KAIRA CAN COMPANY LTD, MUMBAI V. DCIT 6(2), MUMBAI

ITA 6614/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92291 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN
• Assessee Lawyers: VALLABH GOKHALE
• Keywords: Earning of tax free income; Fair market value; Wrong claim; Notional interest
• Section: 54; 2

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH , , BEFORE S/SH. I P BANSAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 6614 /MUM/201 3 , / ASSESSMENT YEAR - 2006 - 07 KAIRA CAN COMPANY LIMITED TIECICON HOUSE, DR. E. MOSES ROAD MUMBAI - 400 0 1 1. PAN:AA ACK 4319 B VS DY . COMMISSIONER OF INCOME TAX - 6 (2) , 5 TH FL OOR, ROOM NO.504 AAYAKAR BHAVAN MUMBAI - 20 . ( / ASSESSEE ) ( / RESPONDENT ) /ASSESSEE BY :SHRI VALLABH GOKHALE / REVENUE BY :SHRI ASGHAR ZAIN / DATE OF HEARING : 0 7 - 0 4 - 2015 / DATE OF PRONOUNCEMENT : 07 - 04 - 2015 , 1961 254 ( 1 ) ORDER U/S.2 5 4 (1) OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DT. 20.09.2013 OF THE CIT(A) - 12 ,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: THE APPELLANT OBJECTS TO THE ORDER DATED 20 SEPTEMBER 2013 PASSED BY THE COMMISSIONER OF INCOME - TAX (APPEALS) - 12, MUMBAI ['CIT(A)'] FOR THE ASSESSMENT YEAR 2006 - 07, ON THE FOLLOWING AMONG OTHER GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMIN G THE ACTION OF THE ASSESSING OFFICER OF LEVYING PENALTY OF RS. 7,11,085 UNDER SECTION 271(1)(C) OF THE INCOME - TAX ACT IN RESPECT OF THE ADDITIONS MADE TO THE INCOME FROM HOUSE PROPERTY. 2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE ISSUE OF ADDITIONS TO INCOME FROM HOUSE PROPERTY IS A RECURRING ISSUE ARISING OUT OF EARLIER ASSESSMENT YEARS WHICH ARE PENDING BEFORE THE APPELLATE AUTHORITIES AND HENCE IT CANNOT BE SAID THAT APPELLANT HAS CONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS. 3. THE LEARNED CIT(A) ERRED IN MAKING THE FOLLOWING OBSERVATIONS WHICH ARE WITHOUT ANY BASIS AND CONTRARY TO THE FACTS OF THE CASE: (I) 'THE DEVICE IS ADOPTED TO EVADE TAX ON MARKET RENT WHICH OTHERWISE WOULD HAVE FETCHED IN ABSENCE OF INTEREST - FREE D EPOSIT. AGAINST THIS MARKET YIELD OF INTEREST - FREE SECURITY DEPOSIT, THE APPELLANT HAS DISCLOSED NOMINAL RENTAL, WHICH IS APPARENTLY ILLUSORY, DECEPTIVE AND MISLEADING. UNDER THE GARB OF INTEREST - FREE SECURITY DEPOSIT, THE APPELLANT HAD HIDDEN/CONCEALED FAIR MARKET RENT OF THE PROPERTY LET - OUT. THE INTEREST - FREE SECURITY DEPOSIT OF RS. 2, 20,00,0001 - HAS CERTAINLY CONTRIBUTED TO BRING DOWN THE FAIR MARKET VALUE TO A NOMINAL AMOUNT. IN ESSENCE, THE LEAVE & LICENSE AGREEMENT RELIED UPON BY THE APPELLANT IS A SHAM DOCUMENT AND A COLOURABLE DEVICE TO EVADE TAXATION TO THE ACTUAL INCOME CHARGEABLE