Vakalanka Raman, Visakhapatnam V. ITO, Ward-5(2), , Visakhapatnam

ITA 445/VIZ/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9573 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 26-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Keywords: Business income; Valuation report
• Section: 5(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO S . 444 &445 /VIZ/ 201 7 ( / ASSESSMENT YEAR: 2010 - 11 ) (1) SMT. VAKALANKA PADMASREE [PAN :ADRPV 5512] (2) SHRI VAKALANKA RAMAN D.NO.6 - 63 - 13/2, 6 TH CROSS LANE SRAMIK NAGAR, CHINNAGANTYADA VISAKHAPATNAM [ PAN : AEHPV8217M] VS. INCOME TAX OFFICER WARD - 5 (2) GUNTUR ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI, AR / RESPONDENT BY : SMT. SUMAN MALIK, DR / DATE OF HEARING : 1 0 .1 2 .2018 / DATE OF PRONOUNCEMENT : 20 . 12 .2018 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: TH E S E APPEAL S ARE FILED BY THE ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX ( APPEALS ) - 1 , GUNTUR VIDE ITA NO.172/2013 - 14 DATED 09 . 0 3 .201 7 FOR THE A SSESSMENT Y EAR S (A.Y) 2010 - 11 . SINCE THE 2 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM GROUNDS RAISED IN THESE APPEALS ARE COMMON, THE APPEALS ARE CLUBBED, HEARD TOGETHER AND A COMMON ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AS UNDER. SINCE THE FACTS ARE IDENTICAL, THE FACTS ARE EXTRACTED FROM I.T.A 444/VIZ/2017 OF SMT. VAKALANKA PADMASREE. 2. ALL THE GROUNDS IN THESE APPEALS ARE AGAINST THE ESTIMATION OF NOTIONAL RENT IN RESPECT OF GROUND FLOOR AND FIRST FLOOR OF A BUILDING OWNED BY THE ASSESSEE S . TH E ASSESSEE IS AN INDIVIDUAL DE R I VING INCOME FROM HOUSE PROPERTY AND BUSINESS INCOME FROM RUNNIN G A FUNCTION HALL. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.YS.2010 - 11 ON 13.01.2011 ADMITTING TOTAL INCOME OF RS.7,14,927/ - WHICH INCLUDED THE INCOME FROM HOUSE PROPERTY AT RS.1, 30,824/ - . THE ASSESSEE IS OWNIN G A COMMERCIAL COMPLEX JOINTLY WITH HER HUSBAND SHRI VAKALANKA RAMAN AT D.NO.26 - 1 - 2/5, PADMASREE ARCADE, MAIN ROAD, CHINNAGANTYADA, OLD GAJUWAKA, VISAKHAPATNAM. THE SAID COMMERCIAL COMPLEX WAS CONSTRUCTED DURING THE PERIOD FROM APRIL 2006 TO AUGUST 2008 AS PER THE VALUATION REPORT OF THE GOVERNMENT APPROVED VALUER SUBMITTED BY THE AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE . THE COMMERCIAL COMPLEX CONSISTS OF CELLAR, GROUND FLOOR PLUS FOUR FLOORS. THE GROUND FLOOR I S STATED TO HAVE BEEN LET OUT TO AXIS BANK FROM JANUARY 2010 AS PER THE STATEMENT OF COMPUTATION OF INCOME 3 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM FURNISHED BY THE ASSESSEE. THE F IRST FLOOR I S LET OUT TO VLCC LTD. FROM 02.11.2010 AND 2 ND AND 3 RD FLOORS A RE USED FOR PADMASREE FUNCTION HALL AND THE SMALL PORTION OF 274 SFT. IN THE 4 TH FLOOR IS USED FOR OFFICE OF THE FUNCTION HALL. THE ASSESSEE SUBMITTED THAT THE GROUND FLOOR WAS VA CANT TILL DECEMBER AND I S LET OUT FROM JANUARY 2010 THUS OFFERED THREE MONTHS RENT FOR TAXATION . THE FIRST FLOOR WAS VACANT DURING THE ENTIRE FINANCIAL YEAR 2009 - 10 RELEVANT TO THE A.Y. 2010 - 11 AND NO RENTAL INCOME WAS OFFERED BY THE ASSESSEE. IN A NUT SH ELL THE ASSESSEE ADMITTED THE RECEIPTS FROM FUNCTION HALL AND THE 3 MONTHS RENT OF GROUND FLOOR FROM THE COMMERCIAL COMPLEX OF PADMASREE ARCADE . THE ASSESSEE I S ALSO HAVING ONE MORE RESIDENTIAL HOUSE IN DOOR NO.6 - 63 - 13/2, SHRAMIK NAGAR, CHINAGANTYADA, OLD GAJUWAKA, VISAKHAPATNAM WHICH CLAIMED T O BE SELF - OCCUPIED PROPERTY AND THE ANNUA L RENTAL VALUE ADMITTED AS NIL. 2.1. TH E CONTENTION OF THE ASSESSEE IS THAT THE ENTIRE BUILDING OF PADMASREE ARCADE CONSTITUTE ONE UNIT AND THE CASE IS COVERED BY SECTION 23(1)(C) OF THE ACT. ACCORDING TO THE ASSESSEE SINCE THE ASSESSEE OFFERED INCOME FROM FUNCTION HALL AND THREE MONTHS RENT FROM THE GROUND FLOOR THE ASSESSEE WOULD BE ENTITLED FOR VACANCY ALLOWAN CE AS PER SECTIO N 23(1)(C) OF THE A CT. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT THOUGH THE ASSESSEE CLAIMED GROUND FLOOR AS VACANT FOR NINE MONTHS 4 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM FROM THE BEGINNING OF THE FINANCIAL YEAR AND LET OUT ONLY FOR THREE MON THS, THE ELECTRICITY BIL LS SHOW HUGE VARIATION AND IT WAS NOT IN THE MINIMUM CHARGES RANGE. HENCE, AO DISBELIEVED THE CONTENTION OF THE ASSESSEE THAT THE PROPERTY WAS NOT LET OUT FOR NINE MONTHS AND ACCORDINGLY HELD THAT THE ANNUAL RENTAL VALUE OF THE GROUND FLOOR REQUIRED TO BE TAXED ON THE BASIS OF THE ANNUAL VALUE U/S 23(1)(A) OF THE ACT . THE AO FOUND THAT THE ASSESSEE LET OUT THE GROUND FLOOR OF THE PROPERTY TO AXIS BANK FOR MONTHLY RENT OF RS.1,41,636/ - AN D HENCE THE ANNUAL VALUE OF THE GROUND FLOOR IS TAKEN AT RS.1,41,630/ - PER MONTH . THE SHARE OF THE ASSESSEE BEING 50%, THE VALUE WORKED OUT TO RS. 72,172/ - PER MONTH AND ACCORDINGLY COMPUTED THE ANNUAL VALUE AT RS.8,55,558/ - FOR 12 MONTHS AND COMPUTED THE RENTAL INCOME FOR GROUND FLOOR AT RS.4,46,154/ - IN THE PLACE OF RS.1,30,824/ - AS UNDER : RENT RECEIVED FOR 3 MONTHS AS ADMITTED BY THE ASSESSEE RS.2,18,196/ - NOTIONAL RENT FOR 9 MONTHS AS DISCUSSED ABOVE RS.6,37,362/ - RS.8,55,558/ - LESS : MUNICIPAL TAXES RS.31,304/ - RS.8,24,254/ - LESS : DEDUCTION U/S 24 % 30% OF RS.8,24,254/ - RS.2,47,276/ - NET INCOME FROM GROUND FLOOR RS.5,76,978/ - 2.2 . IN THE CASE OF FIRST FLOOR, IT WAS VACANT FOR THE ENTIRE FINANCIAL YEAR AND SUBSEQUENTLY LET OUT TO VLCC LTD. W.E.F. 02.11.2010 FOR A MONTHLY RENT OF 5 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM RS.1,00,000/ - PER MONTH. ACCORDINGLY, THE AO COMPUTED THE NOTIONAL RE NT AT 1,00,000/ - PER MONTH AND ASSESSED 50% SHARE OF THE ASSESSEE U/S 23(1)(A) OF THE ACT AND BROUGHT TO TAX THE SUM OF RS.3,89,091/ - AS UNDER : NOTIONAL RENT RECEIVABLE RS.50,000/ - X 12 RS.6,00,000/ - LESS : MUNICIPAL TAXES RS.44,155/ - LESS : DEDUCTION U/S 24 @30% OF RS.5,55,845/ - RS.1,66,754/ - NET INCOME FROM FIRST FLOOR RS.3,89,091/ - 2.3 . ACCORDINGLY, THE AO COMPUTED THE TOTAL INCOME OF RS.15,50,170/ - AGAINST THE RETURNED INCOME OF RS. 7,14,927/ - . 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) UPHELD THE ORDER OF THE AO. AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE REVENUES CASE IS THAT THE ASSESSEE HAS CONSTRUCTED FOUR FLOORS, EACH UNIT IS SEPARATE AND INDEPENDENT, HENCE , EACH UNIT HAS TO BE CONSIDERED SEPARATELY AND INCOME FROM THE PROPERTY REQUIRED TO BE ASSESSED BY APPLICATION OF PROVISIONS OF SECTION 23 (1)(A) OF THE ACT INDEPENDENTLY FOR EACH UNIT. THE ASSESSEES CASE IS THAT ALL FOUR FLOORS C ONSTITUTE ONE UNIT AND THE INCOME REQUIRED TO BE COMPUTED AS PER SECTION 23(1)(C) OF THE A CT . IN THIS CASE, THE ASSESSEE HAS CONSTRUCTED FOUR 6 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM INDEPENDENT UNITS AND LET THEM OUT TO FOUR DIFFERENT PARTIES. EACH UNIT IS HAVING ITS OWN MUNICIPAL DOOR NUMBER AS SEPARATE UNIT WITH SEPARATE ELECTRICITY CONNECTION AND SEPARATE WATER CONNECTION. EACH INDEPENDENT UNIT IS LET OUT TO DIFFERENT TENANTS. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT THE ENTIRE BUILDING CONSTITUTE A SINGLE UNIT AND SECTION 23(1) (C) IS APPLICABLE IS UNTENABLE, A CCORDINGLY, THE SAME IS REJECTED. THE GROUND FLOOR WAS LET OUT TO AXIS BANK FROM JANUARY 2010 AND VACANT FOR NINE MONTHS. SECTION 23(1)(C) IS APPLICABLE ONLY IN CASE OF PROPERTY WHICH WAS LET OUT AND VACANT. IN THIS CASE, THE PR OPERTY WAS VACANT AND SUBSEQUENTLY LET OUT. THEREFORE, THERE IS NO CASE FOR APPLICATION OF 23(1)(C) FOR GROUND FLOOR AND WE UPHOLD THE ORDER OF THE LD.CIT(A) AND HO LD THAT SECTION 23(1)(A) IS APPLICABLE AND THE AO HAS RIGHTLY ASSESSED THE NOTIONAL RENT. ACCORDINGLY, GROUND NO. 2 OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. 5. HAVING HELD THAT EACH UNIT IS AN INDEPENDENT UNIT, WE OBSERVE THAT FIRST FLOOR WAS VACANT THROUGHOUT THE YEAR. THEREFORE, THERE IS NO CASE FOR APPLICATION OF SECTION 23(1)(C) OF TH E ACT FOR THE 1 ST FLOOR AND THE INCOME REQUIRED TO BE COMPUTED AS PER SECTION 23(1)(A) OF THE ACT ON THE BASIS OF FAIR RENTAL VALUE, WHICH THE AO HAS EXACTLY DONE. . THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF HONBLE HIGH COURT OF ANDHRA PRADESH IN 7 I.T.A. NO S . 444 & 445 /VIZ/201 7 SMT.VAKALANKA PADMASREE AND SHRI VAKALANKA RAMAN, VISAKHAPATNAM VI VEK JAIN. V ASSISTANT COMMISSIONER OF INCOME - TAX, 14 TAXMAN.COM 146. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD . 6 . IN THE RESULT, APPEALS OF THE ASSESSEE S ARE DISMISSED . O RDER PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER , 2018 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 20. 1 2 .2018 L.RAMA, SPS / COPY OF THE ORDER FORWARDED TO: - 1. / THE ASSESSEE (1) SMT. VAKALANKA PADMASREE (2) SHRI VAKALANKA RAMAN , D.NO.6 - 63 - 13/2, 6 TH CROSS LANE , SRAMIK NAGAR, CHINNAGANTYADA , VISAKHAPATNAM 2 . / THE REVENUE INCOME TAX OFFICER , WARD - 5(2) , GUNTUR 3. THE PR. COMMISSIONER OF INCOME TAX - 2, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 1, GUNTUR 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM