUAL LETTING VALUE, UNDER SECTIO N 23 OF THE I.T. ACT. THE ASSESSING OFFICER BASED HIS OPINION UPON ENQUIR IES MADE WITH ESTATE AGENTS OF THE SAME LOCALITY AND ARRIVED AT A CONCLUSION THAT THE RENT DECLARED BY THE ASSESSEE WAS LESS AND THE LICE NCE FEE PAID BY SISTER-CONCERN I.E., AGREEMENT, ON A DEFLATED LICEN CE-FEES, IS ON ACCOUNT OF EXTRANEOUS CIRCUMSTANCES AND THEREFORE, FAIR REN T HAS TO BE ESTIMATED. ACCORDING TO THE ASSESSING OFFICER, PROP ERTY IN S.V. ROAD, VILEPARLE, FETCHES A RENT RANGING FROM RS.95 TO RS. 156 PER SQ. FEET. SINCE THE ASSESSEE CONTENDED THAT THE RENT DECLARED BY THE ASSESSEE WAS REASONABLE, THE ASSESSING OFFICER COMPUTED THE FAIR MARKET VALUE OF THE PROPERTY BY TAKING INTO CONSIDERATION THE CO ST OF LET OUT PROPERTY AS THE BASIS. 4 5. ON AN APPEAL FILED BY THE ASSESSEE, IT WAS SUBM ITTED BEFORE THE CIT(A) THAT IN RESPECT OF ASSESSMENT YEA R 2004-2005 IDENTICAL ISSUE WAS CONSIDERED BY HIS PREDECESSOR A ND IT WAS HELD THAT THE PROPERTY IS COVERED BY THE MAHARASHTRA RENT CON TROL ACT, 1999 AND THEREFORE, FAIR MARKET VALUE ADOPTED BY THE ASS ESSING OFFICER IS NOT APPLICABLE IN THIS CASE. IT WAS SUBMITTED THAT THE MUNICIPAL RATEABLE VALUE FOR RELEVANT ASSESSMENT YEAR IS ONLY RS.2,86,645/- AS AGAINST THE ACTUAL RENT OF RS.12 LAKHS RECEIVED BY THE ASSESSEE AND HENCE, RENT RECEIVED BY THE ASSESSEE SHOULD BE TAKE N AS THE FAIR MARKET VALUE. 5.1. LEARNED CIT(A) NOTICED THAT THERE WAS AN INTE REST FREE DEPOSIT OF RS.2.30 CRORES FROM THE TENANT BUT THE A SSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION SUCH INTEREST FREE DEPOSIT WHILE COMPUTING THE FAIR MARKET VALUE OF THE PROPERTY. 6. LEARNED CIT(A) FOLLOWED THE DECISION OF HIS PRE DECESSOR IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-20 05 TO HOLD THAT THE ACTUAL RENT RECEIVED SHOULD BE COMPARED WITH TH E MUNICIPAL RATEABLE VALUE IN A CASE WHERE THE PROPERTY IS COVE RED UNDER THE MAHARASHTRA RENT CONTROL ACT, 1999. 7. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. IT M AY BE NOTICED HERE THAT IN ASSESSEES OWN CASE FOR THE AS SESSMENT YEAR 2004-2005 THIS ISSUE CAME UP BEFORE THE ITAT, G B ENCH, MUMBAI (ITA. NO. 6713/MUM/2008 DATED 30 TH APRIL, 2010) WHEREIN THE BENCH RESTORED THE MATTER TO THE FILE OF THE ASSESSING OF FICER FOR A FRESH DECISION AS PER LAW AND IN THIS REGARD OBSERVED AS UNDER : 3. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SEC. 23 (1) PROVIDES THAT THE ANNUAL VALUE OF THE PROPERTY SHALL BE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGH T REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR OR WHERE SUCH PROPERTY IS LET AND THE ACTUAL RENT RECE IVED 5 OR RECEIVABLE IS IN EXCESS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET, THEN THE AMOUNT SO RECEIVED OR RECEIVABLE. THUS, FOR DETERMINING THE ANNUAL LETTING VALUE, NOT ONLY THE ACTUAL RENT BUT THE FAIR OR REASONABLE RENT AND ALS O THE STANDARD RENT ARE REQUIRED TO BE CONSIDERED. WHERE STANDARD RENT IS FIXED AS PER RENT CONTROL LEGISLAT ION, THE ANNUAL LETTING VALUE CANNOT EXCEED THE SAME. IF THE STANDARD RENT IS NOT FIXED BY THE RENT CONTROL ACT, THEN THE AO. HAS TO DETERMINE STANDARD RENT AS PER THE RENT CONTROL ENACTMENT. THIS VIEW HAS BEEN TAKE N BY THE MUMBAI BENCH OF THE TRIBUNAL IN ITO VS. MAKRUPA CHEMICALS PVT. LTD. (2007) 108 ITD 95 (MUM) AND JCIT VS. MRS. GITA MECHANDANI (2005) 4 SOT 353. SINCE THE LEARNED CIT(A) FAILED TO APPRECIATE THE L EGAL POSITION IN THIS REGARD IN RIGHT PERSPECTIVE AND ACCEPTED THE ACTUAL RENT WITHOUT CONSIDERING THE STANDARD RENT AND FAIR RENT OF THE PROPERTY, HIS AC TION CANNOT BE UPHELD. WE FIND THAT AO, TOO, DID NOT APPRECIATE THE ISSUE ON THE TOUCHSTONE OF THE LEGAL POSITION DISCUSSED ABOVE AS PER THE DETAILED ORDERS PASSED BY THE MUMBAI BENCHES OF THE TRIBUNAL. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER IN THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF A.O. FOR A FRESH DECISION AS PER LAW, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 8. SUBSEQUENT TO THE DECISION OF THE ITAT IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 2004-2005 AND ALSO THE DECISION OF THE ITAT, D BENCH, MUMBAI IN THE CASE OF RECLAMATION REALTY INDIA PVT. LTD., (SUPRA), FULL BENCH OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT, DELHI CENTRAL-III VS. MR. M.K. SUBBA ITA. NO. 803 OF 2007 AND BATCH DATED 30 TH MARCH, 2011 HAD AN OCCASION TO CONSIDER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF J.K. 6 INVESTORS (SUPRA) AND AFTER A DETAILED ANALYSIS, TH E HONBLE FULL BENCH OPINED THAT THE HONBLE BOMBAY HIGH COURT EXPLAINED THE EXPRESSION RECEIVABLE TO HOLD THAT WHILE DECIDING FAIR RENT VARIOUS FACTORS SHOULD BE TAKEN INTO CONSIDERATION AND FURTHER NOTICED THA T IN A CASE WHERE DEFLATED RENT IS RECEIVED ON ACCOUNT OF EXTRANEOUS CIRCUMSTANCES, ASSESSING OFFICER IS JUSTIFIED IN DETERMINING THE F AIR RENT. 9. IN THE CASE OF JOHN TILSON & CO. LTD. 298 ITR 4 07 THE HONBLE DELHI HIGH COURT OBSERVED THAT IT IS INCUMB ENT ON THE ASSESSEE TO PROVIDE ALL NECESSARY INFORMATION AND M ATERIAL TO THE ASSESSING OFFICER TO ENABLE HIM TO CALCULATE THE ST ANDARD RENT AND FURTHER OBSERVED THAT THE EXPRESSION STANDARD RENT IS SYNONYMOUS TO THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR 10. IN THE LIGHT OF AFORECITED DECISIONS AND ALSO BEARING IN MIND THE DECISION OF THE ITAT, G BENCH, MUMBAI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-2005, WE SET ASID E THE ORDERS PASSED BY THE TAX AUTHORITIES ON THIS ISSUE AND RES TORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION AS PER LAW, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 11. IN THE RESULT, APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 26-4-2011. SD/- SD/- (PRAMOD KUMAR) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATE 26 TH APRIL, 2011 VBP/- 7 COPY TO 1. ITO 8 (1)-4, ROOM 206, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20 2. GIGANTIC TRADING CO. PVT. LTD. B-1, HEM COLONY, NEXT TO GOLDEN TOBACCO, S.V. ROAD, VILE PARLE (W), MUMBAI 56 . PAN AAACF6239R 3. CIT(A)-16, MUMBAI 4. CIT-8, MUMBAI 5. DR G BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR, ITAT, MUMBAI BENCHES MUMBAI.