HIRANAND SONS, MUMBAI V. ITO 14(1)(1), MUMBAI

ITA 3525/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54976 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 10-08-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 29-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Keywords: Business income; Notional interest
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S.PADVEKAR, JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSTT. YEAR 1. 3525/MUM/2009 2001-02 2. 3526/MUM/2009 2002-03 3. 3527/MUM/2009 2003-04 4. 3528/MUM/2009 2004-05. M/S HIRANAND SONS, THE INCOME TAX OFFICER, CENTRAL BUILDING NO. 3, VS. 14(1)(1), MUMBAI. NEW SILK BAZAR, B.M. ROAD, MUMBAI 400 002. PAN AACFH 8339P. APPELLANT. RESPONDENT. APPELLANT BY : SHRI VIJAY MEHTA. RESPONDENT BY : SHRI GOLI SRINIWAS RAO. DATE OF HEARING : 10-08-2011. DATE OF PR ONOUNCEMENT : O R D E R. PER P.M. JAGTAP, A.M. : THESE FOUR APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST FOUR SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-XIV, MUMB AI FOR ASSESSMENT YEARS 2001-02 TO 2004-05 AND SINCE SOME COMMON ISSUES ARE INVOLVED THEREIN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. 2 FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2001-02 BEING ITA NO. 3525/MUM/2009 WHICH IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-XIV, MUMBAI DATED 23-03-2009. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER IS BAD IN LAW AS THE SAME IS BASED ON AN INVALID NOTIC E ISSUED BY THE ASSESSING OFFICER UNDER SECTION 148 OF THE INCOME-T AX ACT, 1961 AND THEREBY NOT QUASHING THE SAID ASSESSMENT ORDER. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF TREATING BUSINESS INCOME EARNED BY THE APPELLANT FIRM AS ITS PROPERTY INCOME . 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF DISALLOW ING EXPENSES CLAIMED BY THE APPELLANT FIRM. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF MAKING A DDITION ON ACCOUNT OF NOTIONAL INTEREST TO THE APPELLANT FIRMS INCOME . 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. 1 AND 2 RAISED IN THIS APPEAL. T HE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 5. AS REGARDS THE ISSUE RAISED IN GROUND NO. 4 RELA TING TO THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(APPEALS) TO THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUS E PROPERTY ON ACCOUNT OF NOTIONAL INTEREST, THE FACTS RELATING THERETO ARE T HAT THE ASSESSEE IS A PARTNERSHIP FIRM WHICH OWNS A PROPERTY I.E. FLAT NO.12 IN THE BUILDI NG KNOWN AS URVASHI SITUATED AT NEPEAN SEA ROAD, MUMBAI. THE SAID FLAT WAS LET O UT BY THE ASSESSEE TO DEUTSCHE BANK AG ON ANNUAL RENT OF RS.7,50,000/-. THE ASSES SEE HAD ALSO RECEIVED INTEREST 3 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. FREE DEPOSIT OF RS.1.90 CRORES FROM DEUTSCHE BANK. ACCORDING TO THE AO, TAKING INTO CONSIDERATION THE SIZE AND LOCALITY OF THE PRO PERTY, THE RENT CHARGED BY THE ASSESSEE WAS ON THE LOWER SIDE AND THIS LOWER AMOUN T OF RENT CHARGED WAS CONVENIENTLY COMPENSATED BY TAKING A HUGE INTEREST FREE DEPOSIT FROM THE TENANT. HE HELD THAT THE NOTIONAL INTEREST ON SUCH DEPOSIT, THEREFORE, WAS REQUIRED TO BE TAKEN INTO ACCOUNT FOR DETERMINING THE SUM FOR WHIC H THE ASSESSEES PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR IN ACCORDANCE WITH THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT. ACCORDINGLY HE WORK ED OUT SUCH NOTIONAL INTEREST AT RS.22,80,000/- BY ADOPTING THE RATE OF 12% PER ANNU M AND ADDED THE SAID AMOUNT FOR COMPUTING THE INCOME OF THE ASSESSEE CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ON APPEAL, THE LEARNED CIT(AP PEALS) UPHELD THE ACTION OF THE AO IN ADDING THE NOTIONAL INTEREST ON SECURITY DEPOSIT FOR DETERMINING THE HOUSE PROPERTY INCOME OF THE ASSESSEE IN PRINCIPLE. HE, HOWEVER, FOUND THE RATE OF 12% PER ANNUM TAKEN BY THE AO FOR WORKING OUT SUCH INTEREST TO BE ON HIGHER SIDE AND DIRECTED THE AO TO RESTRICT THE SAME TO7%. AGGR IEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE, THE ASSESSEE HA S PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPRES ENTATIVES OF BOTH THE SIDES, THIS ISSUE IS REQUIRED TO BE RESTORED TO THE FILE OF THE AO FOR FRESH CONSIDERATION IN VIEW OF THE LATEST DECISION OF FULL BENCH OF HONBLE DEL HI HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA REPORTED IN 333 ITR 38 (DEL)(F .B.). AS HELD BY THE HONBLE HIGH COURT IN THE SAID CASE, THE NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT CANNOT BE TAKEN AS THE DETERMINATIVE FACTOR TO ARRI VE AT A FAIR RENT OF THE PROPERTY AS THE PROVISIONS OF SECTION 23(1)(A) DO NOT MANDATE T HIS METHOD. IT WAS HELD THAT THE OPERATIVE WORDS IN SECTION 23(1)(A) OF THE ACT ARE THE SUM FOR WHICH THE PROPERTY 4 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR AND THESE WORDS PROVIDE A SPECIFIC DIRECTION TO THE REVENUE FOR DETERMINING THE FAIR RENT. IT WAS HELD THAT THE AO, HAVING REGARD TO THIS PROVISION IS EXPECTED TO MAKE AN ENQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH AND IF HE FINDS THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE FAIR MARKET R ENT BECAUSE THE ASSESSEE HAS RECEIVED AN ABNORMAL HIGH INTEREST FREE SECURITY DE POSIT AND BECAUSE OF THAT, THE ACTUAL RENT RECEIVED IS LESS THAN THE RENT WHICH TH E PROPERTY MIGHT FETCH, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. KEEPIN G IN VIEW THIS DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MONIKUMAR S UBBA (SUPRA), WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) SUST AINING THE ADDITION MADE BY THE AO ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT AND RESTORE THE MATTER TO THE FILE OF THE AO FOR FRESH CONSIDER ATION IN THE LIGHT OF THE GUIDELINES LAID DOWN BY THE HONBLE DELHI HIGH COURT. GROUND N O. 4 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 7. AS REGARDS THE ISSUE RAISED IN GROUND NO. 3 RELA TING TO THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF EXPENSES CLAIMED BY THE ASSESSEE ON REPAIRS AND MAI NTENANCE AND SOCIETY CHARGES AGAINST HOUSE PROPERTY INCOME, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THERE IS NO DISCUSSION ON THIS ISSUE IN THE OR DER OF THE AO. HE HAS SUBMITTED THAT EVEN THE LEARNED CIT(APPEALS) HAS NOT CONSIDER ED THE DECISIONS CITED BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE ON TH E GROUND THAT THE ASSESSEE COULD NOT GIVE SPECIFIC CITATIONS OF THE SAID DECISIONS. HE HAS CONTENDED THAT THERE ARE VARIOUS DECISIONS OF THE TRIBUNAL WHICH SUPPORT THE CASE OF THE ASSESSEE ON THIS ISSUE AND SINCE THE APPLICABILITY OF THE SAID DECIS IONS TO THE FACTS OF THE ASSESSEES CASE NEEDS TO BE EXAMINED, THIS MATTER MAY ALSO BE RESTORED TO THE FILE OF THE AO. WE FIND MERIT IN THIS CONTENTION OF THE LEARNED COU NSEL FOR THE ASSESSEE AND SINCE 5 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. THE LEARNED DR HAS ALSO NOT RAISED ANY OBJECTION IN THIS REGARD, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR DECIDING THE SAME A FRESH AFTER VERIFYING THE RELEVANT FACTS OF THE CASE IN THE LIGHT OF THE DECISION OF T HE TRIBUNAL ON WHICH THE ASSESSEE SEEKS TO RELY. GROUND NO. 3 OF THIS APPEAL OF THE A SSESSEE IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 BEING ITA NO. 3526/MUM/2009 WHICH IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-XIV, MUMBAI DATED 23-03-2009. 9. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEA L READ AS UNDER : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER IS BAD IN LAW AS THE SAME IS BASED ON AN INVALID NOTIC E ISSUED BY THE ASSESSING OFFICER UNDER SECTION 148 OF THE INCOME-T AX ACT, 1961 AND THEREBY NOT QUASHING THE SAID ASSESSMENT ORDER. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF TREATING BUSINESS INCOME EARNED BY THE APPELLANT FIRM AS ITS PROPERTY INCOM E. 3. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF DISALLOW ING EXPENSES CLAIMED BY THE APPELLANT FIRM. 4. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF MAKING A DDITION ON ACCOUNT OF NOTIONAL INTEREST TO THE APPELLANT FIRMS INCOME . 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NOS. 1 AND 2 OF THE APPEAL. ACCORDING LY, THESE GROUNDS ARE DISMISSED AS NOT PRESSED. 11. AS REGARDS GROUND NOS. 3 AND 4, IT IS OBSERVED THAT THE ISSUES RAISED THEREIN ARE IDENTICAL TO THE ISSUES RAISED BY THE ASSESSEE IN GROUND NOS. 3 AND 4 OF ITS 6 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. APPEAL FOR ASSESSMENT YEAR 2001-02 WHICH HAVE BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDER. FOLLOWING OUR DECI SION RENDERED IN ASSESSMENT YEAR 2001-02, WE RESTORE THESE ISSUES TO THE FILE OF THE AO FOR DECIDING THE SAME AFRESH AS PER THE SAME DIRECTIONS AS GIVEN IN ASSESSMENT Y EAR 2001-02. GROUND NOS. 3 AND 4 ARE ACCORDINGLY TREATED AS ALLOWED FOR STATISTICA L PURPOSES. 12. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2003-04 BEING ITA NO. 3527/MUM/2009 WHICH IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-XIV, MUMBAI DATED 23-03-2009. 13. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER IS BAD IN LAW AS THE SAME IS BASED ON AN INVALID NOTIC E ISSUED BY THE ASSESSING OFFICER UNDER SECTION 148 OF THE INCOME-T AX ACT, 1961 AND THEREBY NOT QUASHING THE SAID ASSESSMENT ORDER. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF DISALLOW ING EXPENSES CLAIMED BY THE APPELLANT FIRM. 14. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE DID NOT PRESS BOTH THESE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 15. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 BEING ITA NO.3528/MUM/2009 WHICH IS DIRECTED AGAINS T THE ORDER OF LEARNED CIT(APPEALS)-XIV, MUMBAI DATED 23-03-2009. 16. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPE AL READ AS UNDER : 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THE FACT THAT THE ASSESSMENT ORDER PASSED BY THE AS SESSING OFFICER IS BAD IN LAW AS THE SAME IS BASED ON AN INVALID NOTIC E ISSUED BY THE 7 ITA NOS. 3525 TO 3528/MUM/2009 ASSTT.YEARS : 2001-02 TO 2004-05. ASSESSING OFFICER UNDER SECTION 148 OF THE INCOME-T AX ACT, 1961 AND THEREBY NOT QUASHING THE SAID ASSESSMENT ORDER. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LEARNED ASSESSING OFFICER OF DISALLOW ING EXPENSES CLAIMED BY THE APPELLANT FIRM. 17. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE DID NOT PRESS BOTH THESE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 18. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2001-02 AND 2002-03 BEING ITA NOS. 3525 AND 3526/MUM/2009 ARE T REATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEALS OF THE ASSESSEE FOR ASSESSMENT YEARS 2003-04 AND 2004-05 BEING ITA NOS. 3527 AND 3528/MU M/2009 ARE DISMISSED. ORDER PRONOUNCED ON THIS 19 TH DAY OF AUGUST, 2011. SD/- SD/- (R.S. PADVEKAR)) (P.M . JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 19 TH AUGUST, 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, I-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENC HES, WAKODE MUMBAI.