TO TAX UNDER THE HEAD 'INCOME UNDER HOUSE PROPERTY ' ' (II) 'MOREOVER, THE APPELLANT HAD MADE A PATENTLY WRONG CLAIM OF SOCIETY MAINTENANCE CHARGES OF RS.2,2 4,2081 - , WHICH IS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 23 & 24 OF THE ACT AS AMENDED BY THE FINANCE ACT, 2001 (W.E. F 01 /04 / 2002). ' (III) ' .. THE RENT 1 LICENSE FEE DISCLOSED BY THE ASSESSEE IS ILLUSORY AND DID NOT DISCLOSE CORRECT LETTING VALUE. ON THE CONTRARY, IT IS CLEARLY ESTABLISHED THAT UNDER THE GARB OF HUGE AMOUNT OF 'INTEREST - FREE SECURITY DEPOSIT', THE APPELLANT HAD CONCEALED CORRECT AMOUNT OF RENTAL VALUE EXIGIBLE TO THE ASSESSED UNDER PART 'C' OF CHAPTER IV OF THE ACT. IT IS A N APPARENT CASE OF SUPPRESSION OF INCOME BY MAKING A P ATENTLY FALSE CLAIM OF SOCIETY MAINTENANCE CHARGES AND THEREBY EVASION OF CORRECT INCOME LIABLE TO BE TAXED. ' 4. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 5 . THE AP PELLANT RESERVES ITS RIGHT TO ADD. AMEND, ALTER OR DELETE ANY OF THE GROUNDS OF APPEAL. 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT LEVY OF PENALTY OF RS.7.11 LACS U/S. 271(1) ( C) OF THE ACT IN RESPECT OF THE ADDITIONS MADE TO THE INCOME UNDER THE HEAD HOUS E PROPERTY . ASSESSEE - COMPANY ENGAGED IN THE BUSINESS OF CANS AND ICE - CREAM CONES, FILED HIS RETURN OF INCOME ON 22.12.2006, DECLARING AN INCOME OF RS.1.22 CRORES. .THE ASSESSING OFFICER(AO) COMPLETED THE ASSE SSMENT ITA/ 6614 /MUM/201 3 ,AY.2006 - 07 - KCCL 2 U/S.143(3) OF THE ACT ON 31 .1 2.2 0 08, DETER MINING THE INCOME OF THE ASSESSEE AT RS. 2,85,09,063 / - . DURING THE ASSESSMENT PROCEEDINGS AO MADE CERTAIN ADDITIONS TO THE INCOME OF THE ASSESSEE. HE ALSO INITIATED PENALTY PROCEEDINGS U/S.271(1)(C) VIDE NOTICE DT.31.12.2008. MEANWHILE THE ASSESSEE PREFERRE D AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA), WHO CONFIRMED THE ADDITION MADE BY THE AO. 3 . DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD SHOWN INCOME FROM HOUSE PROPERTY AT RS.11,054/ - FOR A FLAT SITUATED AT NARIMAN POINT MUMBAI, THAT THE ASSESSEE WAS RECEIVING MONTHLY RENT OF RS.20,000/ - THAT IT HAD RECEIVED AN INTEREST FREE SECURITY DEPOSIT OF RS.2.20 CRORES FROM THE TENANT. CONSIDERING THE ABOVE FACTS THE AO DETERMINED THE ANNUAL LETTING VALUE OF THE PROPERTY AT 26.40 LA CS AT THER RATE OF 12% ON SECURITY DEPOSIT OF RS.2.20 CRORES AND WORKED OUT THE ALV AT RS.28.80 LACS. AFTER ALLOWING THE STANDARD DEDUCTION AND OTHER CLAIMS MADE BY THE ASSESSEE HE COMPUTED INCOME FROM HOUSE PROPERTY AT RS.19.54 LACS. HE ALSO INITIATED PEN ALTY PROCEEDINGS AS STATED ABOVE, FOR FILING INACCURATE PARTICULARS OF INCOME. 4 . IN RESPONSE TO PENALTY NOTICE, THE ASSESSEE VIDE ITS REPLY DATED 24/3/2011 CLAIMED THAT IT WAS NOT A CASE OF PENALTY, THAT THERE WAS NO SCOPE OF INCLUDING NOTIONAL INTEREST O N INTEREST FREE DEPOSIT TO ACTUAL RENT RECEIVED/RECEIVABLE, THAT THE RENT RECEIVED REPRESENTED PAYMENT MADE BY THE TENANT FOR THE USE OF THE PREMISES, THAT SECURITY DEPOSIT WERE INVESTED IN THE BUSINESS AND INCOME ARISING FROM DEPOSIT WERE OFFERED FOR TAXA TION UNDER THE HEAD PROFIT OR GAINS OF BUSINESS OR PROFESSION. 5 . AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSING OFFICER HELD THAT IT HAD FURNISHED INACCURATE PARTICULARS OF INCOME FOR SHOWING ONLY THE RENT RECEIVED OF THE PREMISES, THAT THE FAA CONFIRMED THE ADDITION MADE BY THE AO. FINALLY HE LEVIED PENALTY OF RS.7,11,085/ - U/S.271(1)(C) OF THE ACT. 6 . AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM, IT WAS CONTENDED THAT THERE WAS NO SPECIFIC PROVISION IN THE ACT WHICH ALLOWED INCLUSION OF NOTIONAL INTEREST ON INTEREST FREE DEPOSIT IN THE COMPUTATION OF ALV, THAT THE STAND TAKEN BY THE AO WAS LEGALLY UNTENABLE, THAT THE STAND TAKEN BY THE AO WAS DEBATABLE, THAT PENAL TY WAS NOT LEVIABLE WHERE THE ISSUE WAS DEBATABLE. AFTER DELIBERATING UPON THE SUBMISSION OF THE ASSESSEE THE FAA HELD THAT THE AO WAS RIGHT IN HOLDING THAT THE INTER E ST FREE SECURITY DEPOSIT HAD A VITAL AND ESSENTIAL ROLE IN DETERMINATION OF THE FARE MAR K ET RENT, THAT UN D ER THE GARB OF INTEREST FREE SECURITY DEPOSIT IT HAD HIDDEN/CONCEALED THE FARE MARKET RENT OF THE PROPERTY. THE FAA REFERRED TO THE CASES OF BAKER TECHNICAL SERVICES PVT.LTD.(125 ITD 1), CHEM MECH PVT. LTD.(83 ITD 427), S.K. STREET LITE E LECTRIC CORPN. (62 DTR 141), SALIM AKHTAR (35 TAXMAN.COM 608). HE FINALLY HELD THAT THE RENT/LICENCE FEE DISCLOSED BY THE ASSESSEE WAS ILLUSORY, THAT IT DID NOT DISCLOSE CORRECT ALV, THAT IT WAS AN APPARENT CASE OF SUPPRESSION OF INCOME BY MAKING OF PATENT LY FALSE CLAIM OF UNDERSTA TE MENT OF FAIR MARKET RENT, THAT LEVY OF PENALTY U/S.271(1)(C) WAS PERFECTLY IN ORDER. THE FAA RELIED UPON THE CASE OF Z OOM COMMUNICATION (233 CTR 465) AND CONFIRMED THE ORDER PASSED BY THE AO. 7 . BEFORE US, AUTHORITSED REPRESENTAT IVE(AR) STATED THAT THE TRIBUNAL WHILE DECIDING THE APPEALS FOR THE EARLIER YEARS HAD DEL E TED THE ADDITION MADE BY THE AO AND CONFIRMED BY THE FAA WITH REGARD TO NOTIONAL INTEREST RECEIVABLE ON INTEREST FREE SECURITY DEPOSITS, THAT PENALTY LEVIED BY THE AO U/S. 271(1)(C) FOR THE AY 2005 - 06 FOR THE IDENTICAL ISSUE WAS DELETED BY THE TRIBUNAL VIDE ITS ORDER DT.30.1.2015. DEPARTMENTAL REPRESENTATIVE(DR) LEFT THE ISSUE TO THE DISCRETION OF THE BENCH. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING THE APPEALS FOR THE AYS 2004 - 05 TO 2007 - 08 ITA 2733/M/2008 & ORS. DT.30.1.2015) THE TRIBUNAL HAD DELETED THE ADDITION CONFIRMED BY THE FAA. WHILE DECIDING THE APPEAL IN ITA ITA/ 6614 /MUM/201 3 ,AY.2006 - 07 - KCCL 3 NO.6962/M/2011 THE TRIBUNA L , H A D DELETED TH E CONCEALMENT PENALTY. WE WOULD LIKE TO REPRODUCE THE ORDER OF THE TRIBUNAL WHICH READS AS UNDER : - 21. THIS APPEAL FILED BY THE ASSESSEE ON 13.10.2011 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 21.7.2011 FOR THE ASSESSMENT YEAR 2005 - 06. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: THE APPELLANT OBJECTS TO THE ORDER DATED 21 ST JULY, 2011 PASSED BY THE CIT (A) FOR THE ASSESSMENT YEAR 2005 - 06, ON THE FOLLOWING GROUNDS. 1. THE LD CIT (A) ERRED IN CONFIRMING THE PENALTY OF RS. 6,32,734/ - LEVIED UNDER SECTION 271(1)(C) OF THE ACT ON THE BASIS OF ADDITION MADE TO THE INCOME FROM HOUSE PROPERTY. 2. THE LD CIT (A) ERRED IN RELYING UPON THE ORDER PASSED BY THE PREDECESSOR CIT (A) FOR THE ASSESSMENT YEAR 2004 - 2005, WHEREIN THE CIT (A) HAS OBSERVED AS UNDER: IT WAS CLEAR THAT THE LOW RENT HAS BEEN CHARGED BECAUSE OF THE INTEREST FREE DEPOSIT THAT THE DEPOSIT COULD BE INVESTED IN SUCH A WAY THAT IT Y IELDS EXEMPT INCOME OR INCOME SUBJECTED TO LOWER RATE OF TAX. THUS, THE APPELLANT WOULD OBTAIN A SIGNIFICANT TAX ADVANTAGE BY DECLARING LOW RENT UNDER INCOME FROM HOUSE PROPERTY. IT APPEARS THAT THERE IS NO OTHER REASON FOR OBTAINING AN INTE REST FREE DEPOSIT BUT TO AVOID TAX. THE INTEREST FREE DEPOSITS CAN ALSO BE TREATED AS RENT TAKEN IN ADVANCE FOR THE PERIOD OF TENANCY. THE APPELLANT OBJECTS TO THE ABOVE OBSERVATION MADE BY THE LD CIT (A) WHICH IS CONTRARY TO THE F ACTS OF THE CASE AND IN LAW. 3. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 22. THE ONLY ISSUE RAISED IN THIS APPEAL RELATED TO THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT AND THE SAME IS CONNECTED TO AP PEAL ITA NO.6225/M/2008 (AY 2005 - 06), WHICH IS A QUANTUM APPEAL. WHILE ADJUDICATING THE SAID QUANTUM APPEAL IN THE ABOVE PARAGRAPHS OF THIS ORDER, WE HAVE DELETED THE ADDITION AND GRANTED 11 RELIEF TO THE ASSESSEE. CONSEQUENTLY, THE PENALTY LEVIED U/S 271(1)(C) IN RESPECT OF THE SAID ADDITIONS IS NOT SUSTAINABLE. THEREFORE, THE GROUNDS RAISED BY THE ASSESSEE ARE TREATED AS ALLOWED. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING , THE ABOVE EF FECTIVE GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS ALLOWED . . ORDER PRO NOUNCED IN THE OPEN COURT ON 7 TH , APRIL ,2015. 7 TH , 2015 SD/ - SD/ - ( /I P BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / MUMBAI, /DATE: 07 . 0 4 .2015 JV ,SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . ITA/ 6614 /MUM/201 3 ,AY.2006 - 07 - KCCL 4 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.