DCIT CIR. - 23(2), MUMBAI V. M/s. BAHL BROTHERS (HUF), MUMBAI

ITA 3818/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56252 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R BATWAR
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Fair market value; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NOS. 4235 & 4236/MUM/2008 ASSESSMENT YEARS- 2003-04 & 2004-05 BAHL BROTHERS (HUF), 42, RAJA INDUSTRIAL ESTATE, P.K. ROAD, 1 ST FLOOR, MULUND (W), MUMBAI-400 080 PAN-AAAHB 4957P VS. THE DCIT, CIR-23(2), C-10, 202 PRATAYAKSHA KAR BHAVAN, BKC, BANDRA (E), MUMBAI-400 051 (APPELLANT) (RESPONDENT) ITA NOS. 3818 & 1819/MUM/2008 ASSESSMENT YEARS- 2003-04 & 2004-05 THE DCIT, CIR-23(2), C-10, 202 PRATAYAKSHA KAR BHAVAN, BKC, BANDRA (E), MUMBAI-400 051 VS. BAHL BROTHERS (HUF), 42, RAJA INDUSTRIAL ESTATE, P.K. ROAD, 1 ST FLOOR, MULUND (W), MUMBAI-400 080 PAN-AAAHB 4957P (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SANJAY R. PARIKH DEPARTMENT BY: SHRI A.R. BATWAR DATE OF HEARING :01.12.2011 DATE OF PRONOUNCEMENT:16.12.2011 O R D E R PER B.R. MITTAL, JM : THESE CROSS APPEALS ARE FILED BY ASSESSEE AND DEPAR TMENT AGAINST COMMON ORDER OF LD. CIT(A) DT. 17 TH MARCH,2008 FOR ASSESSMENT YEARS 2003- 04 & 2004-05. ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 2 2. THE RELEVANT FACTS GIVING RISE TO THESE APPEALS ARE THAT ASSESSEE IS A HINDU UNDIVIDED FAMILY AND SHRI RAJESH SUNDERLAL BA HL IS THE KARTA. HUF HAD LET OUT ITS PROPERTIES TO EARN RENTAL INCOME. IN TH E ASSESSMENT YEAR 2003-04, THERE WERE 5 PROPERTIES GIVING RENT OF RS. 7,79,392 /- BUT IN ASSESSMENT YEAR 2004-05, THERE WERE ONLY PROPERTIES GIVING RENT OF RS. 5,26,960/-. IN ASSESSMENT YEAR 2004-05, PROPERTY AT LAKE CASTLE IS NOT UNDER CONSIDERATION. IT IS ALSO RELEVANT TO STATE THAT ASSESSEE RECEIVED CERTAIN SECURITY DEPOSITS FOR LETTING OUT PREMISES, DETAILS OF WHICH FOR BOTH ASS ESSMENT YEARS ARE STATED BY LD. CIT(A) AT PAGE-2 OF IMPUGNED ORDER, WHICH ARE A S UNDER: SL. NO. PREMISES SECURITY DEPOSIT IN A.Y. 03-04 SECURITY DEPOSIT IN A.Y.04-05 PERSONS TO WHOM RENTED OUT RENT RECEIVED IN A.Y.03-04 RENT RECEIVED IN A.Y.04-05 1. LAKE CASTLE RS. 700000/ - UPTO FEB. 2003 RS. 297500/- UPTO MARCH03 MR. KEITH DUNN RS.280000/ - 2. 240,T C STREET RS. 577813/ - RS. 577813 M/S. GEOCHEM LAB.P.LTD. RS. 262839/ - RS.277356/ - 3. 