DCIT CIR 23(2), MUMBAI V. ANAND AUTOMOBILES, MUMBAI

ITA 489/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54846 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-01-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DEVDATTA MAINKAR
• Keywords: Opportunity of being heard; Fair market value; Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, MUMBAI. BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A NO.489/ MUM/2009 ASSESSMENT YEAR: 2005-06 DY. CIT, CIRCLE 23(2) .. APPELLANT C-10, R.NO.202, PRATYAKSHAKAR BHAVAN, BKC, BANDRA(E), MUMBAI-51. VS ANAND AUTOMOBILES, ,. RESPONDEN T MAGNET HOUSE, 4 TH FLOOR, N.M. MARG, MUMBAI. PA NO.AADFA 9171 D I.T.A NO.999/ MUM/2009 ASSESSMENT YEAR: 2005-06 ANAND AUTOMOBILES, ,. APPELLANT MAGNET HOUSE, 4 TH FLOOR, N.M. MARG, MUMBAI. PA NO.AADFA 9171 D VS DY. CIT, CIRCLE 23(2) .. RESPONDENT C-10, R.NO.202, PRATYAKSHAKAR BHAVAN, BKC, BANDRA(E), MUMBAI-51. APPEARANCES: P.K.B. MENON, FOR THE REVENUE DEVDATTA MAINKAR, FOR THE ASSESSEE DATE OF HEARING : 3-08-2011 DATE OF PRONOUNCEMENT : 10 -08-2011 I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 2 O R D E R PER PRAMOD KUMAR: 1. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DA TED 28 TH NOVEMBER, 2008, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) O F THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2005-06. 2. THE REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWING GRIEVANCES: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) ERRED IN DIRECTING TO COMPUTE THE ANNUAL VALUE OF PROPERTY AT 8.5% OF THE FAIR MARKET VALUE OF THE PROPERTY(TO BE TAKEN AT ` .24,150-PER SQ.MT FOR THE YEAR IN QUESTION PLUS 10% HIKE PER YEAR OR THE RATES OF VALUATION OF PROPE RTY PRESCRIBED BY STAMP DUTY AUTHORITIES IN RESPECT OF THE LOCALITY, WHICHEVE R IS HIGHER) AS AGAINST ` .6,20,17,308 FOR A.Y. 2005-06 ( IN APPEAL) DETERMIN ED BY THE AO U/S.23(1)(A) OF THE I.T.ACT, 1961 AND IN NOT FOLLOWI NG THE DECISION OF DELHI HIGH COURT IN RAKESH AGARWAL VS ACIT, 225 ITR 496, 50 3-04,8(DEL) WHEREIN THE ACTION OF THE ACT U/S.148 WAS HELD JUSTIFIED, AFTE R THE AO NOTICED THAT THE RENT OF PROPERTY WAS KEPT LOW AND THE DIFFERENCE WAS COMPENSATED BY INTEREST FREE SECURITIES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD CIT(A) HAS ERRED IN DETERMINING ANNUAL VALUE OF PROPERTY FOR 8 ,722 SQ.MTS AS AGAINST 23,279 SQ.MTRS OF PROPERTY LET OUT BY THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD CIT(A) ERRED IN DIRECTING THE AO TO ASSESS A PART OF THE RENT RECEIV ED AS INCOME FROM OTHER SOURCES BEING LEASE RENT FOR LAND. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GRIEVANCES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD CIT(A) ERRED IN ARRIVING AT THE FAIR RENT U/S.23(1)(A) OF T HE INCOME TAX ACT, 1961 BY APPLYING THE NOTIONAL RATE OF 8.5% IN THE CONTEXT O F FALLING INTEREST RATES ON THE TOTAL MARKET VALUE WHICH WAS COMPUTED @ ` .24,150 PER SQ.MT FOR THE AREA TOTALING TO 8722 SQ.MTRS FOR THE YEAR 2000 (COM PRISING OF BUILT UP AREA OF 4361 SQ.MTRS PLUS OPEN SPACE AREA OF 4361 SQ.MTRS). THE LD CIT(A) ERRED IN VALUING THE SAID PROPERTY BY APPLYING THE RATE BY ADOPTING A 10% HIKE IN THE MARKET VALUE PER YEAR FO R THE RELEVANT ASSESSMENT YEAR ON THE SAID BASE VALUE OF ` .24,150 PER SQ.MT IN YEAR 2000 WHICH IS APPLICABLE TO NEW CONSTRUCTIONS AND IS TOTALLY ARBITRARY. I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 3 THE LD CIT(A) ALSO ERRED IN TREATING 4361 SQ.MTRS AS LA ND APPURTENANT TO THE SAID BUILDING AND APPLYING THE SAME FLAT RATE AS AFORE SAID WHICH IS APPLICABLE TO THE BUILT UP AREA. FURTHER, THE LD CIT(A) ERRED IN CALCULATING THE FAI R RENT U/S.23(1)(A) OF THE I.T.ACT 1961 WITH REFERENCE TO THE MARKET VALUE OF THE SAID PROPERTY INSTEAD OF THE VALUE OF THE INVESTMENT MADE BY THE APPELLANT IN THE SAID PROPERTY AS PER THE MUMBAI ITAT DECISION IN THE CASE OF CHEM MECH (P)LTD REPORTED IN 83 ITD 427. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD CIT(A) FURTHER ERRED IN DIRECTING THE AO TO ASSESS THE BALANCE RENT RECEIVED AFTER DEDUCTING FROM THE TOTAL RENT RECEIVED THE PROPORT IONATE RENT RECEIVED 8722 SQ.MTR, UNDER THE HEAD INCOME FROM OTHER SOURCES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) ERRED IN DISALLOWING THE LEGAL AND PROFESSIONAL FEES OF ` .1,44,460 FOR THE REASON THAT THEY HAD BEEN SPENT FOR DEFENDING THE TIT LE OF THE PROPERTY AND THEY ARE OF CAPITAL NATURE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF THE LONG TERM CAPITAL LOSS OF ` .2,13,00,000 TREATING THE TRANSACTION AS A SHAM TRANSAC TION. 4. THE GRIEVANCES RAISED BY THE REVENUE AND THE GRIEV ANCE RAISED BY THE ASSESSEE GROUND NOS.1 TO 2 ARE COMMON, THEREFORE, THEY A RE DISPOSED OF ACCORDINGLY. 5. LEARNED REPRESENTATIVES AGREE THAT THE ISSUE RELATIN G TO NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT IS NOT RENT LIABLE TO BE INCLUDED IN THE INCOME FROM HOUSE PROPERTY UNDER THE INCOME TAX ACT, 1961 HAS SINC E BEEN RESOLVED BY THE JUDGMENT OF HONBLE DELHI HIGH COURT (FULL BENCH) I N THE CASE OF CIT VS. MONI KUMAR SUBBA AND OTHERS, ORDER DATED 30.3.2011([2011] 333 ITR 38 (DELHI) [FB], WHEREIN, IT HAS BEEN HELD THAT WHERE THE PROPERTY WAS LET OUT BY THE ASSESSEE AFTER GETTING A LARGE INTEREST-FREE DEPOSIT, THE FAIR RENT WAS SOUGHT TO BE COMPUTED BY ADDING NOTIONAL INTEREST TO THE AGREED RENT IN ASCERTAINING THE ANNUAL LETTING VALUE FOR THE PURPOSES OF CLAUSE (B) OF SECTION 23(1). SINCE THE FAIR RENT HAS TO BE DETERMINED IN TERMS OF CLAUSE (A) AT THE ACTUAL RENT OR FAIR MARKET RENT, WHICHEVER IS HIGHER, NOTIONAL INTEREST ON THE INTEREST-FREE DEPOSIT CANNOT BE RELEVANT TO ARRIVE AT THE FAIR I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 4 RENT. FOLLOWING THE SAID JUDGMENT, A COORDINATE BE NCH OF THIS TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, IN ASSESSEES OWN CASE FO R THE ASSESSMENT YEAR 2001-02. WITH REGARD TO COMPUTATION OF AREA LET OU T AND OPEN SPACE AND APPLICATION OF RATE AT 8.5% ON THE VALUE OF THE PROPERTY, THE I SSUE IS RESTORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. WITH REGARD TO THE C ALCULATION OF FAIR RENT U/S.23(1)(A) ALSO, THE COORDINATE BENCH HAS REMITTED T HE ISSUE TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH, INTER ALIA, OBSERVING AS FOLLOWS: 11. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AG REED THAT THE ISSUE RELATING TO NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEP OSIT IS NOT RENT LIABLE TO BE INCLUDED IN THE INCOME FROM HOUSE PROPERTY UNDER THE INCOME TAX ACT, 1961 HAS SINCE BEEN DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE RECENT JUDGMENT OF HONBLE DELHI HIGH C OURT (FULL BENCH) IN THE CASE OF CIT VS. MONI KUMAR SUBBA AND OTHERS IN ITA NO. 499 OF 2008 WITH ITA NO. 803 OF 2007, ITA NO. 1113 OF 2008, ITA NO. 388 OF 2010, ITA NO. 516 OF 2010, ITA NO. 1034 OF 2010 & ITA NO. 1240 OF 201 0, DTD. MARCH 30, 2011. THEREFORE, THE REVENUE HAS NO CASE WITH REGARD TO TH E ADDITION OF NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT WHICH IS NOT THE RENT LIABLE TO BE INCLUDED IN THE INCOME OF HOUSE PROPERTY. THE LD. D. R. HAS ALSO PLACED ON RECORD A COPY OF THE SAID JUDGMENT. ON THE OTHER ISSUE S RELATING TO THE COMPUTATION OF AREA LET OUT AND OPEN SPACE AND APPLI CATION OF RATE AT 8.5% ON THE VALUE OF THE PROPERTY, BOTH PARTIES HAVE AGREED THAT SINCE THE RELEVANT MATERIAL IS NOT ON RECORD, THEREFORE, IN THE INTEREST OF JUSTICE, THE ISSUE TO THAT EXTENT MAY BE SET ASIDE TO THE FILE OF THE A.O. 12. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN PLEA OF THE PARTIES THAT THE ISSUE RELATING TO NOTIONAL INTEREST ON THE INTEREST FRE E SECURITY DEPOSIT IS NOT RENT LIABLE TO BE INCLUDED IN THE INCOME FROM HOUSE PROPERTY UNDER THE ACT IS FULLY COVERED BY THE JUDGMENT OF FULL BENCH OF HON BLE DELHI HIGH COURT IN CIT VS. MONI KUMAR SUBBA (SUPRA) WHEREIN IT HAS BEEN H ELD VIDE PARA 20 OF THE JUDGMENT AS UNDER:- . 20. IN THE PRESENT CASE, THE A.O. ADDED NOTIONAL IN TEREST ON THE INTEREST FREE SECURITY FOR ARRIVING AT ANNUAL LETTIN G VALUE. SINCE THAT WAS NOT PERMISSIBLE, THE EFFECT WOULD BE THAT SUCH ASSESSME NT WAS RIGHTLY SET ASIDE BY THE CIT (A) AND THE TRIBUNAL. TH EREFORE, THE ORDERS WOULD NOT CALL FOR ANY INTERFERENCE. THESE APPEALS AR E, THUS, DISMISSED ON THIS GROUND. ONCE WE HOLD THIS, THE VERY BASIS ADOPT ED BY THE AO TO FIX ANNUAL LETTING WAS WRONG AND THEREFORE, NO FURT HER EXERCISE IN FACT IS REQUIRED BY US IN THESE APPEALS. I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 5 RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT, WE HOLD T HAT THE A.O. WAS NOT JUSTIFIED IN INCLUDING THE NOTIONAL INTEREST ON THE I NTEREST FREE SECURITY DEPOSIT IN THE INCOME FROM HOUSE PROPERTY AND ACCORDI NGLY THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 13. WITH REGARD TO T HE OTHER ISSUES, WE FIND THAT THE LD. CIT(A), FOLLOWING THE DECISION OF MUMBA I BENCH OF ITAT IN THE CASE OF CHEM MECH (P) LTD. 83 ITD 427 HAS CALCULATED THE RENT AT 8.5% OF THE TOTAL MARKET VALUE OF THE PROPERTY. HOWEVER, WE FI ND THAT IN THE SAID CASE THE PROPERTY WAS UNDER BOMBAY RENT CONTROL ACT WHEREAS TH E IMPUGNED PROPERTY IS AT DELHI WHICH FALLS UNDER THE DELHI RENT CONTROL ACT, THEREFORE, THE LD. CIT(A) WAS NOT JUSTIFIED IN APPLYING RATE AT 8.5% OF THE MARKET VALUE OF THE PROPERTY AND WORKED OUT THE ANNUAL LETTING VALU E OF THE PORTION OF THE HOUSE PROPERTY AT ` ` . 1,79,04,085/- LESS PROPORTIONATE RENT RECEIVED. SIN CE THE RELEVANT MATERIAL WITH REGARD TO THE OCCUPIED SP ACE AND OPEN SPACE AND THE BASIS OF COMMERCIAL RATE APPLIED BY THE LD. CIT(A ) AT ` .24,150/- ON THE LET OUT PORTION OF THE PROPERTY OF 8722 SQ. MTR. IS NOT A VAILABLE ON RECORD AND THE SAME WAS NEITHER BEFORE THE A.O. NOR THERE IS ANY FIN DING OF THE A.O. IN THIS REGARD AND ALSO THERE IS NO MATERIAL ON RECORD TO SHOW AS TO WHETHER THE LD. CIT(A) HAS PROVIDED ANY OPPORTUNITY TO THE A.O. IN T HIS REGARD AS PROVIDED UNDER RULE 46-A OF THE INCOME TAX RULES, 1962, WE AR E OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND ACCORDINGLY WE SET ASIDE THE ORDERS PASSED BY THE REVENU E AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE OF THE A.O. WHO SHALL DECIDE THE ISSUE AFRESH IN THE LIGHT OF OUR OBSERVATIONS HEREIN ABOVE AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE AND REVENUE IN THIS RE GARD ARE, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT THE AO IS NOT JUSTIFIED IN INCLUDING THE NOTIONAL INTEREST ON THE INTEREST FREE SECURITY DEPOSIT IN THE INCOME FR OM HOUSE PROPERTY AND THE MATTER IS REMITTED BACK TO THE FILE OF THE AO FOR FR ESH COMPUTATION OF INCOME IN TERMS OF THE ABOVE DIRECTIONS WHICH APPLY MUTATIS MUTA NDIS TO THIS ASSESSMENT YEAR AS WELL. 7. GROUNDS TAKEN BY THE REVENUE AND GROUND NOS.1 & 2 TAKEN BY THE ASSESSEE ARE DISPOSED OF ACCORDINGLY. 8. GROUND NO.2 TAKEN BY THE ASSESSEE IS DISMISSED AS NOT PRE SSED. I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 6 9. APROPOS GROUND NO.4 TAKEN BY THE ASSESSEE, RELEVANT MATERIAL FACTS ARE LIKE THIS. IN THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAS CLAIMED A LONG TERM CAPITAL LOSS OF ` .2.13 CRORES ON SALE OF 25,00,000 TECHNOLOGICAL RESOURCES PVT LTD. THESE SHARES WERE ACQU IRED IN THE YEAR 1994-95, FOR ` .250 LAKHS, AND HAVE BEEN SOLD, IN THE RELEVANT PREVI OUS YEAR, AT THE SAME PRICE. THE ASSESSING OFFICER, HOWEVER, NOTED THAT THE ASSESSEE HAS NOT DISCLOSED THE BASIS ON SHARES SO SOLD HAVE BEEN VALUED, AND THAT ENTIRE TRA NSACTION IS DONE THROUGH A JOURNAL ENTRY. IT WAS FURTHER NOTED THAT THE ASSESSEE H AS NOT FURNISHED COMPLETE PARTICULARS OF TRANSACTION. HE THUS DISALLOWED THE SAME AS A SHAM TRANSACTION AND DECLINED CARRY FORWARD OF CAPITAL LOSS. NOT SATISFIE D, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEA RNED CIT(A) NOTED THAT IT IS NOT CLEAR WHETHER THE PAYMENT WERE MADE AT THE TIME OF PURCHASES OR WHETHER PAYMENTS WERE RECEIVED AT THE TIME OF SALE, AND THAT DETAILS OF TRANSACTIONS, DESPITE SPECIFIC REQUISITION TO THAT EFFECT, WERE NOT FURNISHE D. GRIEVANCE WAS THUS REJECTED. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL BE FORE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE NOT INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSESSEE EITHER BECAUSE EVEN BECAUSE EVEN BEFORE US DETAILS OF TRANSACTIONS OR VALUATION BASIS OF SHARES ARE NOT DISCLOSED, AND THE CONTENTIONS BEFORE THE ASSESSING OF FICER ARE SIMPLY REITERATED. IN THE ABSENCE OF EVEN THE BASIC DETAIL S, THERE ARE NO REASONS TO DISTURB THE FINDINGS OF THE AUTHORITIES BELOW. THE SALE TRANSA CTION HAS TAKEN PLACE BY WAY OF A JOURNAL TRANSACTION AND EVEN IDENTITY OF THE SELLER IS NOT ON RECORD. THE BASIS OF VALUATION OF SHARES IS NOT GIVEN. UNDER THESE CIRCUMSTA NCES, THE CLAIM OF LONG TERM CAPITAL LOSS IS NOT ESTABLISHED. WE CONFIRM THE SAME AND DECLINE TO INTERFERE IN THE MATTER. 11. GROUND NO.4 IS THUS DISMISSED. I.T.A NO.489/ MUM/2009 I.T.A NO.999/ MUM/2009 ANAND AUTOMOBILES 7 12. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY THE REVENUE IS ALLOWE D FOR STATISTICAL PURPOSES IN THE TERMS INDICATED. PRONOUNCED IN THE OPEN COURT ON 10 TH AUGUST 2011 SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 10 TH AUGUST, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),XXIII MUMBAI 4. COMMISSIONER OF INCOME TAX,23 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH ,A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI