ADDL CIT 9(1), MUMBAI V. AVACADO PROPERTIES & TRADING (I) P. LTD, MUMBAI

ITA 5517/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1809 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANOJ MUMAR
• Assessee Lawyers: SANJAY P SOMANI
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO. 5517/MUM/2010 (ASSESSMENT YEAR: 2007-08) ACIT, RANGE 9(1) ROOM NO. 223, AAYAKAR BHAVAN M/S. AVACADO PROPERTIES & TRADING (I) P. LTD. M.K. ROAD, MUMBAI 400020 'PARADIGM', S. NO. 1406 A/ 18 VS. MINDSPACE, MALAD (W) MUMBAI 400064 PAN - AADCA 9413 F APPELLANT RESPONDENT APPELLANT BY: SHRI MANOJ MUMAR RESPONDENT BY: SHRI SANJAY P. SOMANI DATE OF HEARING: 05.02.2013 DATE OF PRONOUNCEMENT: 05.02.2013 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL IS FILED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER DATED 21.04.2010 PASSED BY THE CIT(A) -19, MUMBAI A ND IT PERTAINS TO A.Y. 2007-08. 2. THE FOLLOWING GROUNDS WERE URGED BY THE REVENUE IN THIS APPEAL: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED DELETING THE ADDITION OF RS.1,51,9 1,858/- MADE TO INCOME FROM HOUSE PROPERTY BY THE ASSESSING OFFICER , DESPITE THE FACT THAT PROVISIONS OF RENT CONTROL ACT ARE NOT AP PLICABLE TO THE ASSESSEES CASE AND IGNORING THE FACT THAT THE ANNU AL VALUE DETERMINED U/S. 23(1((A) OF THE I.T. ACT, 1961 IS M UCH HIGHER THAN THE INCOME DECLARED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE, LD. CIT(A) ERRED BY PLACING RELIANCE ON THE DECISIO N OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS LTD . (248 ITR 723) THOUGH IT WAS A CASE GOVERNED BY SECTION 23(1)(B) O F THE I.T. ACT, 1961 AND CLEARLY DISTINGUISHABLE ON FACTS FROM THE ASSESSEES CASE WHERE THE ADDITION WAS MADE BY THE ASSESSING O FFICER U/S. 23(1)(A) OF THE I.T. ACT. ITA NO. 5517/MUM/2010 M/S. AVACADO PROPERTIES & TRADING (I) P. LTD. 2 3. THE FACTS RELEVANT FOR DISPOSAL OF THE ISSUE ON HAN D ARE STATED IN BRIEF. THE ASSESSEE COMPANY CONSTRUCTED AN INDUSTRIAL PARK BUILDING KNOWN AS PARADIGM AT MALAD, MUMBAI. THE UNITS IN THE SAID PARK WERE GIVEN ON LEAVE AND LICENCE BASIS AND IN RETURN THEREOF THE A SSESSEE COMPANY RECEIVED ANNUAL FEES OF ` 28.91 CRORES. IN ADDITION THERETO THE ASSESSEE ALSO RECEIVED INTEREST FREE DEPOSIT OF ` 19.62 CRORES. IN THE OPINION OF THE AO THE NOTIONAL INTEREST OF ` 1,51,91,858/-, WHICH IS EQUIVALENT TO 8% PER ANNUM OF THE SAID DEPOSIT, SHOULD BE TAKEN INTO CONSIDERATION FOR COM PUTING THE ANNUAL VALUE OF THE PROPERTY AND ACCORDINGLY HE ARRIVED AT THE A NNUAL VALUE AT ` 30,43,11,917/-. SINCE THE ASSESSEE DECLARED ANNUAL VALUE OF ` 28,91,30,059/- THE DIFFERENTIAL AMOUNT WAS ADDED BY INVOKING PROVISIONS OF SECTION 23(1)(A) OF THE INCOME TAX ACT. 4. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T SECTION 23(1)(A) REFERS TO ANNUAL VALUE WHICH IN TURN REVOLVES AROUN D THE CONCEPT OF REASONABLE RENT OR FAIR RENT. IN THE INSTANT CASE T HE RENT ACTUALLY RECEIVED BY THE ASSESSEE WAS MUCH HIGHER THAN THE RATEABLE VALU E ASSESSED BY THE LOCAL MUNICIPAL AUTHORITIES. ACTUAL RENT OUGHT TO HAVE BE EN TAKEN INTO CONSIDERATION INSTEAD OF ESTIMATING THE ANNUAL VALU E. 5. THE LEARNED CIT(A) OBSERVED THAT THE IMPUGNED PROPE RTY WAS ASSESSED TO MUNICIPAL PROPERTY TAX AND THE ANNUAL VALUE AS A SSESSED BY THE MUNICIPAL AUTHORITIES HAVING BEEN LESS THAN THE ANN UAL RENT RECEIVED BY THE ASSESSEE, THERE IS NO NEED FOR ESTIMATING THE RENT ON NOTIONAL BASIS, PARTICULARLY IN VIEW OF THE FACT THAT THERE IS NO E VIDENCE OR MATERIAL ON RECORD TO PROVE THAT THE ACTUAL RENT RECEIVED IS LESS THAN THE NOTIONAL ANNUAL VALUE. THE LEARNED CIT(A) THEREFORE DELETED THE ADDITION M ADE BY THE AO. IN THIS REGARD HE RELIED UPON THE DECISION OF THE HON'BLE B OMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS LTD. 248 ITR 723, WHICH, IN TURN, REFERS TO SECTION 23(1)(B) OF THE ACT. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE I S IN APPEAL BEFORE US. THE LEARNED D.R. SUBMITTED THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN RELYING UPON THE DECISION OF THE HON'BLE BOMBAY HIG H COURT (SUPRA) SINCE THE COURT WAS CONCERNED WITH INTERPRETATION OF THE PROVISIONS OF SECTION ITA NO. 5517/MUM/2010 M/S. AVACADO PROPERTIES & TRADING (I) P. LTD. 3 23(1)(B) OF THE ACT AND IN FACT SPECIFICALLY REFRAI NED FROM DEALING WITH THE ISSUE ARISING OUT OF APPLICABILITY OF SECTION 23(1) (A) OF THE ACT. REFERRING TO PARA 4 OF THE JUDGEMENT THE LEARNED D.R. SUBMITTED THAT THE QUESTION AS TO WHETHER NOTIONAL INTEREST COULD HAVE BEEN TAKEN INT O ACCOUNT UNDER SECTION 23(1)(A) DID NOT ARISE IN THAT APPEAL AND HENCE THE HON'BLE COURT DID NOT GO INTO THAT QUESTION IN THE SAID APPEAL. THEREFORE TH E LEARNED CIT(A) WAS NOT JUSTIFIED IN RELYING UPON THE SAID DECISION. THE PL EA OF THE LEARNED D.R. IS THAT THE AO WAS JUSTIFIED IN TAKING INTO CONSIDERAT ION FAIR RENT OF THE PROPERTY, WHICH CAN BE ARRIVED ONLY IF A REASONABLE RATE OF INTEREST ON THE INTEREST FREE DEPOSIT IS TAKEN INTO CONSIDERATION. 7. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT IDENTICAL ISSUE WAS CONSIDERED BY THE ITAT H BENC H, MUMBAI IN ASSESSEES OWN CASE FOR A.Y. 2004-05 (ITA NO. 4229/MUM/2008 DA TED 9 TH SEPTEMBER, 2010) WHEREIN THE BENCH TOOK INTO CONSIDERATION THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT AND OBSERVED THAT WHEN THE ACTU AL RENT RECEIVED IS MORE THAN THE MUNICIPAL RATEABLE VALUE FURTHER ADDITION CANNOT BE MADE BY TAKING INTO CONSIDERATION THE INTEREST COMPONENT ON THE IN TEREST FREE DEPOSIT, WHILE COMPUTING THE ANNUAL VALUE UNDER SECTION 23(1)(A) O F THE ACT. FOR ASSESSMENT YEARS 2005-06 AND 2006-07 (ITA NO. 2347 & 2348/MUM/ 2010 DATED 25 TH FEBRUARY, 2011) ALSO THE ITAT A BENCH MUMBAI CONS IDERED THE SAME ISSUE AND AFTER ELABORATELY REFERRING TO PROVISIONS OF SE CTION 23(1)(A) OF THE ACT THE BENCH CONCLUDED, IN THE LIGHT OF THE DECISION OF TH E COORDINATE BENCH OF ITAT MUMBAI, THAT NOTIONAL INTEREST ON SECURITY DEPOSIT SHOULD NOT BE TAKEN INTO CONSIDERATION IN THE CIRCUMSTANCES OF THE CASE. THE LEARNED COUNSEL THEREFORE SUBMITTED THAT THE ITAT MUMBAI BENCHES HAVE BEEN CO NSISTENTLY TAKING THE VIEW THAT IN THE CIRCUMSTANCES OF THE CASE NOTIONAL INTEREST SHOULD NOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTI NG ANNUAL VALUE UNDER SECTION 23(1)(A) OF THE ACT AND HENCE THE ULTIMATE ORDER OF THE LEARNED CIT(A) OF DELETING THE ADDITION SUFFERS FROM NO INFIRMITY. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. AS COULD BE NOTICED FROM THE DECISIONS CITI ED BY THE LEARNED COUNSEL FOR THE ASSESSEE SECTION 23(1)(A) USES THE EXPRESSI ON THE SUM FOR WHICH THE ITA NO. 5517/MUM/2010 M/S. AVACADO PROPERTIES & TRADING (I) P. LTD. 4 PROPERTY MIGHT REASONABLY BE EXPECTED TO LET OUT FR OM YEAR TO YEAR. THE ACTUAL RENT RECEIVED BY THE ASSESSEE CAN BE AN INDI CATOR AS TO WHAT THE LANDLORD MIGHT REASONABLY EXCEPT FROM THE HYPOTHETI CAL TENANT AND SO LONG AS THE RENT RECEIVED BY THE ASSESSEE IS MORE THAN T HE MUNICIPAL RATEABLE VALUE IT IS NOT PROPER TO ESTIMATE REASONABLE RENT BY TAKING INTO CONSIDERATION THE NOTIONAL INTEREST ON THE INTEREST FREE DEPOSIT. SINCE THE SAME WAS CONSIDERED BY THE ITAT IN ASSESSEES OWN C ASE FOR ASSESSMENT YEARS 2004-05 TO 2006-07, BY RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS WE HOLD THAT THE ADDITION MADE BY THE AO WAS CORREC TLY DELETED BY THE CIT(A) THOUGH THE CIT(A) HAS WRONGLY REFERRED TO SE CTION 23(1)(B) OF THE ACT WHEREAS THE AO ESTIMATED THE ANNUAL VALUE BY INVOKI NG THE PROVISIONS OF SECTION 23(1)(A) OF THE ACT. THE FACT, HOWEVER, REM AINS THAT IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS THE ITAT MUMBAI B ENCHES HAVE CONSIDERED THE SAME ISSUE FROM THE PERSPECTIVE OF SECTION 23(1 )(A) OF THE ACT AND HENCE WE HOLD THAT IT IS NOT A FIT CASE FOR COMPUTING FAI R RENT BY TAKING THE NOTIONAL INTEREST INTO CONSIDERATION. AS DECLARED IN THE OPE N COURT, WE AFFIRM THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY, 2013. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 5 TH FEBRUARY, 2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 19, MUMBAI 4. THE CIT 9, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.