Dr. C.A. TALWALKAR, MUMBAI V. I.T.O. Wd. 11(2) (1), MUMBAI

ITA 5049/MUM/2004

• Counselvise Citation: 504919914 RSA 2004
• Duration Of Justice: 7 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-08-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 18-06-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ALEXANDER CHANDY
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 5049/MUM/2004 (ASSESSMENT YEAR: 2000-2001) DR C A TALWALKAR, MUMBAI APPELLANT (PAN: AABPT9899D) VS INCOME TAX OFFICER, WARD 11(2)(1), MUMBAI RESPOND ENT ASSESSEE BY: MR DEEPAK TRALSHAWALA REVENUE BY: MR ALEXANDER CHANDY DATE OF HEARING: 9 TH AUGUST 2011 DATE OF PRONOUNCEMENT: 12 TH AUGUST 2011 O R D E R R V EASWAR, PRESIDENT: THE ASSESSEE IS A DOCTOR BY PROFESSION. HE IS THE APPELLANT HEREIN. THE APPEAL RELATES TO THE ASSESSMENT YEAR 2000-2001 AND ARISES OUT OF THE ASSESSMENT ORDER PASSED ON 26 TH MARCH 2003 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961. 2. THE FIRST GROUND RELATES TO THE ASSESSMENT OF TH E PROPERTY INCOME. THE ASSESSEE OWNED A FLAT AT CUFFE PARADE WHICH WAS GIVEN ON LEAVE AND LICENSE BASIS TO M/S CREDITO ITA LIANO FOR A MONTHLY RENT OF ` 14,000/-. THE ASSESSEE ALSO TOOK ` 45.00 LAKHS FROM THE LICENSEE AS REFUNDABLE DEPOSIT. IN COMPUT ING THE PROPERTY INCOME THE ASSESSEE DISCLOSED THE ACTUAL RENT OF ` 14,000/- PER MONTH, WHICH AMOUNTED TO ` 1,68,000/- FOR THE YEAR. THE ASSESSING OFFICER, HOWEVER, NOTED THAT THE ASSESSEE HAS TAKEN REFUNDABLE DEPOSIT OF ` 45.00 LAKHS FROM THE LICENSEE AND THAT WAS THE REAS ON ITA NO: 5049/MUM/2004 2 FOR KEEPING THE RENT LOW. HE THEREFORE ADDED NOTIO NAL INTEREST ON THE DEPOSIT OF ` 3,60,000/-. HE THUS TOOK THE ALV OF THE PROPERTY A T ` 5,28,000/- ( ` 1,68,000/- PLUS ` 3,60,000/-) AND COMPUTED THE PROPERTY INCOME ON THAT BASIS AT ` 3,85,199/-. 3. THE ASSESSEE APPEALED TO THE CIT(A) AND POINTED OUT THAT THE MUNICIPAL RATEABLE VALUE OF THE FLAT WAS ONLY ` 5,985/- PER ANNUM AND IN SUPPORT THEREOF A CERTIFICATE FROM THE HOUSING SOCIETY WAS FILED. RELIANCE WAS ALSO PLACED ON THE JUDGMEN T OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. J K INVEST ORS (BOMBAY) LTD. (2000) 112 TAXMAN 107 (BOM) TO CONTEND THAT WH ILE COMPUTING THE PROPERTY INCOME, NOTIONAL INTEREST ON REFUNDABL E DEPOSIT SHOULD NOT BE ADDED. THE CIT(A), FOLLOWING THE ORDER OF T HE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF TIVOLI INVESTMENTS & TRADING CO. PVT. LTD. (ITA NO: 3269/BOM/1994), HELD THAT THE NOTIONA L INTEREST ON THE DEPOSIT WAS RIGHTLY ADDED SINCE IT WAS BECAUSE OF T HE DEPOSIT THAT THE RENT WAS KEPT LOW. HE THUS DISMISSED THE ASSES SEES APPEAL ON THIS POINT. 4. THE ASSESSEE IS IN FURTHER APPEAL. WE HAVE CONS IDERED THE FACTS AND THE RIVAL CONTENTIONS. WE FIND THAT IN N ONE OF THE EARLIER ASSESSMENT YEARS STARTING FROM THE ASSESSMENT YEAR 1992-93 UP TO THE ASSESSMENT YEAR 1999-2000 WAS ANY NOTIONAL INTE REST ADDED TO THE INCOME DECLARED BY THE ASSESSEE FROM THE PROPER TY, EVEN THOUGH IN THOSE YEARS ALSO THE ASSESSEE HAD TAKEN R EFUNDABLE DEPOSIT OF SUBSTANTIAL AMOUNTS FROM THE LICENSEE. IN FACT, FOR THE ASSESSMENT YEAR 1992-93 THE ASSESSMENT WAS FRAMED U NDER SECTION 143(3) AFTER DUE SCRUTINY. MOREOVER, FOR T HE LATER YEAR, ITA NO: 5049/MUM/2004 3 NAMELY, THE ASSESSMENT YEAR 2001-2002, THE ASSESSIN G OFFICER HAS NOT MADE ANY ADDITION TO THE PROPERTY INCOME IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT ON 22 ND MARCH 2004. THUS THE CONSISTENT STAND OF THE REVENUE AUTHORITIE S IN THE ASSESSEES OWN CASE IS THAT THE NOTIONAL INTEREST O N THE REFUNDABLE DEPOSIT CANNOT BE ADDED TO THE PROPERTY INCOME. SE CONDLY, THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF CIT VS. J K INVESTORS (BOMBAY) LTD. (SUPRA) WAS TAKEN UP ON SPECIAL LEAVE BY THE REVENUE BUT THE SPECIAL LEAVE PETITION WAS D ISMISSED BY THE SUPREME COURT BY ORDER DATED 1 ST NOVEMBER 2002. A COPY OF THE ORDER HAS BEEN FILED BEFORE US. THIRDLY, THE ACTUA L RENT OF ` 1,68,000/- RECEIVED BY THE ASSESSEE FROM THE PROPER TY IS HIGHER THAN THE RATEABLE VALUE OF ` 5,985/-, WHICH IS SUPPORTED BY A CERTIFICATE DATED 5 TH FEBRUARY 2004 ISSUED BY THE COOPERATIVE HOUSING SOCIETY. A COPY OF THE CERTIFICATE WAS FIL ED BEFORE THE CIT(A) AND THE SAME HAS ALSO BEEN FILED BEFORE US A T PAGE 41 OF THE PAPER BOOK. SINCE THE ACTUAL RENT RECEIVED IN RESPECT OF THE PROPERTY IS GREATER THAN THE MUNICIPAL RATEABLE VAL UE, THE ASSESSEE HAS RIGHTLY DECLARED THE PROPERTY INCOME ON THE BAS IS OF THE FORMER. THE DEPARTMENTAL AUTHORITIES WERE NOT JUSTIFIED IN MODIFYING THE SAME. WE THEREFORE ACCEPT GROUND NO: 1 AND DIRECT THEM TO COMPUTE THE PROPERTY INCOME ON THE BASIS OF THE ACT UAL RENT OF ` 1,68,000/-. 5. THE SECOND GROUND RELATES TO THE DISALLOWANCE OF INTEREST IN COMPUTING THE PROFESSIONAL INCOME AND THE SHARE TRA NSACTIONS OF THE ASSESSEE. IN THE RETURN THE ASSESSEE CLAIMED I NTEREST OF ITA NO: 5049/MUM/2004 4 ` 4,37,379/- AS INTEREST PAID ON BORROWED FUNDS. THE ASSESSING OFFICER ALLOWED ONLY ` 67,083/- OUT OF THE SAME ON THE GROUND THAT THE ASSESSEE COULD NOT ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND THEIR UTILIZATION FOR PROFESSIONAL PURPOS ES. THE BALANCE OF ` 3,69,296/- WAS DISALLOWED. 6. ON APPEAL TO THE CIT(A), HE NOTED THAT AS AGAINS T THE INVESTMENTS AGGREGATING TO ` 63.00 LAKHS, THE ASSESSEE HAD INTEREST FREE FUNDS OF ` 53.00 LAKHS. THE ASSESSEE HAS BORROWED ` 34.00 LAKHS APPROXIMATELY. ON THESE FACTS HE FOUND THAT THE WORKING OF THE DISALLOWANCE OF THE INTEREST BY THE ASSESSING OFFICER WAS NOT CORRECT. ACCORDING TO HIM ONLY THE INTERES T ON BORROWINGS IN RESPECT OF THE DIFFERENTIAL AMOUNT OF ` 10.00 LAKHS CAN BE CONSIDERED FOR DISALLOWANCE. HAVING SAID THAT HE C ONSIDERED IT REASONABLE TO DISALLOW 30% OF THE INTEREST OF ` 4,59,035/- CLAIMED BY THE ASSESSEE, WHICH CAME TO ` 1,47,710/-. THIS WAS ROUNDED OFF TO ` 1,50,000/-. 7. THERE IS NO APPEAL BEFORE US BY THE REVENUE AGAI NST THE RELIEF OF ` 3,09,035/- GRANTED BY THE CIT(A) OUT OF THE DISALLO WANCE OF INTEREST. THE ASSESSEE HAS HOWEVER COME IN APPE AL AGAINST THE DISALLOWANCE OF ` 1,50,000/- SUSTAINED BY THE CIT(A). THE ONLY PLEA BEFORE US ON BEHALF OF THE ASSESSEE WAS THAT A REAS ONABLE DISALLOWANCE MAY BE SUSTAINED AND IT WAS SUBMITTED THAT SUSTAINING 30% OF THE INTEREST PAID FOR A SHORTFALL OF ` 10.00 LAKHS WAS ARBITRARY AND EXCESSIVE. THERE IS SOME FORCE IN THE PLEA. T AKING ALL THE FACTS INTO CONSIDERATION WE WOULD REDUCE THE DISALLOWANCE TO 20% OF THE CLAIM OF ` 4,59,035/-. THE ASSESSING OFFICER IS DIRECTED TO ITA NO: 5049/MUM/2004 5 RECALCULATE THE DISALLOWANCE OF THE INTEREST ACCORD INGLY. THE GROUND IS PARTLY ALLOWED. 8. THE LAST GROUND RELATES TO THE DISALLOWANCE OF G ANESH POOJA EXPENSES OF ` 12,429/- AND EXPENSES OF ` 2,100/- ON PURCHASE OF VIDEO CASSETTES. IT IS COMMON KNOWLEDGE THAT IN TH E CITY OF MUMBAI IT IS CUSTOMARY TO CELEBRATE GANESH FESTIVAL. THE ASSESSEE IS AN ORTHOPEDIC SURGEON AND RUNS A NURSING HOME. THE EX PENDITURE HAS BEEN INCURRED ON THE CELEBRATION OF GANESH FEST IVAL WHICH IS CUSTOMARY AND CAN ALSO BE CONSIDERED AS A WELFARE M EASURE FOR THE EMPLOYEES AND STAFF WHO PARTICIPATE IN SUCH FESTIVA LS. THE EXPENDITURE ON THE VIDEO CASSETTES OBVIOUSLY IS FOR VIDEO RECORDING OF THE FESTIVAL. HAVING REGARD TO THESE FACTS WE D ELETE THE DISALLOWANCE OF THE EXPENDITURE AND ALLOW THE GROUN D. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH AUGUST 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 12 TH AUGUST 2011 SALDANHA COPY TO: 1. DR C A TALWALKAR FLAT NO.64, JOLLY MAKER APARTMENT NO.3 CUFFE PARADE, MUMBAI 400 005 2. ITO, WARD 11(2)(1), MUMBAI 3. CIT-XI, MUMBAI 4.CIT(A)-XI, MUMBAI 5.DR C BEN CH TRUE COPY BY ORDER ASSTT. 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