M/s. Jyoti Limited, Srinagar V. The Income-tax Officer, Srinagar

ITA 52/ASR/2012

• Counselvise Citation: 5220914 RSA 2012
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 06-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Initiation of penalty proceedings; Fair market value; Assessment record; Revenue expenditure
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.52(ASR)/2012 ASSESSMENT YEAR:2008-09 PAN :AABCJ5887G M/S. JYOTI LIMITED. VS. COMMISSIONER OF INCOME TA X, GULAB BHAWAN PALACE, JAMMU ( J & K ). GUPLAR ROAD, SRINAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. AJAY VOHRA, ADVOCATE RESPONDENT BY: SH. MAHAVIR SINGH, DR DATE OF HEARING: 30/01/2014 DATE OF PRONOUNCEMENT:26/03/2014 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE COMMISSIONER OF INCOME TAX, JAMMU ( J & K ) ( IN SHORT, CIT) DATED 02.01.2012 FOR THE ASSESSMENT YEAR 2008-09. THE ASSESSEE HAS RAISE D FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER DATED 2.1.2012 PASSED BY THE COMMISSIONER OF INCOME- ITA NO.52(ASR)/2012 2 2 TAX, J & K UNDER SECTION 263 OF THE INCOME-TAX ACT , 1961 (THE ACT), IS BEYOND JURISDICTION, BAD IN LAW AND VOID AB INITIO. 1.1. THAT THE CIT ERRED ON FACTS AND IN LAW IN HOLD ING THAT THE ASSESSMENT ORDER DATED 08.12.2010, PASSED UNDER SEC TION 143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTE REST OF REVENUE AND DIRECTING THE AO TO MAKE FRESH ASSESSME NT AFTER CONDUCTING PROPER/NECESSARY ENQUIRIES. 1.2. THAT THE CIT ERRED ON FACTS AND IN LAW IN HOLDING T HAT THE ASSESSMENT ORDER U/S 143(3) PASSED BY THE AO WAS ER RONEOUS ON THE GROUND THAT THE A.O. DID NOT RAISE ANY QUERY AND EXAMINE THE ISSUE RELATING TO THE DETERMINATION OF FAIR RENT OF GULAB BHAWAN PALACE, LET OUT FOR A PERIOD OF 99 YE ARS TO BHARAT HOTELS LTD. BY THE APPELLANT, IN TERMS OF SECTIONS 22 & 23 OF THE ACT. 1.3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT PASSED THE JURISDICTION U/S 263 OF THE ACT, IN SETTING ASIDE THE ASSESSMENT ORDER FOR THE AFORESAID REASONS, NOT APPRECIATING THAT THE ISSUE OF TAXABILITY OF RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN ACCORDANCE WITH THE PROVISIONS OF SECTION 22/23 OF THE ACT, WAS EXAMINE D BY THE AO IN THE ASSESSMENT PROCEEDINGS, AND THE AO CANNOT BE SAID TO HAVE NOT CARRIED OUT ANY ENQUIRIES IN THIS REGAR D. 1.4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E CIT EXCEEDED JURISDICTION IN DIRECTING THE AO TO REVISE THE ASSESSMENT ORDER BY SUBSTITUTING HIS OPINION WITH THAT OF THE AO FORMED AT THE TIME OF ORIGINAL ASSESSMENT, WHICH IS NOT PERMISSIBLE IN LAW. 2. THAT THE CIT ERRED ON THE FACTS AND IN LAW IN H OLDING THAT THE RENT OF RS.5 LACS PER ANNUM CHARGED BY THE ASSESSEE FROM BHARAT HOTELS LTD; WAS NOT THE FAIR RENT OF THE SAI D PROPERTY AND THE ASSESSMENT ORDER PASSED ACCEPTING THE AFORESAID AMOUNT AS FAIR RENT, WHILE DETERMINING THE ANNUAL; VALUE OF P ROPERTY U/S 22 READ WITH SECTION 23 OF THE ACT, WAS PREJUDICIAL TO THE INTEREST OF REVENUE. ITA NO.52(ASR)/2012 3 3 2.1. THAT THE CIT ERRED ON THE FACTS AND IN LAW IN OBSE RVING THAT THE AMOUNT OF RS.57.59 CRORES SPENT BY BHARAT HOTELS LT D. ON CONSTRUCTION AND REPAIR AND MAINTENANCE OF BUILDING ON LAND TAKEN ON LEASE FROM ASSESSEE WAS INCURRED ON BEHALF OF ASSESSEE AND WAS IN LIEU OF MARKET RENT OF THE PROPERTY. 2.2. THAT THE CIT ERRED ON THE FACTS AND IN LAW IN OBSE RVING THAT SINCE THE ASSESSEE AND BHARAT HOTELS LTD. WERE RELA TED COMPANIES, THE LEASE AGREEMENT ENTERED FOR A PERIOD OF 99 YEARS AT AN ANNUAL RENT OF RS.5 LACS WAS NOT AT ARMS LE NGTH AND A COLOURABLE DEVICE ADOPTED TO EVADE TAX. 2.3. THAT THE CIT ERRED ON THE FACTS AND IN LAW IN OBSE RVING THAT THE RENT OF RS.5 LACS PER ANNUM CHARGED BY THE ASSESSEE DURING THE YEAR WAS NOT FAIR RENT OF THE ABOVE PROPERTY, CONSI DERING THAT THE SAME WAS INCREASED TO RS. 50 LACS PER ANNUM IN THE SUBSEQUENT YEAR. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM TH E ORDER OF THE LD. CIT DATED 02.01.2012 ARE THAT THE ASSESSMENT FOR THE A. Y. 2008-09 WAS COMPLETED U/S 143(3) OF THE ACT BY THE ITO WARD III (1) SRINAGAR ON 08.12.2010 AT TOTAL INCOME OF RS.3,50,000/-. THEREA FTER, A PROPOSAL U/S 263 OF THE ACT WAS RECEIVED FROM THE JT. C.I.T. RANGE- II, SRINAGAR VIDE HIS LETTER DATED 12.07.2011. IN THIS REPORT, THE RANGE HEAD HA S REPORTED AS UNDER: IN THIS CASE ASSESSMENT WAS FRAMED AT AN INCOME O F RS.3,50,000/-. THE ONLY SOURCE OF INCOME OF THE ASSESSEE IS FROM L ICENCE FEE OF RS.5,00,000/- RECEIVED FROM A GROUP COMPANY M/S. BH ARAT HOTELS PVT. LTD. IN BOTH THE COMPANIES I.E. THE ASSESSEE AND M/S. B HARAT HOTELS PVT. LTD. MAJOR SHARE HOLDERS ARE THE SAME PERTAINING TO SURI FAMILY. THE PROPERTY LEASED OUT PERPETUALLY TO A SISTER COMPANY IS A HUG E OLD PLACE OF MAHARAJA AT JAMMU & KASHMIR. THE PROPERTY IS A LUXURY HOTEL SITUATED IN THE POSH LOCALITY NEAR DAL LAKE AND AT GUPKAR ROAD. ITA NO.52(ASR)/2012 4 4 ITA NO.52(ASR)/2012 5 5 ITA NO.52(ASR)/2012 6 6 THE PROUD RECIPIENT OF THE BEST HERITAGE HOTEL AWAR D BY TRAVEL PLUS OF THE INDIA TODAY GROUP. ITA NO.52(ASR)/2012 7 7 3. THE ASSESSEE MADE WRITTEN SUBMISSIONS IN RESPONS E TO SHOW CAUSE NOTICE AND THE RELEVANT PART IS REPRODUCED AS UNDER : THE ASSESSEE IS A PUBLIC LIMITED COMPANY AND WAS IN CORPORATED ON 22.01.1964. THE ASSESSEE HAD TAKEN LAND MEASURING 222 KANALS AND 19 MARLAS OR THEREABOUT, UNDER THE ADJOINING GULAB BHAWAN PALACE, ON LEASE FROM SH. VIKRAMADITYA SINGH IN THE YEAR 19 73. THEREAFTER, PERPECTUAL LEASE DEED, DATED 22.11.1997, INITIALLY FOR A PERIOD OF 99 YEARS, AT AN ANNUAL RENT OF RS.12,000/- WAS ENTERED INTO BETWEEN THE ASSESSEE AND SH. VIKRAMADITYA SINGH. ON 30.03.1998, THE ASSESSEE COMPANY ENTERED INTO A LICENSE AGREEMENT FOR A PERIOD OF 99 YEARS, WITH BHARAT HOT ELS LTD. WHERE UNDER THE LATTER WAS GIVEN A RIGHT TO USE UPRADE, R ENOVATE AND RECONSTRUCT THE GULAB BHAWAN PALACE AND OTHER ADJOI NING STRUCTURES FOR THE PURPOSES OF COMMISSIONING A 5START HOTEL AT AN ANNUAL LICENSE FEES OF RS.5 LACS. FOR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 20.09.2008 DECLARING INCOME OF RS.3,35, 000/- WHEREIN THE AFORESAID ANNUAL LICENSE FEE OF RS. 5 LACS WAS OFF ERED TO TAX AS BUSINESS INCOME. THE ASSESSMENT U/S 143(3) OF THE A CT WAS COMPLETED, ITA NO.52(ASR)/2012 8 8 AFTER DETAILED VERIFICATION/EXAMINATION VIDE ORDER DATED 08.12.2010 DETERMINING THE TAXABLE INCOME OF THE ASSESSEE AT R S.3,50,000/-. IT MAY BE POINTED OUT THAT IN THE ASSESSMENT SO COMPL ETED THE ANNUAL LICENSE FEE OF RS. 5 LAKH RECEIVED BY THE ASSESSEE FROM BHL WAS ASSESSED TO TAX AS INCOME FROM HOUSE PROPERTY U/S 22 OF THE ACT, INSTEAD OF BUSINESS INCOME AS RETURNED BY THE ASSES SEE. THE ASSESSEE IS IN RECEIPT OF NOTICE DATED 18/20.7. 2011, ISSUED BY YOUR HONOUR U/S 263 WHEREIN IT IS STATED THAT THE L ICENSE FEE OF RS. 5 LAKHS PER ANNUM CHARGED BY THE ASSESSEE, IN RESPECT OF THE SUBJECT PROPERTY, WHICH IS BEING RUN AS A FIVE STAR HOTEL B Y BHL IS QUITE LOW AND THAT THE ASSESSMENT ORDER HAS BEEN FRAMED WITHO UT EXAMINING THE FAIR MARKET VALUE OF THE SUBJECT PROPERTY FOR CONDU CTING NECESSARY ENQUIRIES IN RELATION TO THE AFORESAID ISSUE, WHICH HAS RESULTED IN UNDER-ASSESSMENT OF INCOME FROM HOUSE PROPERTY U/ S 22 READ WITH SEC. 23 AND THEREFORE, THE ASSESSMENT ORDER PASSED U/S 143(3) OF THE ACT APPEARS TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE ASSESSEE HAS BEEN ASKED TO SHOW CA USE AS TO WHY ORDER U/S 263 OF THE ACT BE NOT PASSED FOR SETTING ASIDE THE ASSESSMENT FOR FRAMING THE SAME DENOVO AFTER DETERMINATION OF FAIR RENT OF THE SUBJECT PROPERTY. IN THIS REGARD, IT IS RESPECTFULLY SUBMITTED AS FOL LOWS. SECTION 22 OF THE ACT READS AS UNDER: 22. INCOME FROM HOUSE PROPERTY. THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUIL DINGS OR LANDS APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OW NER, OTHER THAN SUCH PORTIONS OF SUCH PROPERTY AS HE MAY OCCUPY FOR THE PURPOSES OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM THE PR OFITS OF WHICH ARE CHARGEABLE TO INCOME TAX, SHALL BE CHARGEABLE TO IN COME TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IN TERMS OF PROVISIONS OF SECTION 22 OF THE ACT, IN COME FROM LETTING OUT OF ANY BUILDING OR LAND APPURTENANT THERETO, IS CHARGEABLE TO TAX UNDER THE SAID HEAD, ON THE ANNUAL VALUE OF SUCH PR OPERTY. THE METHOD OF DETERMINATION OF ANNUAL VALUE OF PROPERTY HAS BEEN PRESCRIBED IN SECTION 23(1) OF THE ACT, WHICH READS AS UNDER: ITA NO.52(ASR)/2012 9 9 23. ANNUAL VALUE HOW DETERMINED. (1) FOR THE PURPOSES OF SECTION 22, THE ANNUAL VALU E OF ANY PROPERTY SHALL BE DEEMED TO BE (A) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. OR (B) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), THE AM OUNT SO RECEIVED OR RECEIVABLE; OR (C) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWNING TO SUCH VACANCY THE ACTUAL RENT RECEIVED OR RECEIVA BLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE: . IN TERMS OF THE AFORESAID SECTION, IN CASE OF A PRO PERTY WHICH IS LET OUT DURING THE WHOLE YEAR, THE ANNUAL VALUE OF SUCH PRO PERTY FOR THE PURPOSES OF SECTION 22 OF THE ACT, SHALL BE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR ( I.E. FAIR RENT) OR THE ACTUAL AMOUNT OF RE NT RECEIVED OR RECEIVABLE BY THE ASSESSEE UNDER THE RELEVANT TENAN CY AGREEMENT, WHICH IS HIGHER. THE PROVISIONS OF THE AFORESAID SECTION ARE PLAIN A ND UNAMBIGUOUS AND THERE IS NO QUARREL WITH THE PROPOSITION THAT I F FAIR RENT OF A PROPERTY IS HIGHER THAN THE ACTUAL RENT RECEIVED/R ECEIVABLE BY THE LESSOR, THE ANNUAL VALUE OF THE PROPERTY FOR THE PU RPOSES OF BRINGING TO TAX INCOME UNDER THE HEAD HOUSE PROPERTY SHALL BE DEEMED TO BE SUCH FAIR RENT. IT IS WELL SETTLED, THAT FAIR RENT OF A PROPERTY FO R THE PURPOSES OF SECTION 22 READ WITH SEC. 23 OF THE ACT CANNOT EXCEED STAND ARD RENT AS DETERMINED/DETERMINABLE UNDER THE RELEVANT STATE RE NT CONTROL ACT OR IN ABSENCE OF SAME AT RATEABLE VALUE OF THE PROPERT Y FIXED UNDER APPLICABLE MUNICIPAL LAW. REFERENCE IN THIS REGARD, IS MADE TO THE FOLLOWING CASES: - DEWAN DAULAT RAI KAPOOR V. NEW DELHI, MUNICIPALITY : 122 ITR 700 (SC) - SHEILA KAUSHI V. CIT, DELHI 131 ITR 435(SC) ITA NO.52(ASR)/2012 10 10 - DR. BALBIR SIGH VS. MCD 152 ITR 388 (SC) - CIT V. PRABHABATI BANSALI : 141 ITR 419 (CAL.) - CIT V. R. DALMIA 164 ITR 517 (DEL) - CIT V. M.R. ALAGAPPARI : 164 ITR 690 (MAD) - MADGUL UDHOG V. CIT 184 ITR 484 (CAL.) - CIT VS. SATYA CO. LTD. 140 CTR 569 (CAL.) - CIT V. MONI KUMAR SUBBA : ITA NO.499 OF 2008 (DEL) THE AFORESAID PROPERTY IS NOT SUBJECT TO RENT CONTR OL LAWS AND NO MUNICIPAL VALUATION HAS BEEN CARRIED OUT AS THE REL EVANT MUNICIPAL LAWS HAVE NOT BEEN NOTIFIED FOR THE AREA WHERE THE SUBJECT PROPERTY IS LOCATED. HAVING REGARD TO THE AFORESAID FACT AND THE CASES REFERRED TO HEREINABOVE, THE FAIR RENTAL VALUE OF THE SUBJECT P ROPERTY BEING INCAPABLE OF DETERMINATION IN TERMS OF SECTION 23(1 )(A), THE SAID PROVISION HAS NO APPLICATION IN THE PRESENT CASE A ND THE ANNUAL LICENSE FEE ACTUALLY RECEIVED BY THE ASSESSEE CAN O NLY BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN TERMS OF SECTION 23(1)(B) OF THE ACT. WITHOUT PREJUDICE, IN THE PRESENT CASE, IT IS RESPE CTFULLY SUBMITTED THAT THE ASSESSEE HAD LET OUT THE SUBJECT PROPERTY ON 3. 2.1998 FOR A PERIOD OF 99 YEARS TO BHL AND THE FAIR RENT OF SUCH PROPER TY AT THAT TIME DID NOT EXCEED THE LICENSE FEE OF RS.5,00,000 PER ANNUM AGREED BETWEEN THE PARTIES, AS ELABORATELY EXPLAINED HEREINABOVE. THE STATE OF JAMMU & KASHMIR WAS FOUNDED BY H.H. MA HARAJA GULAB DURING THE 17 TH CENTURY. THE STATE MERGED WITH THE REST OF THE NATION IN 1947. IT IS COMMON KNOWLEDGE THAT SINCE 1 989, POLITICAL INSTABILITY AND CIVIL DISTURBANCES, INCLUDING TERRO RISM AND MILITANT ACTIVITIES, PARALYZED THE REGULAR/NORMAL AND ECONOM IC LIFE IN THE STATE OF J & K. IT WOULD BE PERTINENT TO POINT OUT THAT PRIOR TO T HE YEAR 1990, A HOTEL WAS BEING OPERATED AT THE SITE OF THE SUBJECT PROPE RTY BY EAST INDIA HOTELS LTD. UNDER THE NAME AND STYLE OF HOTEL OBE ROI PALACE, SRINAGAR UNDER A LICENSE OBTAINED FROM THE ASSESSE E. HOWEVER, DUE TO CONTINUING TERRORIST/MILITANT ACTIVITIES IN THE STATE OF J & K, THE HOTEL RUNNING OPERATIONS WERE CLOSED BY EIL IN THE YEAR 1990 AND THE PROPERTY REMAINED VACANT FOR A PERIOD OF ALMOST 8 YEARS ( MAY 1990 ITA NO.52(ASR)/2012 11 11 TO FEBRUARY 1998), BEFORE IT WAS TAKEN ON LEASE BY BHL. IT IS RESPECTFULLY SUBMITTED THAT WHEN BHL ENTERED INTO T HE LICENSE AGREEMENT IN RESPECT OF THE SUBJECT PROPERTY THE SA ME WAS IN SHAMBLES, ON ACCOUNT OF THE FOLLOWING: - THE PROPERTY WAS LYING VACANT FOR EIGHT YEARS AND T HERE WAS NO UPKEEP AND MAINTENANCE OF THE SAME DURING SUCH PERI OD. - THE EXISTING BUILDING STRUCTURE HAD BECOME DILAPIDA TED, RAVAGED BY TIME AND EXTREME WEATHER CONDITIONS AND IN THE A BSENCE OF REGULAR AND TIMELY MAINTENANCE AND THERE WAS GROWTH OF SPONTANEOUS AND WILD PLANTS AROUND THE BUILDING, SE EPAGE IN THE INTERIORS OF THE STRUCTURE ETC; WHICH MADE THE BUIL DING INHABITABLE. IT WOULD BE PERTINENT TO POINT OUT THAT UNDER THE BHL HAD INCURRED SUBSTANTIAL EXPENSES, AGGREGATING TO RS.57.79 CRORE S, ON RECONSTRUCTION OF THE BUILDING , PURCHASE OF VARIOU S ASSETS, REPAIR AND RENOVATION OF THE SUBJECT PROPERTY, AFTER TAKING TH E SAME ON LICENSE FROM THE ASSESSEE. IN THIS CONNECTION, A CERTIFICAT E HAS BEEN OBTAINED FROM BHL, WHICH CERTIFIES THAT THE AFORESAID AMOUN T OF EXPENSES WERE INCURRED ON CONSTRUCTION/RENOVATION IN THE SUB JECT PROPERTY POST TAKING THE SAME ON LEASE FROM ASSESSEE. CONSIDERING THE AFORESAID FACTORS/CIRCUMSTANCES, ES PECIALLY THE DISTURBED ECONOMIC/POLITICAL SITUATION IN THE STATE OF J & K DUE TO CONTINUING TERRORIST AND MILITANT ACTIVITIES AND TH E DILAPIDATED STATE OF THE SUBJECT PROPERTY, THE FAIR RENT OF THE PROPE RTY COULD NOT BE SAID TO BE ANYTHING MORE THAN THE AMOUNT OF ANNUAL LICE NSE FEE AGREED BETWEEN THE ASSESSEE AND BHL AT THE TIME OF ENTERIN G INTO THE LICENSE FEE AGREEMENT ON 3.2.1998. IT WOULD BE PERTINENT TO NOTE THAT THE ASSESSEE HAD ITSELF OBTAINED THE SUBJECT PROPERTY O N 99 YEARS LEASE FROM SH. VIKRAMADITYA SIGH AT AN ANNUAL LEASE RENT OF RS.12,000, AS PER THE PERPETUAL LEASE DEED ENTERED INTO ON 22.11. 1997, WHEREAS THE SAME WAS SUBLET TO BHL, VIDE LEASE DEED DATED 3.2.1 998, AT AN ANNUAL LEASE RENT OF RS.5 LAKHS, WHICH WAS APPROXIM ATELY 40 TIMES HIGHER. THE LEASE RENT WHICH STANDS ACCEPTED IN IN COME TAX ASSESSMENT, SUBSTANTIATES, THAT THE FAIR RENT OF SU BJECT PROPERTY AT THE RELEVANT TIME, UNDER ANY CIRCUMSTANCES, COULD NOT B E SAID TO EXCEED RS. 5 LAKHS. ITA NO.52(ASR)/2012 12 12 IT IS SUBMITTED THAT IN THE CAPTIONED NOTICE, YOUR HONOUR HAS NOT POINTED THE BASIS ON WHICH THE FAIR RENT OF THE SUB JECT PROPERTY, AT THE TIME WHEN LEASE WAS ENTERED BETWEEN THE ASSESSEE AN D BHL COULD BE SAID TO BE HIGHER THAN THE ACTUAL ANNUAL LICENSE FE E AGREED TO BETWEEN THE PARTIES UNDER THE LEASE AGREEMENT. IT HAS BEEN STATED THAT SINCE AT PRESENT BHL OPERATES A FIVE STAR HOTE L ON THE SUBJECT LAND WHICH FETCHES SUBSTANTIAL ROOM RENT FROM THE C USTOMERS, THEREFORE, THE FAIR RENT AGREED BETWEEN THE PARTIES , ABOUT 9 YEARS BACK IS FAIRLY LOW. THE AFORESAID OBSERVATION IS BA SED ON CONJECTURES, SURMISES, IRRELEVANT CONSIDERATIONS AND IS CONTRARY TO RECORD. YOUR HONOUR HAS, IT IS RESPECTFULLY SUBMITTED, NOR APPRECIATED THAT THE PRESENT FIVE-STAR HOTEL, BEING OPERATED BY BHL, WAS SUBSTANTIALLY CONSTRUCTED/RENOVATED BY BHL, AS CAN BE HAD FROM TH E FACT THAT BHL INCURRED AN EXPENDITURE OF RS.57.79 CRORES THEREON, AFTER TAKING THE SUBJECT PROPERTY ON LICENSE FROM ASSESSEE 9 YEARS A GO, WHEN THERE WAS NO MARKET FOR SUCH PROPERTY IN VIEW OF THE HEIG HTENED MILITANCY WHICH HAD DISTURBED PUBLIC LIFE, AND PATHETIC STATE OF THE PROPERTY. IT MAY BE POINTED OUT THAT CLAUSE 16 OF THE LICENSE WI TH BHL PROVIDED FOR ENHANCEMENT OF ANNUAL LEASE BY NOT MORE THAN 10 0% AFTER EVERY 8 YEARS. HOWEVER, THE INCREASE IF ANY WAS SUBJECT T O MUTUAL NEGOTIATION. IN THE PRESENT CASE, CONSIDERING THE S ITUATION PREVAILING IN THE STATE OF J & K /SRINAGAR AT THE RELEVANT TIM E ( AT EXPIRY OF 8 YEARS), THERE WAS NO REVISION OF ANNUAL LICENSE FEE S. EVEN ASSUMING WITHOUT ADMITTING THAT THE FAIR RENT OF THE SUBJECT PAYMENT PROPERTY TODAY EXCEEDS THE AMOUNT OF RENT A GREED BETWEEN THE PARTIES ABOUT 9 YEARS AGO, THE SAME CANNOT BE D EEMED AS FAIR RENT FOR THE PURPOSES OF SECTION 23 READ WITH SECTION 22 OF THE ACT, BECAUSE IF THE SUBJECT PROPERTY HAD REMAINED AS IT WAS AND THE SAME STATE OF TERRORISM/MILITANCY HAD PREVAILED DURING T HE RELEVANT PREVIOUS YEAR AS IN THE YEAR 1998, THE FAIR RENTAL VALUE WOULD HAVE BEEN EVEN LESSER TODAY ( ON ACCOUNT OF FURTHER DETE RIORATION IN THE CONDITION OF PROPERTY AND DIMINISHING HOPE OF IMPRO VEMENT IN POLITICAL SITUATION). UNLESS IT IS DEMONSTRATED WIT H EVIDENCE THAT THE FAIR RENT OF THE SUBJECT PROPERTY AT THE TIME OF EN TERING INTO THE LICENSE AGREEMENT IN THE YEAR 1998, WAS MORE AS COMPARED TO THE LICENSE FEE AGREED BETWEEN THE PARTIES, NO ADJUSTMENT TO THE LI CENSE FEES RECEIVED BY THE ASSESSEE CAN BE MADE U/S 23(1)(B) OF THE ACT DURING THE YEAR ASSESSMENT YEAR UNDER CONSIDERATION. ITA NO.52(ASR)/2012 13 13 4. IN THE WRITTEN SUBMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE BEFORE THE LD. CIT(A) REFERRED TO THE DECISIONS OF VARIOUS COU RTS OF LAW AND SUBMITTED IN SHORT, AS UNDER: I) THE ASSESSEE WAS PAYING ANNUAL RENT OF RS.12,000 ONLY TO THE OWNER AND LESSOR, VIZ. SHRI VIKRAMADITYA SINGH, WH ICH HAS BEEN ACCEPTED AS THE FAIR RENT IN THE HANDS OF RECI PIENT; II) THE PROPERTY WAS VACANT FOR MANY YEARS BEFORE G IVING THE SAME ON LEASE TO BHL. III) THE DISTURBED ECONOMIC/PUBLIC LIFE IN THE STATE OF J & K DUE TO CONTINUING TERRORIST AND MILITANT ACTIVITIES, AND T HE DECREPIT STATE OF THE SUBJECT PROPERTY HAD CONSIDERABLY DIMINISHED FAIR RENTAL VALUE OF THE LAND AND BUILDINGS IN THAT AREA AND NO HYPOTHETICAL TENANT WOULD HAVE PAID THE RENT FOR THE SUBJECT PRO PERTY MORE THAN THE ANNUAL LICENSE FEE AGREED TO BE PAID BY BH L;, EIL, THE EARLIER TENANT HAD ABANDONED THE PROPERTY AND EIL O R ANY OTHER HOTELIER FOR THAT MATTER DID NOT THINK IT WORTHWHIL E TO TAKE IT ON LICENSE AT THE TERMS AGREED TO BETWEEN THE ASSESSEE AND BHL, WHICH SHOWS THAT THE RENT PAID BY