ITO - 6(1)(4), MUMBAI V. M/s. ASHIRWAD SHELTER P. LTD., MUMBAI

ITA 6227/MUM/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8151 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 17-02-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 23-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGARWAL
• Assessee Lawyers: BEHARILAL
• Keywords: Notional interest; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI D.K. AGARWAL (J.M.) AND SHRI PRAMOD KUM AR (A.M.) ITA NO. 6227/MUM/2006 ASSESSMENT YEAR : 2004-05 ITO, 6(1)(4), ROOM NO. 508, 5 TH FLOOR, AAYAKAR BHAWAN, MUMBAI 400 020. VS. M/S ASHIRWAD SHELTER P. LTD., 303, TANTIA JOGANI INDL. ESTATE, J.R. BORICHA MARG, MUMBAI- 400 011. PAN : AACCA6493Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI L.K. AGARWAL RESPONDENT BY : SHRI BEHARILAL O R D E R PER D.K. AGARWAL, J.M. THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DATED 13.10.2006 PASSED BY THE LD. CIT (A) FOR THE A.Y. 2004-05. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN SHARES AN D SECURITIES AND LETTING OF IMMOVABLE PROPERTY. DURING THE COURSE OF ASSESSMENT PROCEEDING, ON SCRUTINY OF DETAILS FURNISHED BY THE ASSESSEE IN RESPECT OF LET OUT PROPERTY, THE A.O. OBSERVED THAT THE ASSESS EE HAS RECEIVED ` 32,50,000/- FROM SWATI VINAYAKA SYNTHETICS LTD. AND ` 53,00,000/- FROM SWATI VINAYAKA FINVEST CORPORATION LTD. THUS TOTAL INTEREST FREE DEPOSIT RECEIVED ` 85,50,000/- AGAINST THE LET OUT PROPERTY SITUATED AT ITA NO.6227/MUM/2006 M/S ASHIRW AD SHELTER P. LTD. 2 PLOT NO. 23, SHAH INDUSTRIAL ESTATE, OFF VEERA DESA I ROAD, ANDHERI, MUMBAI -400 058. THE ASSESSEE HAS FILED COPY OF ME MORANDUM OF AGREEMENT DATED 30.3.1998 MADE BETWEEN ASSESSEE AND THESE PARTIES. THE A.O. OBSERVED THAT WHILE DETERMINING ANNUAL LET TING VALUE OF THE SAID PROPERTY, THE ASSESSEE HAS NOT CONSIDERED THE INTER EST FREE DEPOSIT OF ` 85,50,000/-. ACCORDINGLY, A QUERY WAS RAISED AS TO WHY NOTIONAL INTEREST RECEIVABLE ON DEPOSIT OF ` 85,00,000/- SHOULD NOT BE CONSIDERED AS AN ADDITIONAL RENT OVER AND ABOVE THE RENT RECEIVED AN D INCLUDED IN THE ALV OF THE PROPERTY. IN RESPONSE, THE ASSESSEE HAS FIL ED REPLY VIDE LETTER DATED 10.01.2005 STATED THAT :- THE INTEREST FREE DEPOSITS RECEIVED FROM SWASTI VI NAYAKA SYNTHETICS LTD. AMOUNTING TO ` 32,50,000/- AND SWASTI VINAYAKA FINVEST CORP. LTD. AMOUNTING TO ` 53,00,000/- IS TOWARDS THE PLOTS, SITUATED AT ANDHERI GIVEN TO THEM ON LEASE. AND AS IT WAS MUTUALLY DECIDED BY THE CONCERN PARTIES, INTEREST IS NOT CHA RGED ON THE SAME DEPOSITE. HOWEVER, THE A.O. WHILE RELYING ON CERTAIN DECISION S INCLUDING THE DECISION IN THE CASE OF CIT VS. J.K. INVESTORS (BOM BAY) LTD. (2001) 248 ITR 723 (BOM), WORKED OUT NOTIONAL INTEREST OF ` 10,20,000/- BEING @ 12% ON DEPOSITS OF ` 85,00,000/- RECEIVED BY THE ASSESSEE AGAINST THE L ET OUT PROPERTY FROM TWO TENANTS AS ABOVE U/S 23(1)(A) AND ACCORDINGLY ADDED AN AMOUNT OF ` 10,20,000/- TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. ( SUPRA) WHEREIN IT HAS BEEN HELD THAT WHERE THE ACTUAL RENT IS MORE THAN T HE FAIR RENT, THE ITA NO.6227/MUM/2006 M/S ASHIRW AD SHELTER P. LTD. 3 ACTUAL RENT WOULD BE THE ANNUAL VALUE OF THE PROPER TY. THEREFORE, THE NOTIONAL INTEREST WOULD NOT FORM PART OF ACTUAL REN T RECEIVED OR RECEIVABLE U/S 23(1)(B), DIRECTED THE A.O. TO DELETE THE ADDIT ION. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) ERRED IN DELETING THE ADDITIONS MAD E ON ACCOUNT OF NOTIONAL INTEREST ON SECURITY DEPOSIT ACCEPTED BY T HE ASSESSEE, WHICH COULD BE TREATED AS INDIRECT RENT FOR THE PUR POSE OF DETERMINING ANNUAL LETTING VALUE AS PROVIDED U/S 23 (1)(A) OF THE INCOME TAX ACT, 1961. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFI CER BE RESTORED. 4. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS TH E ORDER OF THE A.O. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD. CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE F IND THAT THE FACTS ARE NOT IN DISPUTE. IT IS NOT THE CASE OF THE REVENUE THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE IS LESS THAN THE SUM FOR W HICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR. THE A.O. ADDED THE NOTIONAL INTEREST OF ` 10,20,000/- BEING @ 12% ON INTEREST FREE DEPOSIT O F ` 85,00,000/- U/S 23(1)(A) OF THE ACT. THE LD. CIT( A) DELETED THE SAME FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. ITA NO.6227/MUM/2006 M/S ASHIRW AD SHELTER P. LTD. 4 INVESTORS (BOMBAY) LTD. (SUPRA). RECENTLY IN THE CA SE OF DCIT V. RECLAMATION REALTY INDIA PVT. LTD. [2011] 9 TAXMANN .COM 35 (MUM.- ITAT) IT HAS BEEN HELD THAT WHERE THE RENT RECEIVE D BY THE ASSESSEE WAS MORE THAN THE SUM FOR WHICH THE PROPERTY MIGHT REAS ONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, THE ACTUAL RENT RECEIVED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY UNDER SECTION 23(1)(B) AND NO TIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT/RENT RECEIVED IN ADV ANCE SHOULD NOT BE ADDED TO THE SAME. IN THE ABSENCE OF ANY CONTRARY DECISION PLACED ON RECORD BY THE REVENUE, WE RESPECTFULLY FOLLOWING TH E DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (BO MBAY) LTD. AND THE CONSISTENT VIEW TAKEN BY THE CO-ORDINATE BENCH OF T HE TRIBUNAL HOLD THAT THE A.O. WAS NOT JUSTIFIED IN ADDING THE NOTIONAL I NTEREST ON INTEREST FREE SECURITY DEPOSIT U/S 23(1)(A) OF THE ACT AND ACCORD INGLY WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD. CIT(A) IN DELETING T HE SAME. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON THIS 25 TH DAY OF FEBRUARY, 2011. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (D.K. AGARWAL) JUDICIAL MEMBER MUMBAI, DATED 25 TH FEBRUARY, 2011. RK ITA NO.6227/MUM/2006 M/S ASHIRW AD SHELTER P. LTD. 5 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- VI MUMBAI 4. COMMISSIONER OF INCOME TAX MUMBAI CITY -VI , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI ITA NO.6227/MUM/2006 M/S ASHIRW AD SHELTER P. LTD. 6 1 DRAFT DICTATED ON 1 8 . 2 .11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 21 . 2 .11 SR PS 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLERK SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS