MANEK LODGE PROPERTIES, MUMBAI V. ITO 17(2)(3), MUMBAI

ITA 4014/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5057 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJIT PAL SINGH
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAVISH SOOD , JM ITA NO. 40 1 4 /MUM/ 2017 (ASSESSMENT YEAR: 2013 - 14 ) MANEK LODGE PROPERTIES 13 TH FLOOR, PENINSULA BUSINESS PARK, TOWER B, SENAPATI BAPAT MARG, LOWER PAREL (W), MUMBAI - 400 013 VS. ITO - 17(2)(3) ROOM NO. 134, 123 - B/E, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI - 400 020 PAN/GIR NO. AABTM 7555 P ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : NONE RESPONDENT BY : SHRI AJIT PAL SINGH DATE OF HEARING : 01.02.2019 DATE OF PRONOUNCEMENT : 06.02 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 28, MUMBAI (LD.CIT(A) FOR SHORT) DATED 03.04.2017 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2013 - 14. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING ADDITION OF NET ANNUAL LETTING VALUE OF RS. 95,22 ,446/ - OF THE PROPERTY VACANT THROUGHOUT THE YEAR BASED ON MERE SURMISES AND CONJECTURES WITHOUT UNDERSTANDING THE FACT OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED CONFIRMING COMPARABLE R ENT AS FAIR RENT OF THE PROPERTY WITHOUT CONSIDERING THE NOTICE ISSUED BY MCGM FOR DEMOLITION OF AUTHORIZED INTERNAL STRUCTURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN NOT CONSIDERED THE MUNICIP AL RATABLE VALUE AS ANNUAL VALUE OF THE PROPERTY. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN NOT CONSIDERING BOARD CIRCULAR AND VARIOUS CASE LAWS RELIED UPON BY YOUR APPELLANT. 5. ON THE FACTS AN D IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) ERRED IN NOT CONSIDERING THE PROVISIONS OF SECTION 23(L)(C) OF THE ACT IN ASCERTAINING THE ANNUAL LETTING VALUE. 2 ITA NO. 40 1 4/MUM/2017 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE OWNS FLOORS 4 TO 9 IN THE BUILDING DESCRIBED AS 33, HUGHES BUILDING. FLOOR NUMBERS 4 TO 6 WERE ACTUALLY LET OUT AND FLOOR NUMBERS 7 TO 9 WERE VACANT DUE TO A NOTICE BY BOMBAY MUNICIPAL CORPORATION. THE A.O. HAS APPLIED THE AVERAGE RATE O F RENTAL FOR FLOORS 4 TO 6 FOR THE VACANT AREA , AND ASSESSED TAXABLE DEEMED RENT FOR A SUM OF RS.95,22,446/ - . 4. BEFORE THE LD. CIT(A), IT WAS THE ASSESSEES PLEA IS THAT THE VALUE SHOULD BE TAKEN AS NIL IN ACCORDANCE WITH THE PROVISIONS OF SECTION 23(1) (C). IN THE ALTERNATIVE, IT WAS ARGUED THAT THE ALV SHOULD BE THE MUNICIPAL RATEABLE VALUE. BEFORE THE LD. CIT(A) IT WAS ALSO CONTENDED THAT THE VACANT FLATS WERE BEING IN DISPUTE WITH MCGM AND, HENCE, THE CALCULATION OF THE NOTIONAL RENT WAS NOT CORRECT . HOWEVER, THE LD. CIT(A) DID NOT ACCEPT THE SAME. HE PROCEEDED TO REJECT THE SUBMISSIONS OF THE APPLIC ATION OF MUNICIPAL RATEABLE VALUE. HE FURTHER DID NOT ACCEPT THE RATIO AS EMANATING FROM THE HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF CIT VS. TI P TOP TYPOGRAPHY [2014] 368 ITR 330 (BOM) DESPITE QUOTING FROM THE HEAD NOTES OF THE SAID DECISION. ACCORDINGLY, H E UPH E LD THE A.O.S ACTION. 5. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE HAVE GONE THROUGH THE SUBMISSIONS AND THE CASE LAWS RELIED UPON. THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT IT IS UNDISPUTED THAT THE SAID VACANT FLOORS WERE NOT LET OUT DURING THE CONCERNED AS SESSMENT YEAR. HE ALSO SUBMITTED THAT IT IS ALSO UNDISPUTED THAT THERE WAS NOTICE FROM MCGM DIRECTING TO REGULARIZE THE STRUCTURE AND ORDER ISSUED FOR DE MOLISHING OF PARTITIONS AND CABINS FOR 7 TH TO 9 TH FLOOR. IN THIS REGARD, THE COPIES OF THE RELEVANT NOT ICES WERE SUBMITTED BEFORE US IN PB PG. 10 - 12. IN VIEW OF THE ABOVE FACTUAL DETAILS, WE FIND 3 ITA NO. 40 1 4/MUM/2017 OURSELVES IN AGREEMENT WITH THE LD. COUNSEL OF THE ASSESSEE THAT THERE WAS REASONABLE CAUSE DUE TO WHICH THE SAID PREMISES COULD NOT BE LET OUT DURING THE CONCERNE D ASSESSMENT YEAR. IN THIS REGARD, WE PLACE RELIANCE UPON THE PROVISION OF SECTION 23(1)(C) AND THE DECISION OF THIS ITAT IN THE CASE OF SAIF ALI KHAN PATAUDI VS. ACIT (IN ITA NO. 5811/MUM/2016 VIDE ORDER DATED 21.08.2018 FOR A.Y. 2012 - 13). THE ITAT VIDE ADJUDICATING THE SAID APPEAL HAS HELD AS UNDER: THERE WERE CERTAIN DEFECTS IN THE CONSTRUCTION OF THE FLAT UNDER THE SANCTIONED PLAN, THE REMOVAL OF WHICH WAS NECESSARY . LETTING OUT A HOUSE WHICH IS NOT CONSTRUCTED AS PER AN APPROVED PLAN CANNOT BE FORCED UPON THE ASSESSEE. FURTHERMORE, SUBSEQUENTLY THE ASSESSEE HAD TO INCUR OVER RS.50 LACS FOR ALTERATION OF THE FLAT WHICH RESULTED IN THE BIFURCATION OF THE FLAT INTO THR EE PARTS. THIS OXYGENATES THE ASSESSEE'S CLAIM THAT THE PREMISES REQUIRED ALTERATION IN ORDER TO PROPERLY LET OUT. HENCE, THE PLEA BY THE LD. COUNSEL OF THE ASSESSEE CANNOT BE SAID TO BE SPURIOUS, VEXATIOUS, MERE BLUSTER OR FRIVOLOUS. HENCE, IN THIS CONNEC TION, IN OUR CONSIDERED OPINION, THE ASSESSEE DESERVES VACANCY ALLOWANCE U/S. 23(1)(C). THIS SECTION READS AS UNDER: ANNUAL VALUE HOW DETERMINED. 23. (1) FOR THE PURPOSES OF SECTION 22 , THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE ( A ) THE 57 SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR ( B ) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET 57 AND THE ACTUAL RENT 57 RECEIVED OR RECEIVABLE 57 BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE ( A ), TH E AMOUNT SO RECEIVED OR RECEIVABLE; OR ( C ) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT TH EREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE ( A ), THE AMOUNT SO RECEIVED OR RECEIVABLE : 12. FROM THE ABOVE PROVISION OF LAW, IT CAN BE CONSTRUED THAT IN CASE THE PROPERTY OR PART THEREOF WAS VACANT DURING THE PERIOD, THE PROPORTION DEDUCTION SHOULD B E ALLOWED FROM THE SUM ON WHICH THE PROPERTY MIGHT REASONABLY BE LET OUT FROM YEAR TO YEAR. WE FIND THAT IT IS THE PLEA OF THE ASSESSEE THAT DUE TO INHERENT DEFECTS, THE FLAT COULD NOT BE LET OUT. HENCE, THE FLAT REMAINED VACANT. HENCE, THE ASSESSEE HAS CL AIMED BENEFIT OF SECTION 23(1)(C) WHICH DULY PERMITS DEDUCTION IN THIS REGARD. WE FIND THAT THE ITAT IN THE CASE OF PREMSUDHA EXPORTS (P) LTD. (SUPRA) HAD THE OCCASION TO DELIBERATE ON THE IDENTICAL ISSUE. THE TRIBUNAL HAD EXPOUNDED AS UNDER: FROM A READING OF THE PROVISIONS OF SUB - SECTION (3) OF SECTION 23, IT APPEARS THAT THE LEGISLATURES IN THEIR WISDOM HAVE USED THE WORDS HOUSE IS ACTUALLY LET. THIS SHOWS THAT THE WORDS PROPERTY IS LET CANNOT MEAN ACTUAL LETTING OUT OF THE PROPERTY BECA USE HAD IT BEEN SO, THERE WAS BE NO NEED TO USE THE WORD ACTUALLY 4 ITA NO. 40 1 4/MUM/2017 IN SUB - SECTION (3) OF SECTION 23. REGARDING THE SCOPE OF REFERRING TO ACTUAL LETTING OUT IN PRECEDING PERIOD, THERE WAS NO FORCE IN THE CONTENTION OF THE REVENUE, AS THE LEGISLATURE HAS US ED THE PRESENT TENSE. EVEN IF IT IS INTERPRETED SO, IT MAY LEAD TO UNDESIRABLE RESULT BECAUSE IN SOME CASES, IF THE OWNER HAS LET OUT A PROPERTY FOR ONE MONTH OR FOR EVEN ONE DAY, THAT PROPERTY WOULD ACQUIRE THE STATUS OF LET OUT PROPERTY FOR THE PURPOSE OF CLAUSE ( C ) OF SECTION 23(1) FOR THE ENTIRE LIFE OF THE PROPERTY, EVEN WITHOUT ANY INTENTION TO LET IT OUT IN THE RELEVANT YEAR. NOT ONLY THAT, EVEN IF THE PROPERTY WAS LET OUT AT ANY POINT OF TIME EVEN BY ANY PREVIOUS OWNER, IT COULD BE CLAIMED THAT THE PROPERTY IS LET OUT PROPERTY BECAUSE THE CLAUSE TALKS ABOUT THE PROPERTY AND NOT ABOUT THE PRESENT OWNER AND SINCE THE PROPERTY WAS LET OUT IN PAST, IT IS A LET OUT PROPERTY, ALTHOUGH THE PRESENT OWNER NEVER INTENDED TO LET OUT THE SAME. THEREFORE, IT IS NOT AT ALL RELEVANT AS TO WHETHER THE PROPERTY WAS LET OUT IN PAST OR NOT. THESE WORDS DO NOT TALK OF ACTUAL LET OUT ALSO BUT TALK ABOUT THE INTENTION TO LET OUT. IF THE PROPERTY IS HELD BY THE OWNER FOR LETTING OUT AND EFFORTS ARE MADE TO LET IT OUT, T HAT PROPERTY IS COVERED BY CLAUSE ( C ) AND THIS REQUIREMENT HAS TO BE SATISFIED IN EACH YEAR THAT THE PROPERTY WAS BEING HELD TO LET OUT BUT REMAINED VACANT FOR WHOLE OR PART OF THE YEAR. ABOVE DISCUSSION SHOWS THAT MEANING AND INTERPRETATION OF THE WORDS PROPERTY IS LET CANNOT BE PROPERTY ACTUALLY LET OUT. THUS, IF A PROPERTY IS HELD WITH AN INTENTION TO LET OUT IN THE RELEVANT YEAR COUPLED WITH EFFORTS MADE FOR LETTING IT OUT, IT COULD BE SAID THAT SUCH A PROPERTY IS A LET OUT PROPERTY AND THE SAME WOU LD FALL WITHIN THE PURVIEW OF CLAUSE ( C ) OF SECTION 23(1). [PARA 16] 13. ON THE TOUCHSTONE OF THE ABOVE PROPOSITION OF LAW AND CASE LAW, IN OUR CONSIDERED OPINION, THE ASSESSEE SHOULD BE GRANTED VACANCY ALLOWANCE. HOWEVER, AS CONCEDED BY THE LD. COUNSEL OF THE ASSESSEE AND ALSO ACCEPTED IN THE GROUNDS OF APPEAL, THE ASSESSEE IS AGREEABLE TO OFFER A SUM OF RS.11,83,723/ - FOR TAXATION IN THIS REGARD. WE ACCEPT THIS PROPOSAL AND MODIFY THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ACCORDINGLY. 7. FROM THE ABOVE, EXAMINING THE PRESENT C A S E ON THE PROVISIONS OF SECTION 23(1)(C) AND ABOVE PRECEDENT, WE FIND THAT THE ASSESSEES SUBMISSIONS THAT THE PROPERTY COULD NOT BE LET OUT DUE TO REASONABLE CAUSE, IS COGENT. FURTHERMORE IN THIS REGARD, WE ALSO NOTE TH AT THE LD. LD. COUNSEL OF THE ASSESSEE HAS ACCEPTED THAT THE MUNICIPAL RATEABLE VALUE MAY BE APPLIED TO COMPUTE THE FAIR RENTAL VALUE TO BE BROUGHT TO TAX I N LIGHT OF THE HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF TIP TOP TYPOGRAPHY (SUPRA). IN THE SAID CASE LAWS, IT WAS DULY EXPOUNDED THAT THE MUNICIPAL RATEABLE VALUE THOUGH NOT BINDING ON THE A.O., IS APPROVED METHOD F OR DETERMINING THE FAIR RENTAL VALUE AND IT IS ONLY WHEN THE A.O. IS CONVINCED THAT CASE BEFORE HIM IS SUSPICIOUS AND THE 5 ITA NO. 40 1 4/MUM/2017 DE TERMINATION BY THE PARTIES IS DOUBTFUL , THAT HE CAN RESORT TO ENQUIRE ABOUT THE PREVAILING RATE IN THE LOCALITY, THE A.O. CAN REJECT THE MUNICIPAL RATEABLE VALUE. IN THE PRESENT CASE, WE FIND THAT IT IS NOT THE CASE BY THE A.O. THAT THE ASSESSEE HAS ACTUALLY LET OUT OF THE PROPERTY OR HE HAS RECEI VED SOME UNDISCLOSED MONEY IN LIEU , AND HE IS NOT DISCLOSING THE INCOME. HENCE, IN OUR CONSIDERED OPINION, THE RATIO FROM THIS CASE LAW IS DULY APPLICABLE AND THE LD. COUNSEL OF THE ASSESSEE DULY ACCEPT ED TH E SAME. HENCE, WE DIRECT THE A.O. TO APPLY THE MUNICIPAL R ATEABLE VALUE IN DETERMINING THE FAIR RENTAL VALUE TO BE BROUGHT TO TAX . 8. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 0 6 . 0 2 . 2 0 1 9 S D / - S D / - ( RAVISH SOOD ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 0 6 . 0 2 . 2 0 1 9 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI