ADDL CIT RG 23(1), MUMBAI V. MACHINERY & SPARES, MUMBAI

ITA 4584/MUM/2010

• Counselvise Citation: 458419914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S.SYAL(A.M) AND SHRI N.V.VASUDEVAN(J. M) ITA NO.4584/MUM/2010(A.Y.2007-08) THE DCIT, CIR. 23(1), BLDG. C-10, 1 ST FLOOR, ROOM NO.108, PRATYAKSHA KAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI -51. (APPELLANT) VS. M/S. MACHINERY & SPARES, 201/202, KARMA STAMBH, OPP. MTNL OFFICE, VIKHROLI (W), MUMBAI 400 083. PAN:AAAFM 1528K (RESPONDENT ) APPELLANT BY : SHRI P.C.MAURYA RESPONDENT BY : SHRI VIMAL PUNMIYA DATE OF HEARING : 27/07/2011 DATE OF PRONOUNCEMENT : ____ _________ ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDE R DATED 17/3/2010 OF CIT(A)-33, MUMBAI RELATING TO ASSESSMENT YEAR 2007- 8. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE READS AS UNDER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE AND DIRECTING TO TAKE THE INCOME FROM HOUSE PROPERTY RELYING THE HONBLE ITATS ORDER IN THIS CASE FOR A.Y 2005-06 AGAINST WHICH THE DEPARTM ENT HAS FILED THE APPEAL U/S. 260A OF THE IT ACT BEFORE HIGH COURT. 2. THE ASSESSEE IS A REGISTERED FIRM OF PARTNERSHIP CARRYING ON THE BUSINESS OF TRADING IN MACHINERY AND MACHINE TOOLS. THE ASSESSEE WAS A TENANT OF A PREMISES AT FORT. IT HAD SUB-LET THE S AID PREMISES TO ICICI BANK. THE QUESTION BEFORE AO WAS AS TO WHETHER THE INCOME FROM SUB-LETTING HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PR OPERTY OR INCOME ITA NO.4584/MUM/2010(A.Y.2007-08) 2 FROM OTHER SOURCES. IN A.Y 2005-06 THE AO HAD TA KEN THE STAND THAT THE ASSESSEE WAS NOT OWNER OF THE PROPERTY AND, THEREFO RE, INCOME FROM SUB- LETTING HAS TO BE ASSESSED UNDER THE HEAD INCOME FR OM OTHER SOURCES. CONSEQUENTLY THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 24 OF THE INCOME TAX ACT, 1961(THE ACT) WAS DISALLOWED. 3. FOLLOWING THE SAID ORDER IN THIS ASSESSMENT YEAR ALSO THE AO TREATED THE INCOME FROM SUB-LETTING UNDER THE HEAD INCOME FROM OTHER SOURCES. EVEN BEFORE THE AO THE ASSESSEE POINTED OUT THAT IN A.Y 2005-06 THE CIT(A) HELD THAT THE ASSESSEE WAS THE DEEMED OWNER UNDER S ECTION 27(III(B) OF THE ACT AND, THEREFORE, THE INCOME FROM SUB-LETTING HAD TO BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE REVENUE PRE FERRED AN APPEAL BEFORE THE TRIBUNAL AGAINST THE SAID ORDER OF THE CIT(A) I N ITA NO.3008/M/08. BY ORDER DATED 9/10/2009 THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A). ACCORDING TO THE AO THOSE ORDERS WERE RENDERED BY W RONG APPRECIATION OF FACTS. THE AO, THEREFORE, TREATED THE INCOME FROM SUB-LETTING UNDER THE HEAD INCOME FROM OTHER SOURCES IN THE PRESENT ASSESSME NT YEAR. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) DIRECTED TH E AO TO FOLLOW THE DECISION OF THE TRIBUNAL. THE CIT(A) HELD AS FOLLOW S: 2.5 I FIND THAT IN THE YEAR UNDER CONSIDERATION TH E SAME ISSUE HAS ARISEN. HOWEVER, AS THE QUESTION HAS NOW BEEN DEC IDED IN FAVOUR OF THE APPELLANT VIDE ORDER DATED 09/10/2009 OF THE HO NBLE ITAT AND RESPECTFULLY FOLLOWING THE SAME FOR THE CURRENT YEA R THE APPEAL OF THE APPELLANT ON THIS ISSUE IS BEING UPHELD AND ALLOWED HOLDING THAT AS THE APPELLANT HAS FULFILLED ALL THE CONDITIONS PRESCRIB ED U/S. 27(III)(B) R.W.S. 269UA (F)(I) AND EXPLANATION THEREOF FOR THE APPELL ANT TO BE CALLED A DEEMED OWNER OF THE PREMISES ENTITLED TO DECLARE TH E RENTAL INCOME AS INCOME FROM HOUSE PROPERTY AND BE ALLOWED THE STAND ARD DEDUCTION ALLOWABLE UNDER THE I.T. ACT ON SUCH PROPERTY. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED GROUND NO.1 BEFORE THE TRIBUNAL. ITA NO.4584/MUM/2010(A.Y.2007-08) 3 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT FILING OF AN APPEAL BEFORE HONBLE HIGH COURT AGAINST THE ORD ER OF THE TRIBUNAL IN A.Y 2005-06 WILL NOT BE A BAR IN FOLLOWING THE ORDER OF THE TRIBUNAL. SINCE THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN A .Y. 2005-06, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE UPHOLD TH E ORDER OF THE CIT(A) AND DISMISS GROUND NO.1 RAISED BY THE REVENUE. 7. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON DISALLOWANCE U/S. 40A(2)(B) RELYING ON EARLIER APPELLATE ORDER PASSED IN RESPEC T OF A.Y 2005-06. 8. THE ASSESSEE HAS TAKEN ON RENT 5 GODOWNS (G 10 & G 13 TO G 16) TOTAL ADMEASURING 6597 SQ. FTS. FROM THE FAMILY OF THE PA RTNERS. THE ASSESSEE PAID A RENT OF RS.17,20,000/- AS RENT TO THE PARTNE RS. OUT OF THE GODOWN SO TAKEN ON RENT, THE ASSESSEE UTILIZED GODOWN G10 ADM EASURING 3,000 SQ. FTS. FOR THE PURPOSE OF OWN BUSINESS AND HAD GIVEN FOUR GODOWNS NO.13 TO 16 ADMEASURING TOTAL 3597 SQ. FT. TO CORPORATION BANK AND HAS RECEIVED A RENT OF RS. 8,28,312/- FROM THE SAID BANK. THE GODOWNS GIVEN TO THE CORPORATION BANK WERE ON THE 1 ST FLOOR OF SUYOG IND. ESTATE, VIKHROLI (W), MUMBAI 400 083. HOWEVER, THE GODOWN NO.G 10 ADMEASURING 3000 SQ.FT. WAS ON THE GROUND FLOOR OF SUYOG IND. ESTATE. THE HEIGHT OF C EILING OF THE GODOWN G-10 WAS 15 FEETS AS COMPARED TO 10 FEET OF GODOWNS GIVE N TO THE CORPORATION BANK. IT WAS THE CLAIM OF THE ASSESSE THAT BECAUSE OF THE ABOVE DISTINGUISHING FEATURES, THE RENT FOR G-10 GODOWN O N THE ONE HAND AND THE OTHER GODOWNS CANNOT BE COMPARED OR BE THE SAME. THE ASSESSING OFFICER CALCULATED THE RENT PAID FOR BOTH THE PROPERTIES TO GETHER BY TAKING AVERAGE RENT AS RS. 17,20,000/ 6597 SQ.FTS. = RS. 260.72 PE R SQ. FT. HE FOUND THAT AS AGAINST THE RENT OF RS.260.72 PS. PER SQ.FT. PAID B Y THE ASSESSEE TO ITS PARTNERS, THE RENT RECEIVED ON SUB LETTING BY THE A SSESSEE WAS ONLY ITA NO.4584/MUM/2010(A.Y.2007-08) 4 RS.230.28 PER SQ.FT. (RS.8,28,312/3597). ACCORDING TO THE AO, THE PARTNERS WERE PAID RENT IN EXCESS OF THE MARKET RATE VIZ., R S.30.44 PER SQ.FT. (RS.260.72-230.28). THE AO THEREFORE DISALLOWED TH E EXCESS RENT PAID COMPARED TO THE RENT RECEIVED FROM CORPORATION BANK VIZ.,RS. 2,00,812/-. (6597 X 30.44). THE AO HAS MENTIONED THE FIGURE OF ADDITION AT RS.2,00,843/-. THE ADDITION HAS BEEN MADE BY INVOK ING THE PROVISIONS OF SEC.40A(2)(B) OF THE ACT. 9. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE GODOWN NO.13 TO 16 (TOTAL 3597 SQ. FTS) WERE GIVEN TO THE CORPORATION BANK IN THE YEAR 1998 WITH 10 YEAR AGREEMENT HOWEVER THE SAID CORPORATION BANK IN THE YEAR 2007-08 HAS ENTERED IN TO THE FRESH AGREEMENT ON 28/03/2008 BY INCREASING THE RENT W.E.F. 01/03/08 FROM RS. 230.28 SQ. FTS. P.A. TO RS .467.04 (I.E. RS. 19.19 PER SQ.FTS PER MONTH TO RS.38.92 PER SQ. FT. P.M) WHICH IS FAR ABOVE THE AVERAGE RATE OF RS. 260 PER SQ. FTS. CALCULATED BY THE ASSE SSING OFFICER. IT WAS SUBMITTED THAT THE AVERAGE RATE OF RS.260 PER SQ. F T. PAID IN THE YEAR 2006-07 CAN NOT BE TREATED AS EXCESSIVE. THE ASSESSEE DREW ATTENTION OF CIT(A) TO THE COPY OF APPROVAL FOR INCREASE IN RENT RECEIVED FROM THE CORPORATION BANK DATED 28/03/08. THE SAME HAD BEEN FILED AT THE TIM E OF ASSESSMENT AS EVIDENCE OF FAIR MARKET RENT. THE ASSESSEE ALSO PO INTED OUT THAT IT HAD INCREASED THE RENT OF GODOWN NO.10(TOTAL 3000 SQ. F TS.) FROM RS. 3,40,000/- P.A. TO RS. 5,40,000/-. IN THIS REGARD THE ASSESSE E DREW ATTENTION OF CIT(A) TO THE COPIES OF AGREEMENTS WHICH WERE FILED BEFORE AO. THE ASSESSEE REITERATED THAT THE AO HAS IGNORED THE DIFFERENCE I N THE LOCATION AND HEIGHT OF THE CEILING OF GODOWN G-10 AND THE OTHER GODOWNS AN D HAS SIMPLY CALCULATED THE AVERAGE RENT PAID TO THE OWNERS OF R S. 17,20,000/- BY DIVIDING THE WHOLE AREA BY 6597 SQ.FT. AND HAS CALCULATED TH E AVERAGE RATE OF RS.260 PER SQ. FT. AND AS SUCH MIXING THE RENT PAID FOR TW O PROPERTIES HAVING DIFFERENT LOCATIONAL ADVANTAGES AND DISADVANTAGES W AS NOT JUSTIFIED. IT WAS ALSO SUBMITTED THAT SINCE THE ASSESSING OFFICER HAD DISBELIEVED THE ITA NO.4584/MUM/2010(A.Y.2007-08) 5 REASONABLENESS OF THE TRANSACTIONS, UN-DISPUTABLY P AID TO THE RELATED PARTIES, THE ONUS WAS ON THE ASSESSING OFFICER TO B RING IN THE EVIDENCE OF MARKET RATES AND ESTABLISH THE EXCESSIVENESS OF THE PAYMENT. 10. THE CIT(A) FOUND THAT THE SAME ISSUE HAD BEEN D ISCUSSED BY THE LD. CIT(A)XXIII IN HIS ORDER DATED 21/02/2008 FOR A.Y 2005-06 IN ASSESSEES CASE. HE FOUND THAT THE CIT(A) IN AY 05-06 HAD HEL D THAT THE ASSESSING OFFICER HAS NOT TAKEN INTO CONSIDERATION ANY FACTS PRESENTED BY THE ASSESSEE BUT HAS SUMMARILY DISMISSED ITS ARGUMENTS OF THE AP PELLANT. THE CIT(A) IN AY 05-06 HAD DELETED THE ADDITION ACCEPTING THE ARG UMENT OF THE ASSESSEE. THE CIT(A) FOLLOWING THE ORDER OF CIT(A) IN AY 05-0 6, HELD THAT IN THE CURRENT YEAR ALSO THE ADDITION MADE BY THE ASSESSING OFFICE R ON THE ISSUE CANNOT BE UPHELD. HE THUS DELETED THE ADDITION MADE BY THE A O. 11. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 12. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BR OUGHT TO OUR NOTICE THAT AGAINST THE ORDER OF THE CIT(A) FOR A.Y 2005-06 THE REVENUE DID NOT FILE ANY APPEAL BEFORE THE TRIBUNAL FOR A.Y 2005-06. IN A.Y 2005-06 THE CIT(A) ON THIS ISSUE HAS HELD AS FOLLOWS: 24. AFTER CAREFUL CONSIDERATION OF THE ARGUMENTS, I FIND THAT THE A.O HAD NOT BROUGHT ANY INDEPENDENT MARKET RATE FOR TH E PREMISES FOR WHICH RENT HAD BEEN ACTUALLY PAID. THUS, THERE WAS NO REASON FOR HIM TO DISALLOW EVEN 10% ADMITTEDLY ON AN AD-HOC BASIS. SURPRISINGLY, AFTER ALLOWING RS. 1,92,000/- FROM THE RS. 19,20,00 0/- OF GODOWN COMPENSATION, HE PROCEEDED YET AGAIN TO CALCULATE H OW PROPORTIONATE USE OF SPACE FOR OWN AND SUB-LETTING HAD BEEN DIFFE RENT. I AM OF THE VIEW THAT THE AO HAS COMMITTED THESE FACTUAL ERROR S: I) HE HAS NOT APPRECIATED THAT LETTING OUT TO BANK WAS ALSO PART OF THE BUSINESS PROPOSITION. II) ENTIRE AMOUNT OF RS. 19,20,000/- HAD NOT BEEN PAID FOR THE SPACE FOR WHICH ONLY RS.8,28,312/- HAD BEEN CHARGED FROM THE CORPORATION BANK. ITA NO.4584/MUM/2010(A.Y.2007-08) 6 III) ADMITTEDLY SPACE-USE HAD NOT BEEN UNIFORM. THE APP ELLANT FIRM HAD USED 6000 SQ.FT. OF SPACE (G9+G10, 3000 SQ.FT. EACH AS MENTIONED BY THE AO) AND ONLY 3597 SQ.FT. OF FOUR G ODOWNS HAD BEEN GIVEN TO CORPORATION BANK. IV) THUS, SPACE OF TWO UNITS BEING MORE THAN THAT OF 4 UNITS HAD NATURALLY NO UNIFORM RATE. THE AO HAD HIMSELF HAD THE FINDING YET HAD THIS INCONSISTENCY IN HIS PRESUMPTION. V) IN ANY CASE, APPLYING THE SPACE OF 6000 SQ.FT. INST EAD OF 3000 SQ.FT. IN THE NUMERATOR AND THEREFORE, APPLYING 959 7 SQ.FT. (6000 + 3597) IN THE DENOMINATOR THE APPELLANTS PROPORTI ONATE USE EVEN AS PER AOS FORMULA WOULD BE RS. 12,00,375/- A ND THAT FOR THE BANK WOULD BE RS. 7,19,624/- INSTEAD OF RS. 8,7 3,124/- & RS. 10,46,875/- DETERMINED IN THE ASSESSMENT ORDER. 25. THUS, EVEN AS ILLOGICAL, THE AOS COMPUTATION WOULD NOT SHOW ANY EXCESS BY ADOPTING CORRECT FIGURES. THEREFORE, THE EXCESS COMPUTED AT RS. 2,18,563/- WAS ILL-CONCEIVED. I DELETE SUCH IL LOGICAL DISALLOWANCE. 13. IN OUR VIEW THE ABOVE CONCLUSIONS OF THE CIT(A ) ARE PROPER AND THE DISALLOWANCE MADE BY THE AO IGNORING ALL THE ABOVE VITAL FACTORS CANNOT BE SUSTAINED. THE CIT(A) WAS THEREFORE, JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. WE, THEREFORE, CONFIRM THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.2 RAISED BY THE REVENUE. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 29 TH DAY OF JULY, 2011. SD/- SD/- (R.S.SYAL) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 29 TH JULY.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.4584/MUM/2010(A.Y.2007-08) 7 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 27/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 27/7/11 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. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER