ACIT - 12(3), MUMBAI V. M/s. SARRA TRUST, MUMBAI

ITA 3436/MUM/2006

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6259 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 01-06-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K PAHWA
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3436/MUM/2006 (ASSESSMENT YEAR: 2002-03) ACIT 12(3) M/S. SARRA TRUST ROOM NO. 121, AAYAKAR BHAVAN 31, MAKER CHAMBER - VI M.K. ROAD, MUMBAI 400020 VS. NARIMAN POINT, MUMBAI 400021 PAN - AACTS 0813 J APPELLANT RESPONDENT APPELLANT BY: SHRI S.K. PAHWA RESPONDENT BY: SHRI NITESH JOSHI O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XII, MUMBAI DATED 20.03.2006. 2. REVENUE HAS RAISED THE FOLLOWING GROUND: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. C.I.T.(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO NOT TO INCLUDE THE NOTIONAL INTEREST ON THE DEPOSIT OF RS. 35 LAKHS TAKEN BY THE ASSESSEE ON ACCOUNT OF THE PROPERTY GIVEN ON RE NT IGNORING THE DECISION OF THE LD. MUMBAI TRIBUNAL, BENCH B IN T HE CASE OF ITO VS. CHEM MECH (P) LTD. (2002) [83 ITD 427] (MUM). 3. ASSESSEE IS A FAMILY TRUST OWNING TWO OFFICE PREMIS ES SITUATED IN MAKER CHAMBERS-VI, NARIMAN POINT, MUMBAI AND 52 MIT TAL CHAMBERS, NARIMAN POINT, MUMBAI. THESE PROPERTIES WERE LET OU T AND THE ASSESSEE HAS RECEIVED RENTS FROM THE PROPERTIES. WITH REFERENCE TO THE PROPERTY OF MAKER CHAMBERS-VI THE A.O. CONSIDERED THAT THE PROPERTY W AS LEASED OUT AT ` 194/- PER SQ.FT. IN THE EARLIER YEAR TO ANOTHER GROUP COM PANY WHEREAS ASSESSEE HAS GIVEN SAME PROPERTY AT ` 134/- PER SQ.FT. DURING THE YEAR. CONSIDERING THAT THE ASSESSEE HAS TAKEN A SECURITY DEPOSIT OF ` 35 LAKHS THE A.O. HAS ADDED 15% OF THE SECURITY DEPOSIT TO THE RENT RECEIVED TH EREBY INCREASING THE ANNUAL LETTING VALUE BY AN AMOUNT OF ` 12,25,000/- AND WORKED OUT THE HOUSE PROPERTY INCOME ACCORDINGLY. IT WAS THE CONTE NTION OF THE ASSESSEE ITA NO. 3436/MUM/2006 M/S. SARRA TRUST 2 THAT IN THE EARLIER YEAR THE ASSESSEE HAS LEASED OU T TO FIVE CONCERNS OF THE GROUP AT DIFFERENT RENTS VARYING FROM ` 63.61 PER SQ.FT. TO ` 194/- PER SQ.FT. WHEREAS IN THIS YEAR THE ENTIRE AREA OF 1455 SQ.FT. WAS GIVEN TO ONLY ONE PARTY, M/S. BHARAT SERUMS & VACCINES LTD. IT IS ALS O SUBMITTED THAT THE ANNUAL LETTING VALUE WAS MORE THAN THE STANDARD REN T RECEIVABLE. THE CIT(A), AFTER CONSIDERING THAT THE MUNICIPAL RATEABLE VALUE WAS ONLY ` 33,611/- AND THE ACTUAL RENT RECEIVED WAS FAR IN EXCESS OF THE R ATEABLE VALUE FIXED BY THE MUNICIPAL CORPORATION. SINCE THE A.O. HAS CONSIDERE D 15% OF THE DEPOSIT RECEIVED AND ADDED TO THE RENT RECEIVED, THE CIT(A) DELETED THE ADDITION FOLLOWING THE PRINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J.K. INVESTORS (BOMBAY) LTD. 24 8 ITR 723. REVENUE IS AGGRIEVED. 4. THE LEARNED D.R. REFERRED TO THE FACTS AND RELIED O N THE ORDER OF THE A.O. WHEREAS THE LEARNED COUNSEL SUBMITTED THAT THE A.O. HAS CONSIDERED THE VALUATION UNDER SECTION 23(1)(B) BY ADDING AN A MOUNT OF ` 12,25,000/- RECEIVED AT 15% OF THE DEPOSIT AND ACCORDING TO THE PRINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF J.K. I NVESTORS (BOMBAY) LTD. (SUPRA) NO ADDITION CAN BE MADE UNDER SECTION 23(1) (B). FURTHER IT WAS SUBMITTED THAT THERE WAS A FINDING IN THE EARLIER Y EAR THAT THE STANDARD RENT WAS FAR LESS THAN THE ACTUAL RENT RECEIVED AND ACCO RDINGLY THE RENT RECEIVED MAY BE ACCEPTED. THE LEARNED COUNSEL ALSO RELIED UP ON THE PRINCIPLES ESTABLISHED BY THE ITAT IN THE CASE OF M. V. SONAVA LA VS. CIT 177 ITR 246 AND ALSO THE DECISION OF THE ITAT IN THE CASE OF IT O VS. M/S. CYGNUS NEGRI INVESTMENT PVT. LTD. ITA NO. 3030 (BOM) OF 1991 FOR THE PROPOSITION THAT ANNUAL LETTING VALUE OF THE PROPERTY GOVERNED BY TH E RENT CONTROL ACT SHOULD NOT BE MORE THAN THE MUNICIPAL VALUATION OR THE ACT UAL RENT RECEIVED, WHICH EVER IS HIGHER AND SINCE IN THE PRESENT CASE ADMITT EDLY THE ACTUAL RENT RECEIVED BEING HIGHER THAN THE MUNICIPAL VALUATION THERE IS NO JUSTIFICATION FOR MAKING ANY ADDITION WHILE COMPUTING ANNUAL LETT ING VALUE. 5. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE RECO RD, IN THE IMMEDIATELY PRECEDING YEAR THE ASSESSEE HAS LET OUT THE PROPERTY TO VARIOUS CONCERNS AT DIFFERENT RATES AND THE A.O. INCREASED THE ANNUAL LETTING VALUE OF THAT YEAR ALSO BY MAKING ADDITION OF 15% OF THE REN T RECEIVED. THE MATTER WAS CONSIDERED BY THE CIT(A) WHO DELETED THE ADDITI ON STATING THAT THE RENT ITA NO. 3436/MUM/2006 M/S. SARRA TRUST 3 RECEIVED IN ANY CASE WAS MUCH HIGHER THAN THE STAND ARD RENT DETERMINED UNDER THE RENT CONTROL ACT. IN THIS YEAR THE A.O., WHILE NOTICING THAT THE PROPERTY COULD HAVE BEEN LET OUT AT ` 194/- PER SQ.FT. BUT ACTUALLY LET OUT AT ` 134 SQ.FT., MADE AN ADDITION AT 15% OF THE DEPOSIT OF ` 35 LAKHS RELYING ON THE ABOVE FACTS. EVENTHOUGH THE ACTUAL ADDITION WHI CH CHOULD HAVE BEEN MADE AT 15% OF ` 35 LAKHS COMES TO ` 5,25,000/- HE MADE AN ADDITION OF ` 12,25,000/-. EVEN IF ONE WERE TO ACCEPT THAT THE PR OPERTY COULD HAVE BEEN LET OUT AT ` 194/- PER SQ.FT. THE DIFFERENCE OF ` 60/- PER SQ.FT. ON 1455 SQ.FT. WOULD COME TO ONLY ` 87,300/-. INSTEAD THE A.O. CHOOSE TO INCREASE THE ACTUAL RENT RECEIVED BY AN AMOUNT OF ` 12,25,000/- WHICH CAN ONLY BE CONSIDERED AS DETERMINATION OF ANNUAL LETTING VALUE UNDER SECTION 23(1)(B). FOLLOWING THE PRINCIPLES ESTABLISHED BY THE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. J.K. INVESTORS (BOMBAY) LTD. 248 IT R 723 THERE IS NO CASE FOR MAKING ADDITION OF NOTIONAL INTEREST ON SECURITY DE POSIT TO THE ACTUAL RENT RECEIVED WHICH IS MORE THAN THE STANDARD RENT/MUNIC IPAL RATEABLE VALUE. IN VIEW OF THIS, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHO CORRECTLY DELETED THE ADDITION SO MADE BY THE A.O. BOTH ON FACTS AS WELL AS ON LAW. ACCORDINGLY THE GROUND IS REJECT ED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER 2010. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 24 TH NOVEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XII, MUMBAI 4. THE CIT XII, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.