17 - 18,LAXM I CASTLE RS.231113/ - RS. 231113 M/S. GEOCHEM LAB.P.LTD. RS. 105135/ - RS. 110940/ - 4. GALA 142 RS.1733438/ - RS.1733438 M/S. GEOCHEM LAB.P.LTD. RS. 65709/ - RS. 69336/ - 5. GALA 126 RS.1733438/ - RS.1733438 M/S. GEOCHEM LAB.P.LTD. RS. 65709/ - RS. 69336/ - 3. IT IS RELEVANT TO STATE THAT PREMISES AT S. NO. 2 TO 5 WERE LET OUT TO COMPANY IN WHICH MEMBERS OF HUF WERE SUBSTANTIALLY INTERESTED. HOWEVER, PROPERTY AT LAKE CASTLE I.E. AT S. NO. 1 OF ABOVE TABLE IS LET OUT TO AN OUTSIDER. THE ASSESSING OFFICER DID NOT ACCEPT ACT UAL RENT RECEIVED BY ASSESSEE FOR BOTH ASSESSMENT YEARS UNDER CONSIDERAT ION. AO STATED THAT RENT RECEIVED IN RESPECT OF GALAS 142 AND 126 I.E. PROPE RTY MENTIONED AT S. NO. 4 & 5 HEREINABOVE, WAS RS. 2,40,000/- PER ANNUM UPTO FINANCIAL YEAR 2000-01 AND WHEREAS RENT WAS REDUCED TO RS. 65,709/- IN FIN ANCIAL YEAR 2002-03 AND ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 3 RS. 69,336/- IN FINANCIAL YEAR 2003-04, WHEN ASSESS EE HAD RECEIVED SECURITY DEPOSIT OF RS. 17,33,438/- IN RESPECT OF THESE PREM ISES FROM ITS ASSOCIATED COMPANY WHEREIN MEMBERS OF HUF ARE SUBSTANTIALLY IN TERESTED. AO HAS STATED THAT SECURITY DEPOSIT IS MORE WHEN COMPARED TO RENT RECEIVED. THUS, ASSESSEE HAS EMPLOYED A COLOURABLE DEVICE TO REDUCE THE INCIDENCE OF TAX ON INCOME FROM HOUSE PROPERTY. IN VIEW OF ABOVE, AO H AS ESTIMATED NOTIONAL INTEREST ON SECURITY DEPOSITS RECEIVED AND THEREAFT ER ADDED 10% OF SECURITY DEPOSIT TO RENT RECEIVED BY ASSESSEE TO ARRIVE AT A NNUAL LETTING VALUE FOR THE PURPOSE OF SEC. 23 OF I.T. ACT. BEING AGGRIEVED, A SSESSEE FILED APPEALS BEFORE FIRST APPELLATE AUTHORITY. 4. ON BEHALF OF ASSESSEE, IT WAS CONTENDED THAT UND ER NO CIRCUMSTANCES ANNUAL LETTING VALUE (ALV) COULD EXCEED STANDARD RE NT AND THEREFORE ANY ESTIMATE OF ALV MADE IN EXCESS OF STANDARD RENT WAS INCORRECT AND BAD IN LAW. BEFORE LD. CIT(A) ASSESSEE PLACED RELIANCE ON FOLLOWING CASE LAWS: 1) CIT VS J.K. INVESTORS 248 ITR 0723 (BOM) 2) CIT VS HEMRAJ MAHAVIR- 279 ITR 592 (KOL) 3) CIT VS KISHANLAL & SONS 260 ITR 481 (KOL) 5. LD. CIT(A) AFTER CONSIDERING SUBMISSION OF ASSES SEE HAS STATED THAT ONLY IN RESPECT OF TWO PROPERTIES VIZ., PROPERTY ME NTIONED AT S. NO. 4 & 5, AO FOUND OUT THAT RENT RECEIVED PER ANNUM WAS RS. 2,40 ,000/- UPTO FINANCIAL YEAR 2000-01 AND THEREAFTER, SAME HAD BEEN DRASTICA LLY REDUCED TO RS. 65,709/- IN ASSESSMENT YEAR 2003-04 AND RS. 69,336/ - IN ASSESSMENT YEAR 2004-05 WHEN SECURITY DEPOSIT WAS TAKEN BY ASSESSEE . LD. CIT(A) HAS STATED THAT AS PER SEC. 23 OF I.T. ACT, ANNUAL VALUE IS TO BE CONSIDERED KEEPING IN VIEW THE PROPERTY WHICH MIGHT REASONABLY BE EXPECTE D TO LET FROM YEAR TO YEAR. THAT THERE IS NO GIVEN METHOD TO FIND OUT TH E REASONABLENESS OF PROPERTYS LETTING OUT VALUE. ON THE OTHER HAND, A NY SUM EXCEEDING THE SAID REASONABLE RENT AND RECEIVED IN ACTUALITY WOULD SUB STITUTE THE REASONABLE RENT. SIMILARLY, ANYTHING ACTUALLY RECEIVED LESS O NLY DUE TO VACANCY HAS AGAIN ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 4 TO SUBSTITUTE THE REASONABLE RENT. LD. CIT(A) STATE D THAT AO MERELY HELD THAT ANNUAL VALUE OF PROPERTY COULD BE RE-ESTIMATED AS L ONG AS REASONABLE RENT OF SAME HAD BEEN INFLUENCED BY INTEREST FREE SECURITY DEPOSITS. LD. CIT(A) HAS STATED THAT AO HAS NOT GIVEN SPECIFIC FINDING AS TO WHAT HAD BEEN THE RENT IN RESPECT OF OTHER PROPERTIES WHEN THERE HAD BEEN NO SECURITY DEPOSITS I.E. IN RESPECT OF PROPERTIES MENTIONED AT S. NO. 1 TO 3. 6. LD. CIT(A) AFTER CONSIDERING ABOVE FACTS HAS STA TED THAT ATLEAST IN THE CASES OF TWO PROPERTIES I.E. PROPERTIES MENTIONED AT S. NO. 4 & 5, REASONABLE RENT HAS BEEN LOWERED DOWN AND THERE HAD BEEN NO EX PLANATION FOR THE SAME BY ASSESSEE. THEREFORE, LD. CIT(A) HAS AGREED WITH AOS IN ESTIMATING ALV FOR BOTH ASSESSMENT YEARS UNDER CONSIDERATION FOR B OTH PROPERTIES MENTIONED AT S. NO. 4 & 5 AND HAS HELD THAT REASONABLE RENT S HOULD HAVE BEEN ATLEAST OF RS. 2,40,000/- AS RECEIVED BY ASSESSEE IN EARLIER Y EAR I.E. FINANCIAL YEAR 2000- 01. HE HAS STATED THAT AO HAS SIMPLY TAKEN 10% OF SECURITY DEPOSIT AND HAS RE-DETERMINED THE SAID ALV. THE A.OS CALCULATION IS ALMOST THE SAID RENT RECEIVED IN RESPECT OF THESE TWO PROPERTIES AS RENT RECEIVED IN EARLIER YEARS, WHEN THERE WAS NO SECURITY DEPOSIT. 7. HOWEVER, IN RESPECT OF OTHER PROPERTIES, LD. CIT (A) HAS HELD THAT AO HAS GIVEN NO FINDING AS TO WHAT REASONABLE RENT HAD EVER BEEN OR WHAT IT SHOULD HAVE BEEN TAKEN DURING THE TWO YEARS CONCERN ED. THEREFORE, MERELY BY CONSIDERING A 10% OF DEPOSITS AS THE PART OF ANN UAL VALUE BECOMES ONLY A WILD CONJECTURE. LD. CIT(A) HAS STATED THAT THERE IS NO FINDING THAT DEPOSITS HAD INFLUENCED THE RENT TO BE ON THE LOWER SIDE DUR ING THESE TWO YEARS FOR OTHER PROPERTIES I.E. PROPERTIES MENTIONED AT S. NO S. 1 TO 3 OF THE TABLE HEREINABOVE, AND ACCORDINGLY HE HAS CANCELLED ESTIM ATED ANNUAL VALUE HOLDING THE SAME AS BASELESS. LD. CIT(A) HAS DIREC TED AO TO RECOMPUTE ALV OF THE PROPERTIES INVOLVED, ON THE BASIS OF HIS ABO VE FINDINGS. HENCE DEPARTMENT AS WELL AS ASSESSEE ARE IN APPEALS AGAIN ST AFORESAID ORDER OF LD. CIT(A). ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 5 8. AT THE TIME OF HEARING, LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED ORDER OF LD. CIT(A) IN RESPECT OF PROPERTIES MENTIO NED AT S. NO. 4 & 5 AND WHEREAS IN RESPECT OF PROPERTIES MENTIONED AT S. NO . 1 TO 3, HE RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR SUPPORTED O RDER OF LD. CIT(A) IN RESPECT OF PROPERTIES MENTIONED AT S. NO. 1 TO 3 A ND HAS DISPUTED ORDER OF LD. CIT(A) IN RESPECT OF PROPERTIES MENTIONED AT S. NO. 4 & 5. LD. AR HAS SUBMITTED THAT AS PER DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS J.K. INVESTORS (BOMBAY) LTD. 248 ITR 723 NOT IONAL VALUE OF INTEREST ON INTEREST FREE SECURITY DEPOSIT RECEIVED, COULD NOT BE CONSIDERED AS PART OF ANNUAL VALUE OR ACTUAL RENT RECEIVED. HE SUBMITTED THAT ACTUAL RENT RECEIVED BY ASSESSEE EVEN IN RESPECT OF PROPERTIES MENTIONED AT S. NO. 4 & 5 SHOULD BE CONSIDERED AS ALV FOR THE PURPOSE OF SEC. 22 OF THE ACT. HOWEVER, LD. DR IN HIS SUBMISSION SUBMITTED THAT IN THE CASE OF ITO VS BAKER TECHNICAL SERVICES PVT. LTD. 125 ITD 01 , TRIBUNAL AFTER CON SIDERING ABOVE DECISION OF HONBLE BOMBAY HIGH COURT HAS HELD THAT BENEFIT DER IVED BY ASSESSEE FROM INTEREST FREE DEPOSIT COULD BE TAKEN INTO CONSIDERA TION FOR DETERMINING FAIR RENT VALUE U/S. 23(1)(A) OF I.T. ACT. LD. DR SUBMIT TED THAT LD. CIT(A) HAS RIGHTLY CONFIRMED ACTION OF AO IN RESPECT OF ESTIMA TING ANNUAL LETTING VALUE OF PROPERTY MENTIONED AT S. NO. 4 & 5 OF TABLE, WHICH IS MENTIONED HEREIN ABOVE AT PARA-2. 9. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTHO RITIES BELOW AND SUBMISSION OF LD. REPRESENTATIVES OF THE PARTIES AS WELL AS CASES CITED BEFORE US. WE OBSERVE THAT RECENTLY HONBLE DELHI HIGH CO URT (FULL BENCH) HAS CONSIDERED EARLIER DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. MONI KUMAR SUBBA 333 ITR 38 (DEL) AND HAS DECID ED A SIMILAR ISSUE AFTER TAKING INTO CONSIDERATION ALL RELEVANT ASPECTS OF T HE MATTER. IT HAS BEEN HELD BY HONBLE DELHI COURT THAT NOTIONAL INTEREST ON IN TEREST FREE DEPOSIT CANNOT BE TAKEN AS DETERMINATIVE FACTOR TO ARRIVE AT FAIR RENT AND SEC. 23(1)(A) DOES NOT MANDATE THIS. WE OBSERVE THAT SIMILAR ISSUE A LSO AROSE IN ASSESSEES OWN APPEAL FOR ASSESSMENT YEARS 1999-2000, 2000-01, 200 1-02, 2002-03 AND 2005-06 BEING ITA NOS. 2162 TO 2166/MUM/2009 AND TH E TRIBUNAL BY ITS ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 6 ORDER DT. 18 TH NOVEMBER, 2011 AFTER CONSIDERING THE SUBMISSIONS O F LD. REPRESENTATIVES OF BOTH PARTIES HAS HELD INTER ALIA THAT SEC. 23(1)(A) REQUIRES DETERMINATION OF FAIR RENT BEING THE SUM FOR WHI CH PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR AN D THE AO HAS TO MAKE ENQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT PROPERTY MIGHT FETCH. IT WAS ALSO HELD THAT AO CAN IGNORE THE MUNICIPAL VALU ATION FOR DETERMINING THE ALV IF HE FINDS THAT SAME IS NOT BASED ON RELEVANT MATERIAL FOR DETERMINING THE FAIR RENT IN THE MARKET AND THERE IS SUFFICIE NT MATERIAL ON RECORD FOR TAKING A DIFFERENT VALUATION. IN THE EARLIER ASSES SMENT YEARS TRIBUNAL HAS HELD THAT FAIR RENT OF ASSESSEES PROPERTY WAS DETERMI NED BY LD. CIT(A) ON THE BASIS OF COMPARABLE CASE AT RS. 28,000/- PER MONTH FOR ASSESSMENT YEARS 1999-2000 TO 2002-03 AND IT WAS IN CONSONANCE WITH RATIO LAID DOWN BY FULL BENCH OF HONBLE DELHI HIGH COURT. ACCORDINGLY ORD ER OF LD. CIT(A) WAS UPHELD IN DIRECTING AO TO ADOPT ALV OF ASSESSEES P ROPERTY FOR ASSESSMENT YEARS 1999-2000 TO 2002-03 ON THE BASIS OF FAIR REN T OF RS. 28,000/- PER MONTH AS AGAINST RS. 23,000/- SHOWN BY ASSESSEE AND RS. 2,50,000/- TAKEN BY AO. 10. CONSIDERING THE ABOVE CASE OF ASSESSEE FOR PREC EDING ASSESSMENT YEARS, AND ALSO FOLLOWING DECISION OF HONBLE DELHI HIGH COURT FULL BENCH (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT AO HAS ADOPTED FAIR MARKET VALUE IN RESPECT OF PROPERTIES MENTIONED AT S. NO. 4 & 5 AFTER CONSIDERING RENT RECEIVED BY ASSESSEE IN EARLIER ASSESSMENT YEARS I. E. BEFORE RECEIPT OF SECURITY DEPOSIT BY ASSESSEE AND THEREFORE WE HOLD THAT LD. CIT(A) HAS RIGHTLY HELD TO TAKE ALV OF PROPERTY AT S. NO. 4 & 5 AS CONSIDERED BY AO. HOWEVER IN RESPECT OF PROPERTIES MENTIONED AT S. NOS. 1 TO 3, THERE IS NO DISPUTE TO THE FACT THAT AO HAS NOT BROUGHT ANY COMPARABLE RENTAL VALUE NOR HE HAS GIVEN ANY FINDING AS TO WHAT WAS THE RENT RECEIVED BY ASS ESSEE BEFORE ANY SECURITY AMOUNT WAS TAKEN BY ASSESSEE; AND THEREFORE WE AGRE E WITH LD. CIT(A) THAT AO WAS NOT JUSTIFIED TO CONSIDER ALV BY CONSIDERING 10% OF SECURITY DEPOSIT AS A PART OF ANNUAL VALUE. IN VIEW OF ABOVE, WE HOL D THAT THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). HENCE WE REJECT GROUND S OF APPEAL TAKEN BY ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 7 DEPARTMENT AS WELL AS BY ASSESSEE FOR BOTH ASSESSME NT YEARS UNDER CONSIDERATION BY UPHOLDING ORDER OF LD. CIT(A). 11. IN THE RESULT, BOTH CROSS APPEALS OF ASSESSEE AS WELL AS DEPARTMENT ARE DISMISSED. ORDER PRONOUNCED ON THIS 16 TH DAY OF DECEMBER, 2011 SD/- SD/- ( PRAMOD KUMAR) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH DECEMBER,2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR I BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NOS. 3818 & 19/M/08 ITA NOS. 4235 & 36/M/08 8 DATE INITIALS 1. DRAFT DICTATED ON: 07.12.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 07.12.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: