ACIT 8(1), MUMBAI V. KUNAL ENTERPRISES, MUMBAI

ITA 425/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8071 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Assessee Lawyers: Y N THAKKER
• Keywords: Notional interest

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI , ! , ' BEFORE SHRI JOGINDER SINGH, JM AND SHRI RAJENDRA, A M ITA NO.425/MUM/2012 (A.Y.2007-08) ACIT-18(1) 1 ST FLOOR, PIRAMAL CHAMBERS, LALBAUG MUMBAI-400 012. # # # # / VS. M/S. KUNAL ENTERPRISES 254 B, NIRLOM HOUSE, DR. A.B. ROAD, WORLI MUMBAI-400 030. ( %& / // / APPELLANT) ( '(%& / RESPONDENT) %& ) * ) * ) * ) * /APPELLANT BY : SHRI ASGHAR ZAIN V.P. '(%& ) * ) * ) * ) * /RESPONDENT BY : SHRI Y.N. THAKKER # ) +, / / / / DATE OF HEARING : 11.09.2014 -./ ) +, / DATE OF PRONOUNCEMENT : 11.09.2014 0 0 0 0 / / / / O R D E R PER JOGINDER SINGH (JM)/ : THE REVENUE IS AGGRIEVED IS AGGRIEVED BY THE IMPUGN ED ORDER DATED 2/11/2011 OF THE LD. FIRST APPELLATE AUTHORITY ON T HE GROUND WHETHER THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS .24,64,359/- MADE TO ANNUAL VALUE OF THE PROPERTY ON ACCOUNT OF NOTIONAL INTEREST ON INTEREST FREE DEPOSIT U/S.23(1) OF THE ACT WITHOUT APPRECIAT ING THAT SEC.23(1)(A) IS A DEEMING PROVISION AND THUS CANNOT BE BASED SOLELY ON MUNICIPAL VALUATION IN A CASE OF LET OUT PROPERTY AS THE REAS ONABLENESS OF RENT IS EQUALLY DEPENDENT ON THE INTEREST FREE SECURITY DEP OSIT WHICH WAS NOT ITA NO.425/MUM/2012 (A.Y. 2007-08) 2 CONSIDERED BY THE AUTHORITIES WHILE DETERMINING THE VALUATION OF THE PROPERTY. 2. DURING HEARING OF THIS APPEAL THE LD. DR SHRI AS GHAR ZAIN V.P. ADVANCED HIS ARGUMENTS WHICH ARE IDENTICAL TO THE G ROUND RAISED. THE LD. DR ALSO PLACED RELIANCE UPON THE DECISION IN CIT VS. K. STREETLITE ELECTRIC CORPORATION (2012) 20 TAXMANN.COM 532 (P&H ) . ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE SHRI Y.N. THA KKER, PLEADED THAT THE IMPUGNED ISSUE IS COVERED BY THE DECISION IN CIT VS. MONI KUMAR SUBBA/MIRACLE EXPORTERS PVT. LTD. (333 ITR 38)(DEL. )(FB) AND CIT VS. SHASTHA PHARMA LABORATORIES PVT. LTD.(355 ITR 316) (KAR.) . 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF AR E THAT THE ASSESSEE DECLARED TOTAL INCOME OF RS.12,20,590/- IN HIS RETU RN FILED ON 1/11/2007 WHICH WAS PROCESSED U/S. 143(1) OF THE AC T ACCEPTING THE RETURNED INCOME. SUBSEQUENTLY, THE CASE OF THE ASSE SSEE WAS SELECTED FOR SCRUTINY AND IN RESPONSE TO NOTICES THE ASSESSE E ATTENDED THE PROCEEDINGS FROM TIME TO TIME AND FURNISHED THE DET AILS AS CALLED FOR. ON PERUSAL OF SUCH DETAILS IT WAS NOTICED THAT THE ASS ESSEE EARNED INCOME FROM HOUSE PROPERTY WHICH WAS RENTED OUT TO MANISHA TRADING AND INVESTMENT PVT. LTD., WHICH IS A SISTER CONCERN. TH E ASSESSEE RECEIVED INTEREST FREE SECURITY DEPOSIT OF RS.2,05,36,323/-. THE ASSESSEE WAS ITA NO.425/MUM/2012 (A.Y. 2007-08) 3 ASKED BY THE AO AS TO WHY NOTIONAL INTEREST MAY NOT BE CHARGED ON THE ADVANCE RECEIVED ON THE PREMISES RENTED OUT TO THE SISTER CONCERN. THE ASSESSEE VIDE ITS LETTER DATED 25/11/2009 PLACED RE LIANCE UPON THE DECISION IN ITO VS. CYGUS NEGRI INVESTMENTS (ITA NO. 3830/MUM/19 91 (ITAT MUM.) BY FURTHER SUBMITTING THAT MUNICIPAL VALUE SHOULD BE CONSIDERED FOR ARRIVING AT THE ANNUAL VALUE OF THE PROPERTY AND THUS NOTIONAL INTEREST SHOULD NOT BE ADDED TO THE RENTAL INCOME. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO ON THE PLEA THAT ASSESSEE ARRIVED AT ALV BY MERELY REDUCING THE MUNIC IPAL TAXES FROM THE ACTUAL RENT RECEIVED WITHOUT APPLYING THE PROVISION S OF SEC.23(1) OF THE ACT AND COMPUTED THE INCOME AT RS.29,45,640/- INCLU DING INCOME FROM SHORT TERM CAPITAL GAIN . 3.1 THE ASSESSEE FELT AGGRIEVED AND PREFERRED APPEA L BEFORE THE LD. CIT(A) WHO FOLLOWED THE DECISION IN CYGUS NEGRI INVESTMENT (SUPRA), AND FURTHER FOLLOWING THE DECISION FROM HON'BLE BOMBAY HIGH COURT/SUPREME COURT AND HELD THAT NOTIONAL INTEREST ON DEPOSIT CANNOT BE TAKEN FOR DETERMINATION OF ALV AND ALLOWED THE AP PEAL OF THE ASSESSEE . 3.2 THE REVENUE IS AGGRIEVED AND IS IN APPEAL BEFOR E THIS TRIBUNAL. IF THE TOTALITY OF FACTS AVAILABLE ON RECORD, THE OBSE RVATION MADE IN ASSESSMENT ORDER, CONCLUSION DRAWN N THE IMPUGNED O RDER AND THE ITA NO.425/MUM/2012 (A.Y. 2007-08) 4 ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL ARE K EPT IN JUXTAPOSITION AND ANALYSED WE NOTE THAT THE HON'BLE BOMBAY HIGH C OURT AND EVEN THE HON'BLE APEX COURT CLEARLY HELD THAT NOTIONAL INTE REST ON DEPOSIT CANNOT BE TAKEN FOR DETERMINATION OF ALV. IT IS NOTED THAT IN THE CASE OF CYGUS NEGRI INVESTMENT . (SUPRA), THE TRIBUNAL DECIDED IN FAVOUR OF THE AS SESSEE AND EVEN THE APPEAL OF THE REVENUE WAS DISMISSED BY HON'BLE BOMBAY HIGH COURT AND FURTHER THE SLP OF THE DEPARTMENT BE FORE THE HON'BLE APEX COURT WAS ALSO DISMISSED. LIKEWISE, THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF J.K. INVESTOR LTD. 248 ITR 723 (BOM.) TOOK SIMILAR VIEW. IN ANOTHER CASE THE FULL BENCH OF HONBLE DELHI HIGH COURT IN CIT VS. MONI KUMAR SUBBA AND MIRACLE EXPORTERS PVT. LTD . VIDE ORDER DATED 30/3/2011 ON THE ISSUE OF DETERMINATION OF FAIR MARKET RENT WHEREIN THE ASSESSEE TOOK LARGE SUM AS INTEREST FREE DEPOSIT CO MPARED TO AGREED MONTHLY RENT. THE HON'BLE HIGH COURT HELD THAT ADDI TION OF NOTIONAL INTEREST IS NOT PROPER AND FAIR RENT MUST BE DETERM INED. IN ANOTHER CASE OF CIT VS. SHASTHA PHARMA LABORATORIES PVT. LTD. (2013 ) 355 ITR 316 (KAR.) WHEREIN IT WAS HELD AS UNDER :- THE ADDITION OF NOTIONAL INTEREST FREE SECURITY DEPOSIT TO THE RENT AGREED UPON IS NOT PERMISSIBLE IN LAW. IT IS OPEN TO THE ASSESSING AUTHORITY TO TAKE NOTE OF THE AMOUNT OF ADVANCE PAID WHICH GIVES AN INDICATION OF THE FAIR RENT WHICH THE PROPERTY FETCHES IN THE MARKET. BUT THE I NTEREST ACCRUED ON SUCH DEPOSIT CANNOT BE ADDED TO THE AGRE ED RENT, SO AS TO MAKE A FAIR RENT OR MARKET RENT FOR PURPOSES OF DETERMINING THE ANNUAL VALUE UNDER SECTION 23. ITA NO.425/MUM/2012 (A.Y. 2007-08) 5 WHILE COMING TO THIS CONCLUSION THE HONBLE COURT F OLLOWED THE AFORESAID FULL BENCH DECISION FROM HONBLE DELHI HIGH COURT . IN VIEW OF THE FACTS AND THE JUDICIAL PRONOUNCEMENT DISCUSSED HEREIN ABO VE WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LD. CIT(A) . IT IS AFFIRMED. 4. FINALLY THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 11 TH DAY OF SEPTEMBER, 2014 . 0 ) -./ 1 #2 11.09.2014 . ) 9 SD/- SD/- (RAJENDRA) (JOGINDER SINGH) ! ! ! ! / ACCOUNTANT MEMBER ! ! ! ! / JUDICIAL MEMBER MUMBAI; 1 # DATED : 11 TH SEPT. 2014. JV. 0 ) '+: ;:/+ 0 ) '+: ;:/+ 0 ) '+: ;:/+ 0 ) '+: ;:/+/ COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. '(%& / THE RESPONDENT. 3. < ( ) / THE CIT, MUMBAI. 4. < / CIT(A)-13, MUMBAI 5. :?9 '+# , , / DR, ITAT, MUMBAI 6. 9@ A / GUARD FILE. 0# 0# 0# 0# / BY ORDER, (:+ '+ //TRUE COPY// B BB B/ // /C C C C (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI