ZEENAT SALIM KAGALWAL, MUMBAI V. ITO WD 14(1)(4), MUMBAI

ITA 3999/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3729 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 29-11-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 25-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H N SHAH; D H SHAH
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 3999/MUM/2009 (ASSESSMENT YEAR: 2005-06) MRS. ZEENAT SALIM KAGALWALA INCOME TAX OFFICER - 1 4(1)(4) 4TH FLOOR, FIDA BUILDING EARNEST HOUSE, NARIMA POIN T 18, SHAMALDAS GANDHI MARG VS. MUMBAI 400021 MUMBAI 400002 PAN - AAPHK 0100 G APPELLANT RESPONDENT APPELLANT BY: SHRI H.N. SHAH & SHRI D.H. SHAH RESPONDENT BY: SHRI AARSI PRASAD O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XIV, MUMBAI DATED 8 TH APRIL 2009. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED COMMISSIONER OF INCOME TAX (A) XIV, MUMBAI (CIT(A )): 1. GROSSLY ERRED ON AFFIRMING NOTIONAL INTEREST OF RS.2,64,000/- @12% P.A. ON SECURITY DEPOSIT OF RS.44,00,000/- TO BE AD DED TO THE ANNUAL VALUE. IT IS SUBMITTED GIVEN THE FACTS & CIR CUMSTANCES OF THE CASE RENT CHARGED OF RS.1,21,900/- SHOULD ONLY BE C ONSIDERED AS THE ANNUAL VALUE U/S 23(1). 2. WITHOUT PREJUDICE TO THE EARLIER GROUND THE LEAR NED CIT(A) ERRED IN CONSIDERING THE NOTIONAL INTEREST @12%. IT IS SUBMI TTED THE FAIR RATE FOR SECURITY DEPOSIT TO BE HELD FOR A PERIOD OF ONE YEAR CANNOT EXCEED THE APPLICABLE BANK RATE OF INTEREST ON DEPOSIT FOR A YEAR I.E. 6% P.A. CONSEQUENTLY THE NOTIONAL INTEREST SHOULD BE R EDUCED TO 6% P.A. 3. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL WHO ACQUIRED A RESIDENTIAL PROPERTY ON 10 TH OCTOBER, 2003 FOR AN AMOUNT OF ` 110 LAKHS. TOGETHER WITH STAMP DUTY THE TOTAL COST HAS COME TO ` 123.09 LAKHS. THE PROPERTY WAS ALREADY ON LEAVE AND LICENCE DURIN G THE TIME OF THE SELLER ITA NO. 3999/MUM/2009 MRS. ZEENAT SALIM KAGALWALA 2 ITSELF TO M/S. INFRASTRUCTURE DEVELOPMENT FINANCE C OMPANY LTD. AND THE ASSESSEE CONTINUED THE LEAVE AND LICENCE BY TAKING AN INTEREST FREE SECURITY DEPOSIT OF ` 44 LAKHS. DURING THE YEAR THE SAID COMPANY HAS OCCU PIED THE PREMISES UPTO 9 TH SEPTEMBER 2004 AND SUBSEQUENTLY THE PROPERTY BECAM E SELF OCCUPIED. IN THE ASSESSMENT PROCEEDINGS, HAVIN G NOTICED THAT THE ASSESSEE HAS TAKEN INTEREST FREE DEPOSIT OF ` 44 LAKHS, THE A.O. HAS BROUGHT AN AMOUNT OF ` 3,96,000/- AS INTEREST CALCULATED AT 18% OF THE DEP OSIT ADDED TO THE ACTUAL RENT RECEIVED ON THE PROPERTY, THEREB Y TAKING THE ANNUAL LETTING VALUE UNDER SECTION 23(1)(A) AT ` 5,17,900/- AS AGAINST ` 1,21,900/- DECLARED BY THE ASSESSEE. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A). NOTICING THAT THE ASSESSEE HAS NOT CONTESTED AND RAISED ANY OBJECTION FOR INVOKING THE PROVISIONS OF SECTION 23(1)(A), THE CIT(A) THOU GHT IT FIT TO REDUCE THE RATE OF INTEREST FROM 18% TO 12% AND ALLOWED PARTIAL REL IEF TO THE ASSESSEE BY DIRECTING THE A.O. TO REDUCE THE ADDITION OF INTERE ST ADDED TO ACTUAL RENT RECEIVED @12%. THE ASSESSEE IS CONTESTING THE ABOVE ACTION TAKEN BY THE CIT(A). 4. IT WAS THE SUBMISSION OF THE LEARNED COUNSEL FOR TH E ASSESSEE THAT THE PROPERTY WAS PARTLY OCCUPIED DURING THE YEAR AND NO NOTIONAL INTEREST CAN BE CONSIDERED UNDER SECTION 23(1)(B) IN VIEW OF THE HO N'BLE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OF CIT VS. J.K. INVESTORS (BO MBAY) LTD. 248 ITR 723. HOWEVER, HE ADMITTED THAT THE PROPERTY IS NOT CONTR OLLED BY THE RENT CONTROL ACT. 5. THE LEARNED D.R., HOWEVER, RELIED ON THE ORDER OF T HE CIT(A). 6. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ORDE R OF THE A.O. HE HAS CONSIDERED THE ANNUAL LETTING VALUE BY INVOKING THE PROVISIONS OF SECTION 23(1)(A) EVENTHOUGH IN ARRIVING AT THE FIGURE HE HA S ADDED 18% OF THE FIXED DEPOSIT FOR A PERIOD OF SIX MONTHS. WE ARE OF THE O PINION THAT THE METHODOLOGY ADOPTED BY THE A.O. IS NOT CORRECT. IT IS TRUE THAT VARIOUS PRINCIPLES ARE ESTABLISHED ON THIS ISSUE OF TAKING STANDARD RENT OR MUNICIPAL RATEABLE VALUE AS ALV, BUT IN ALMOST ALL THE CASES THE RENT CONTROL ACT WAS APPLICABLE. HOWEVER, IN THE PRESENT CASE THE RENT C ONTROL ACT WAS NOT APPLICABLE. THE A.O. INVOKED THE PROVISIONS OF SECT ION 23(1)(A). IN ITA NO. 3999/MUM/2009 MRS. ZEENAT SALIM KAGALWALA 3 CONSIDERING THE ANNUAL LETTING VALUE HE HAS NEITHER CONSIDERED THE MARKET RATE OF RENT OR THE MUNICIPAL RATEABLE VALUE OR AN Y OTHER FACTOR WHILE DETERMINING THE ANNUAL LETTING VALUE AND SIMPLY ADD ED INTEREST AT 18% OF THE SECURITY DEPOSIT FOR A PERIOD OF SIX MONTHS. WI THOUT EXAMINING THE ISSUE THE CIT(A) REDUCED THE RATE OF INTEREST TO 12%. WE ARE OF THE OPINION THAT THE METHODOLOGY ADOPTED BY THE A.O. IS NOT CORRECT AND THE ISSUE IS TO BE RE- EXAMINED TO DETERMINE THE ANNUAL LETTING VALUE, AFT ER GIVING DUE OPPORTUNITY TO THE ASSESSEE TO SUBMIT POSSIBLE RATEABLE VALUE/ MARKET RENT AND RE- DETERMINE THE ANNUAL LETTING VALUE FOR THE PURPOSE OF ARRIVING AT THE ACTUAL RENT. THE MATTER IS RESTORED BACK TO THE FILE OF TH E A.O. TO DECIDE ON FACTS AND ALSO ON LAW AS PER THE PROVISIONS OF THE ACT. ASSES SEE SHOULD BE GIVEN DUE OPPORTUNITY TO SUBSTANTIATE THE CLAIMS. GROUNDS ARE CONSIDERED ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON 29 TH NOVEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 29 TH NOVEMBER 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XIV, MUMBAI 4. THE CIT XIV, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.