BHL WAS IN FACT T HE FAIR RENT OF THE PROPERTY. IV) BHL HAD INCURRED SUBSTANTIAL CONSTRUCTION/REPAIR AN D MAINTENANCE EXPENSES POST TAKING THE SUBJECT PROPER TY ON LEASE. ITA NO.52(ASR)/2012 14 14 IN VIEW OF THE ABOVE MATTER, IT WAS SUBMITTED THAT THE ACTUAL ANNUAL RENT OF RS. 5 LAKHS AGREED BETWEEN THE ASSESSEE AND BHL IN THE YEAR 1998, CAN ONLY BE BROUGHT TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY U/S 23(1) OF THE ACT AND NOT ANY OTHER ASSUMED/HYPOTHETICAL AM OUNT. THE FACT THAT THE ASSESSEE AND BHL WERE RELATED ENTERPRISES, WOULD NO T IPSO FACTO MEANS THAT THE ANNUAL LICENSE FEE PAYABLE BY BHL WAS NOT THE F AIR RENTAL VALUE OF THE SUBJECT PROPERTY, UNLESS IT IS DEMONSTRATED WITH EV IDENCE THAT SUCH LICENSE FEE WAS ARTIFICIALLY DEPRESSED AND THE LICENSE AGR EEMENT WAS COLLUSIVE. AS REGARDS THE OBSERVATION IN THE CAPTIONED SHOW CAUSE NOTICE THAT FAIR RENT SEEMS TO BE LOW, SINCE BHL IS CHARGING ROOM RENT AT APPROX. RS.5 LACS PER ROOM PER MONTH, IT WAS SUBMITTED AS UNDER: THE REVENUES RECEIVED BY THE BHL FROM RUNNING THE HOTEL CAN HAVE NO CORRELATION WITH THE FAIR RENTAL VALUE OF SUBJEC T PROPERTY. THE ROOM TARIFF IS A FACTOR OF THE SERVICES, AMENITIES, COMF ORT PROVIDED, INVESTMENT MADE IN THE PROPERTY ETC. AND IS NO INDI CATOR OF THE FAIR RENTAL VALUE OF THE PROPERTY. FURTHER, IT WOULD BE APPRECIATE THAT BUSINESS OF RUNNING AND OPERATING HOTEL IS A SEASON AL BUSINESS I.E. THE DEMAND FOR ROOMS IS RAISED BY CUSTOMERS MAINLY IN P EAK SEASON OF HOLIDAYS OF SUITABLE WEATHER CONDITIONS IN THE STAT E OF J & K /SRINAGAR. ASSUMING THAT ROOM TARIFF IS HIGH, THE S AME IS CHARGED ONLY IN PEAK SEASON, WHICH COMPENSATES THE OFF PERIOD, W HEN THERE IS NEGLIGIBLE OR NIL DEMAND FROM CUSTOMERS, DURING WHICH TIME THE ITA NO.52(ASR)/2012 15 15 HOTEL OPERATOR CONTINUES TO INCUR EXPENSES ON SALA RIES OF STAFF AND OTHER ROUTINE/MAINTENANCE EXPENSES. THUS, THE HIGH ROOM TARIFF CHARGED BY HOTEL OPERATOR TO BHL IN THIS CASE, CANN OT BE THE BASIS FOR ESTIMATING THE FAIR RENT FOR THE PURPOSES OF LESSOR /SUBJECT PROPERTY. IT MAY BE NOTED THAT IF RENT WOULD HAVE BEEN AGREED AT HIGHER PRICE, THE BHL , WHICH IS USING THE SUBJECT PROPERTY FOR THE P URPOSES OF BUSINESS OF OPERATING HOTEL, WOULD HAVE BEEN ENTITLED TO CLA IM SUCH AMOUNT AS BUSINESS DEDUCTION/REVENUE EXPENDITURE. THEREFORE, THERE IS NO REASON FOR THE PARTIES HEREIN TO AGREE TO LICENSE FEE/RENT , WHICH DOES NOT REFLECT THE FAIR RENT. FURTHER, THE FIGURE OF RS. 5 LACS PER MONTH/PER ROOM ASSUMED BY YOUR HONOUR ON THE ROOM RENT RECEIV ED BY THE ASSESSEE IS HIGHLY EXAGGERATED, BHL HAS INTIMATED T HAT ITS GROSS ROOM REVENUES RECEIVED UPTO 31.3.2008 WERE ONLY TO THE T UNE OF RS.33,04, 55,018/-. MORE IMPORTANTLY, IT MAY BE PERTINENT TO POINT OUT THAT BHL HAS TILL DATE SUFFERED NET LOSS OF RS.7,42,99,002/- FROM RUNNING THE AFORESAID PROPERTY. FROM THE AFORESAID CUMULATIVE REASONS, IT WAS SUB MITTED THAT THE ASSESSMENT ORDER PASSED BY THE A.O. IS IN ACCORDANC E WITH LAW AND THERE IS NO ERROR THEREIN CAUSING PREJUDICE TO THE REVENUE, SO AS TO WARRANT EXERCISE OF JURISDICTION U/S 263 OF THE ACT, TO REQUIRE SETT ING ASIDE THE ASSESSMENT FOR DETERMINING FAIR RENT OF THE SUBJECT PROPERTY. 5. THEREAFTER, THE LD. COUNSEL FOR THE ASSESSEE APP EARING BEFORE THE LD. CIT(A) RELYING UPON THE DECISIONS OF VARIOUS COURT S OF LAW IN SUM AND ITA NO.52(ASR)/2012 16 16 SUBSTANCES ARGUED THAT THE ASSESSEE HAS STATED THA T DUE TO CONTINUING TERRORIST AND MILITANT ACTIVITIES, AND THE DILAPIDA TED STATE OF THE SUBJECT PROPERTY, THE FAIR RENT OF THE PROPERTY COULD NOT B E SAID TO BE ANYTHING MORE THAN THE AMOUNT OF ANNUAL LICENSE FEE AGREED BETWEE N THE ASSESSEE AND BHARAT HOTELS LIMITED AT THE TIME ENTERING INTO TH E LICENSE AGREEMENT ON 03.02.1998. IT HAS FURTHER BEEN STATED THAT THE ASS ESSEE HAD ITSELF OBTAINED THE SUBJECT PROPERTY ON 99 YEARS LEASE FROM SH. VIKRAMA DITYA SINGH AT AN ANNUAL LEASE RENT OF RS.12,000/- AS PER THE PERPETUAL LEAS E DEED ENTERED INTO ON 22.11.1997, WHEREAS THE SAME WAS SUBJECT TO BHARAT HOTELS LTD. VIDE LEASE DEED DATED 03.02.1998, AT AN ANNUAL LEASE RENT O F RS. 5 LAKHS, WHICH WAS APPROXIMATELY 40 TIMES HIGHER. IT HAS FURTHER BEEN STATED THAT THE LEASE RENT PAYABLE BY THE ASSESSEE TO SH. VIKRAMADITYA SINGH, WHICH STANDS ACCEPTED IN INCOME TAX ASSESSMENT, SUBSTANTIATES THAT THE FA IR RENT OF SUBJECT PROPERTY AT THE RELEVANT TIME, UNDER ANY CIRCUMSTANCES COULD NOT BE SAID TO EXCEED RS.5 LAKHS. THE ASSESSEE HAS FURTHER RELIED ON VARI OUS JUDGMENTS TO PUT FORTH HIS POINT THAT FAIR RENT OF A PROPERTY FOR THE PURP OSES OF SECTION 22 READ WITH SECTION 23 OF THE ACT CANNOT EXCEED STANDARD RENT A S DETERMINED/DETERMINABLE UNDER THE RELEVANT STATE RE NT CONTROL ACT OR IN ABSENCE OF SAME AT RATEABLE VALUE OF THE PROPERTY FIXED UNDER APPLICABLE MUNICIPAL LAW. FURTHER, AT THE TIME OF ASSESSMENT, THE AO HAD MADE ITA NO.52(ASR)/2012 17 17 THOROUGH ENQUIRY BESIDES INFORMATION ASKED FOR AS PER ORDER SHEET ENTRIES FROM TIME TO TIME THAT THE AO HAS EXAMINED THE RELE VANT ISSUES, WHICH IS SUBJECT MATTER OF THE PROCEEDINGS U/S 263 OF THE AC T AND IT WAS AFTER PROPER ENQUIRIES THAT HE TOOK A CONSIDERED DECISION TO AS SESS THE INCOME AS INCOME FROM HOUSE PROPERTY AND THEREFORE, IT IS NOT PERMIS SIBLE U/S 263 OF THE ACT FOR THE LD. CIT TO REVISE OR CANCEL THE ASSESSMENT MERELY BECAUSE HE HAS A DIFFERENT OPINION ON THE ISSUES WHICH HAVE BEEN ENQ UIRED INTO, EXAMINED AND DECIDED BY THE A.O. IN THIS REGARD, THE ASSESSEE HA S RELIED UPON THE FOLLOWING JUDGMENTS: 1. MALABAR INDUSTRIAL CO. LTD. V. CIT 243 ITR 83 ( SC) AND 2. CIT VS. GABRIEL INDIA LTD. 203 ITR 108. THEREAFTER, HE RELIED UPON CERTAIN MORE DECISIONS I N SUPPORT OF HIS CASE. 6. THE LD. C.I.T. AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE AND ARGUMENTS MADE BY HIM REJECTED THE APPEAL OF THE AS SESSEE AND THE RELEVANT PART AT PAGES 33 TO 35 IS REPRODUCED FOR THE SAKE O F CONVENIENCE , AS HELD BY THE LD. CIT AS UNDER: NOW CONSIDER THE CASE OF THE ASSESSEE. IT HAS GOT HUGE PROPERTY INCLUDING ROYAL PALACE BUILDING, SPREAD OVER MORE T HAN 222 KANALS AND HAVING BEST OF THE LOCATIONS MATCHING ANY WORLD CLASS LOCATION. AND THE RENTAL RECEIPT IS DECIDED AT RS. 5 LAKHS PE R YEAR SHOWING TOTAL DISREGARD TO THE GROUND REALITIES WITH REGARD TO VA LUE OF THE PROPERTY. THE CONTENTION OF THE ASSESSEE REGARDING LAW AND OR DER AND VALUATION OF THE PROPERTY ON THE LOWER SIDE IS SELF DEFEATING IN THE SENSE THAT ON THE ONE HAND BHL IS SPENDING AMOUNT OF RS.57,59,46, 941/- ON BEHALF ITA NO.52(ASR)/2012 18 18 OF THE ASSESSEE COMPANY. APPARENTLY THIS AMOUNT OF RS.57.59 CRORES IS NOTHING BUT RECEIPTS IN LIEU OF MARKET RENT OF THE PROPERTY. THE AO HAS NOT EXAMINED THIS ASPECT AND NOT EVEN SINGLE QUERY HAS BEEN MADE REGARDING DETERMINATION OF FIGURES OF RENT AS PER P ROVISIONS OF THE INCOME-TAX ACT,1961. THIS ONLY LEAD TO MY FINDING T HAT THE AO HAS NOT MADE THE RELEVANT QUERIES REQUIRED FOR COMPLETI ON OF ASSESSMENT IN THIS CASE. FURTHER, THE ASSESSEE HAS CONTENDED THAT LEASE AGRE EMENT DATED 03.02.1998 IS FOR 99 YEARS. HENCE, IT COULD CHANGE THE QUANTUM OF LEASE RENT. THIS CONTENTION OF THE ASSESSEE IS AGA IN INCORRECT AS IT HAS INCREASED THE AMOUNT OF LEASE RENT FROM RS.5 LAKHS TO RS.50 LAKHS SUBSEQUENTLY CONTRARY TO THE LOGIC OF SANCTITY OF A GREEMENT FOR 99 YEARS. THIS ONLY PROVES THAT THE DETERMINATION OF RENT IS ONLY A SELF SERVING DEVICE AND CASE OF THE ASSESSEE IS COVERED IN THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF MCDOW ELL & CO. LIMITED DISCUSSED ABOVE. THE POINT THAT THE TRANSACTION IN QUESTION IS NOT A T ARMS LENGTH IS PROVED FROM THE FACT THAT THE ASSESSEE COMPANY M/S. JYOTI LIMITED IS HELD BY THE BHL GROUP AS UNDER: NAME OF THE SHAREHOLDER NUMBER OF SHARES HELD NATURE BHARAT HOTELS LIMITED 62,998 HOLDING COMPANY DR. YYOTSNA SURI 1 DIRECTOR MR. RAMESH SURI 1 DIRECTOR OTHERS 4 TOTAL SHARE HOLDING SUBSCRIBED 63004 SO OUT OF TOTAL SHARE CAPITAL OF 63,004 SHARES ISSU ED AND SUBSCRIBED IN THE CASE OF THE ASSESSEE COMPANY, MORE THAN 98% OF THE SHAREHOLDING IS WITH THE COMPANY M/S. BHARAT HOTELS LIMITED WHIC H IS THE TENANT AS PER THE LEASE AGREEMENT. HENCE, IT IS NOTHING BUT I NTERNAL COLOURABLE DEVICE ADOPTED BY THE ASSESSEE COMPANY IN LEAGUE WI TH THE MAIN GROUP COMPANY I.E. M/S. BHARAT HOTELS LIMITED AND A CTUAL RENT HAS BEEN TAKEN IN THE FORM OF INVESTMENT BY THE FLAGSHI P COMPANY AND TAX HAS BEEN EVADED. ITA NO.52(ASR)/2012 19 19 WITH THE ABOVE MODUS OPERANDI THE ASSESSEE HAS BEEN ABLE TO UNDERSTATE ITS INCOME AND THEREBY REDUCE ITS TAX BU RDEN. THE VERY BODY OF THE ASSESSMENT ORDER AND THE INFORMATION FI LED BY THE AO REVEAL THAT NO QUERY WAS MADE FROM THE ASSESSEE W.R .T. THE ACTUAL RENTAL INCOME I.E. MARKET RENT RECEIVABLE IN THIS C ASE. IN VIEW OF THE ABOVE, IT IS HELD THAT THE ORDER OF THE AO WITH REGARD TO ACCEPTANCE ACCEPTING THE FAIR RENTAL VALUE OF THE P ROPERTY AT RS.5,00,000/- WITHOUT ANY ENQUIRIES IS ERRONEOUS. S INCE DUE TO SUCH ERRONEOUS ORDER INCOME HAS BEEN UNDER ASSESSED, THE ORDER OF THE AO IS ALSO PREJUDICIAL TO THE INTEREST OF THE REVENUE. THUS, THE ORDER OF THE AO WITH REGARD TO THE ISSUE REGARDING DETERMINATION OF FAIR RENTAL VALUE OF THE PROPERTY ABOVE IS HEREBY CANCELLED WITH THE DIRECTIONS TO THE A.O. TO MAKE A FRESH ASSESSMENT AFTER CONDUCTING PROPER ENQUIRIES AND AFTER GIVING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. 7. THE LD. COUNSEL FOR THE ASSESSEE, MR. AJAY VOHRA , ADVOCATE, INVITED OUR ATTENTION AT PB-1, THE COMPUTATION OF INCOME AN D AGAIN OF THE ASSESSEES PB-85 WHERE THE ASSESSEE HAS DECLARED LICENCE FEES RECEIVED DURING THE IMPUGNED YEAR AS WELL AS IN THE PRECEDING YEAR AT THE SAME AMOUNT OF RS. 5 LACS. THE LD. COUNSEL FOR THE ASSESSEE ARGUED ON TH E SIMILAR LINES, AS SUBMITTED BEFORE THE LD. CIT(A) IN THE FORM OF WRIT TEN SUBMISSION DATED 05.09.2011 REPRODUCED IN THE ORDER OF THE LD. CIT. HE ARGUED THAT THE LICENCE WAS SUBMITTED TO THE AO WHICH IS PART OF THE RECORD. REFERRING TO THE FACTS OF THE CASE, HE ARGUED THAT THERE IS NO LACK OF ENQUIRY. HE FURTHER RELIED UPON THE DECISIONS OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUNBEAM AUTO REPORTED IN 332 ITR 167. HE FURTHE R ARGUED THAT THE VIEW TAKEN BY THE AO IS AS PER LAW AND AT THE MOST IT I S A POSSIBLE VIEW AND THERE ITA NO.52(ASR)/2012 20 20 IS NO PREJUDICE CAUSED TO THE REVENUE, EVEN IF THE ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. HE RELI ED UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUST RIAL CO. LTD. VS. CIT REPORTED IN 243 ITR 83 AND CIT VS. MAX INDIA LTD; 295 ITR 282. HE FURTHER ARGUED THAT THE AO CANNOT PUT DIFFERENT VIE WS WITH REGARD TO THE MARKET RENT SINCE THE CONTRACT FOR THE RENT WAS ENT ERED INTO 3.2.1998. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSEE RELIED UP ON THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF VINEET VIRMANI, HUF VS. DCIT (2004) 3 SOT 102 (DEL) AND IN THE CASE OF MARWAH STEELS PVT. LTD . VS. DCIT (2005) 3 SIT 379 (ITAT MUMBAI). ALSO, HE RELIED UPON THE DECISIO N OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INTERNATIONAL TRA VEL HOUSE REPORTED IN 344 ITR 554 (DEL) AND IN THE CASE OF ITO VS. DG HOU SING PROJECTS LTD. DATED 01.03.2012 IN ITA NO.179/2011 (DELHI HC). THE LD. COUNSEL FOR THE ASSESSEE ACCORDINGLY PRAYED TO CANCEL THE ORDER OF THE LD. CIT FOR THE REASONS AND ARGUMENTS MADE HEREINABOVE. 8. THE LD. DR, ON THE OTHER HAND, ARGUED AT THE OUT SET THAT THE LD. COUNSEL HAS NOT SPOKEN EVEN A SINGLE WORD WHETHER A DEQUATE INQUIRY HAS BEEN MADE OR NOT BY THE A.O. HE FURTHER ARGUED THAT THE AO HAS NOT GONE INTO THE MARKET VALUE OF THE RENT, RATHER NO ENQUIR Y HAS BEEN MADE. HE ITA NO.52(ASR)/2012 21 21 FURTHER INVITED OUR ATTENTION TO THE FINDINGS OF TH E LD. CIT THAT THE ASSESSEE AND BHARAT HOTELS LTD. BELONG ON ONE FAMILY I.E. S URI FAMILY IN WHICH TOTAL SHARES ARE 63004 NUMBERS IN ASSESSEE-COMPANY OUT O F WHICH 62908 SHARES ARE HELD BY M/S. BHARAT HOTEL LIMITED; THE TENANT C OMPANY AND ONE SHARE BY DR. YYOTSNA SURI AND ONE SHARE BY MR. RAMESH SUR I. HE FURTHER ARGUED THAT THE ORDER SHEET ENTRY OF THE AO DATED 29.11.20 10 & 03.12.2010 SHOW THAT NO ENQUIRY AT ALL HAS BEEN MADE BY THE A.O. HE RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INFOSYS TECHNOLOGIES LTD. 341 ITR 293 , WHERE THE LD. CIT SET ASIDE THE MATTER TO THE A.O. TO DECIDE THE ISSUE AFRESH AND NO PREJUDIC E IS CAUSED TO THE ASSESSEE, WHICH IS THE FACT IDENTICAL TO THE PRESENT CASE OF THE ASSESSEE. THE LD. DR PRAYED TO CONFIRM THE ORDER OF THE LD. CIT. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. FOR THE SAKE OF CONVENIENCE, WE HEREBY REPRODUCE TH E RELEVANT PART OF THE ASSESSMENT ORDER, WHICH WILL SHOW WHETHER ANY ENQUI RY HAS BEEN MADE BY THE AO OR NOT WITH REGARD TO THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLE BE EXPECTED TO LET FROM YEAR TO YEAR F OR DETERMINING THE ANNUAL VALUE UNDER SECTION 23(1) OF THE ACT. THE RELEVANT PART OF THE ASSESSMENT AT PAGE 1 & 2 DATED 8.12.2010 IS REPRODUCED AS UNDER: ON 29.11.201O SH. RAJEEV PAREEK, CA COUNSEL OF THE ASSESSEE COMPANY FILED PARTIAL REPLY TO QUERY LETTER AND ALS O FILED COPIES OF ITA NO.52(ASR)/2012 22 22 PRECEDING ASSESSMENT RECORDS, COPY OF FORM 20B AND RETURN FILED WITH THE ROC. ARTICLES OF MEMORANDUM WERE FILED AND STAT UTORY REGISTERS INCLUDING SHARE ALLOTMENT, MINUTES OF MEETINGS OF B OARD OF DIRECTORS WERE PRODUCED FOR PERUSAL. ON FURTHER HEARINGS, BOO KS OF ACCOUNT WERE PRODUCED BY THE COUNSEL WHICH WERE EXAMINED. THE COUNSEL ALSO FURNISHED LEASE AGREEMENT DATED 22.11.1997 VES TING THE PROPERTY IN THE HANDS OF THE ASSESSEE UNDER A PERPETUAL LEAS E AND LICENSE AGREEMENT DATED 03.02.1998 BETWEEN THE ASSESSEE COM PANY AND M/S. BHARAT HOTELS PVT. LTD. BY VIRTUE OF WHICH THE PROP ERTIES VESTED WITH THE ASSESSEE HAVE BEEN LEASED OUT TO M/S. BHARAT HO TELS PVT. LTD. AGAINST ANNUAL RENT. EXIGENCY OF RAISING UNSECURED LOANS AND CONFIRMATION OF THE SAME FROM M/S. BHARAT HOTELS PV T. LTD. WAS SOUGHT AND PERUSED. FIXED ASSETS SCHEDULE AND THE M ANNER IN WHICH THE PROPERTIES ARE VALUED WAS EXAMINED. ORIGINAL CO PIES OF TDS CERTIFICATES/CHALLAN OF ADVANCE TAX WERE VERIFIED. THE ISSUE OF CLAIM UNDER ADMINISTRATIVE AND OPERATING EXPENSES AND ITS BUSINESS EXIGENCY WAS RAISED WITH THE COUNSEL IN VIEW OF THE NATURE OF RENTAL RECEIPTS WHICH OUGHT TO HAVE BEEN TREATED UNDER INC OME FROM HOUSE PROPERTY. ON FURTHER HEARINGS, BOOKS OF ACCOUNT WERE PRODUCED AND EXAMINED. THE ASSESSEE IN ITS REPLY DATED 03.12.2010, CONCEDE D THAT THE INCOME MAY BE TREATED AS FROM HOUSE PROPERTY. 2.1. THE ASSESSEE COMPANY HAS TAKEN OVER THE PROPERTIES KNOWN AS GRAND PALACE HOTEL AND ITS APPURTENANT LAND AND BUI LDINGS THROUGH A PERPETUAL LEASE DEED EXECUTED ON 22.1.1997. THEREAF TER, THE ASSESSEE COMPANY HAS LEASE OUT, THROUGH A LICENSE AGREEMENT, THE PROPERTY UNDER CONSIDERATION TO M/S. BHARAT HOTEL PVT. LTD F OR USE AS A HOTEL, ON THE TERMS AND CONDITIONS CONTAINED IN THE LICENC E AGREEMENT DATED 03.02.1998 AGAINST AN ANNUAL LICENCE FEE OF RS.500, 000/-. IT IS SEEN THAT THE FIRM HAS RECEIVED THE ANNUAL RENTAL FEE OF RS. 5 LAKHS DURING THE RELEVANT FINANCIAL YEAR AGAINST WHICH TDS AMOUN T OF RS.113,300/- HAS BEEN DULY DEDUCTED U/S 194! OF THE INCOME TAX A CT, 1961 BY THE TENANT. AS DISCUSSED SUPRA, THE ASSESSEE HAS TREATE D THE INCOME AS BUSINESS INCOME AND ACCORDINGLY CLAIMED OPERATING A ND OTHER EXPENSES AGAINST THE GROSS RECEIPTS. HOWEVER, ON BE ING POINTED OUT THAT THE INCOME IS RENTAL AND HAS TO BE TREATED AS INCOME FROM HOUSE PROPERTY, THE ASSESSEE IN ITS REPLY DATED 03.12.20 10 CONCEDED THE FACT. THEREFORE, THE RENTAL INCOME IS TREATED AS IN COME FROM HOUSE PROPERTY INSTEAD HE CONCEDED TO TREAT THE LEASE REN TAL AS INCOME FROM ITA NO.52(ASR)/2012 23 23 HOUSE PROPERTY. ACCORDINGLY, GROSS RECEIPTS OF RS.5 LACS IS BEING TREATED AS INCOME FROM HOUSE PROPERTY AND ASSESSED AS SUCH SUBJECT TO INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 FOR FURNISHING INACCURATE PARTICULARS OF INCOME. GROSS RENTAL RECEIPTS RS.5,00,000/- LESS:DEDUCTION U/S 24(A) @ 30% OF ANNUAL VALUE:RS.1 ,50,000/- TOTAL INCOME RS.3,50,000/- 9.1. FROM THE SAID ORDER, IT IS EVIDENT THAT NO ENQ UIRY OF WHATSOEVER KIND HAS BEEN CONDUCTED BY THE AO WITH REGARDING TO DETE RMINING THE ANNUAL VALUE. THE PRIME CONDITION FOR DETERMINING THE ANNU AL VALUE HAS NOT BEEN FULFILLED BY THE AO AND NO ATTEMPT WHATSOEVER KIND HAS BEEN MADE BY THE AO IN THIS REGARD. 9.2. SECONDLY, M/S. BHARAT HOTELS LTD. SPENT RS.57, 59,46,941/- ON THE PROPERTY TAKEN ON RENT WHICH PROVES THAT THE SAID A MOUNT HAS BEEN SPENT ON BEHALF OF THE ASSESSEE, WHICH PRIMA FACIE PROVES TH AT THIS IS A RECEIPT IN LIEU OF MARKET RENT OF THE PROPERTY BY THE ASSESSEE. THE AO HAS NOT EXAMINED THIS ASPECT AND NOT EVEN SINGLE QUERY HAS BEEN MADE TO D ETERMINE THE MARKET VALUE OF THE RENT. THEREFORE, ARGUMENT MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE AO HAS MADE PROPER ENQUIRY AND TH E RENT HAS BEEN DETERMINED AS PER LAW CANNOT BE ACCEPTED AND PRIME CONDITION OF DETERMINING THE ANNUAL VALUE HAS NOT BEEN FULFILLED . THEREFORE, IT CANNOT SAID THAT IT IS A POSSIBLE VIEW, RATHER THE ONLY VIEW W HICH COULD HAVE BEEN TAKEN ITA NO.52(ASR)/2012 24 24 BY THE ASSESSEE FOR DETERMINING THE ANNUAL VALUE U /S 23(1) OF THE ACT AND THE SAME HAS NOT BEEN DONE. ACCORDINGLY, THE ORDER OF THE A.O. IS ERRONEOUS IN SO FAR HAS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE CASES RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE HAVE BEEN PERUSED AND NONE OF THE CASE LAW IS APPLICABLE IN THE PRESENT CIRCUMSTANCES AND FACTS OF THE CASE. WE ARE OF THE VIEW THAT WHEN THE MATTER IS SET ASIDE TO THE FILE OF THE AO, NO PREJUDICE WILL BE CAUSED TO THE ASSESSEE. THEREFOR E, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT. THUS, THE APPEAL OF THE A SSESSEE IS DISMISSED 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.52(ASR)/2012 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26TH MARCH, 2014. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26TH MARCH, 2014 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S.JYOTI LIMITED, SRINAGAR. 2. THE ITO WARD 3(1), SRINAGAR. 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR