HARISH M. AGGARWAL, THANE V. ASST CIR 1, THANE

ITA 6686/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4475 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 24-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 18-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SONI
• Keywords: Diversion of income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN , AM AND AMARJIT SINGH , JM ./ I.T.A. NO . 6686 / MUM/ 20 1 3 ( / ASSESSMENT YEA R : 20 0 8 - 09 ) SHRI HARISH M AGGARWAL, AGGARWAL ESTATES, CHITALSAR MAN P ADA, S V ROAD, THANE - 400610 / VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE - 1., VARDAAN BUILDING, MIDC, WAGLE, INDUSTRIAL ESTATE, THANE ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN. : AAOPA2367G / APPELLANT BY SHRI VIMAL PUNMIYA / RESPONDENT BY SHRI VIJAY KUMAR SONI / DATE OF HEARING : 5 .1.2016 / DATE OF PRONOUNCEMENT: 05. 1.2016 / O R D E R P ER B R BASKARAN, AM : THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 06 - 08 - 2013 PASSED BY LD CIT(A) - II, MUMBAI ON THE FOLLOWING ISSUES FOR THE ASSESSMENT YEAR 2008 - 09. ( A ) ASSESSMENT OF INCOME FROM HOUSE PROPERTY ( B ) ASSESSMENT OF INCOME BELONGING TO ASSESSEES SPOUSE AND DAUGHTER. 2. THE FACTS RELATING TO THE FIRST ISSUE ARE THAT THE ASSESSEE HAD DECLARED A LOSS OF RS.18,817/ - UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN RESPECT OF A FL AT LOCATED AT RH - 15, MADHUBAN CHS, DENOR, CHEMBUR, MUMBAI. IN THE PRECEDING YEAR, THE ASSESSEE HAD DECLARED RENTAL INCOME ITA NO. 6686 / MUM/ 201 3 2 OF RS.25,000/ - PER MONTH, WHEREAS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE DECLARED RENTAL INCOME OF RS.1,503/ - ONLY . THE A SSESSEE SUBMITTED THAT THE PROPERTY REMAINED VACANT FOR ALMOST ENTIRE YEAR. THE AO DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE AND ACCORDINGLY DETERMINED THE ANNUAL VALUE OF PROPERTY AT RS.3,00,000/ - AND , AFTER ALLOWING DEDUCTION OF 30% TOWARDS REP AIR U/S 24, ASSESSED AN AMOUNT OF RS.2,10,000/ - UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE LD CIT(A) ALSO CONFIRMED THE SAME. 3. WE HEARD THE PARTIES ON THIS ISSUE. THERE IS NO DISPUTE THAT THE PROPERTY WAS LET OUT IN THE IMMEDIATELY PRECEDING YEA R AND ALSO FOR A PART OF THE YEAR. THE METHOD OF DETERMINATION OF ANNUAL VALUE IS SPECIFIED IN SEC. 23 OF THE ACT. AS PER SEC. 23(C) OF THE ACT, WHERE THE PROPERTY IS LET AND WAS VACANT DURING THE WHOLE OR ANY PART OF THE PREVIOUS YEAR AND OWING TO SUCH VACANCY, THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS LESS THAN THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RECEIVED OR RECEIVABLE. 4. AS PER SEC. 23(A), THE ANNUAL VALUE SHALL BE DEEMED TO BE THE SUM WHICH THE PROPE RTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. HENCE THE ANNUAL VALUE OF THE PROPERTY SHALL BE THE ACTUAL AMOUNT OF RENT RECEIVED OR RECEIVABLE, EVEN IF IT IS LOWER THAN THE ANNUAL VALUE TO BE DETERMINED U/S 23(A) OF THE ACT. 5. THE LD A .R SUBMITTED THAT THE MUNICIPAL RATEABLE VALUE IS CONSIDERED TO BE THE AMOUNT FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET U/S 23(A) OF THE ACT . IN THIS REGARD HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE MUMBAI HIGH COURT IN THE C ASE OF TIP TOP TYPOGRAPHY (ITA NO.1213 OF 2011 DATED 08 - 08 - 2014) AND ALSO HOST OF OTHER DECISIONS. THE LD A.R SUBMITTED THAT THE MUNICIPAL RATEABLE VALUE FOR THE ABOVE SAID PROPERTY WAS RS.24,335/ - . ACCORDINGLY HE SUBMITTED ITA NO. 6686 / MUM/ 201 3 3 THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE SHOULD BE CONSIDERED AS ANNUAL VALUE U/S 23(C) OF THE ACT. 6. THE LD D.R SUBMITTED THAT THE ISSUE RELATING TO MUNICIPAL RATEABLE VALUE REQUIRES VERIFICATION AT THE END OF THE AO. 7. HAVING HEARD RIVAL CONTENTIONS, WE NOTICE THAT TH E ANNUAL VALUE OF THE PROPERTY CITED ABOVE IS REQUIRED TO BE DETERMINED U/S 23( C ) OF THE ACT, SINCE THE PROPERTY WAS LET OUT IN THE PRECEDING YEAR AS WELL AS FOR A PART OF THE YEAR. IT IS SEEN THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE FOR THE YEAR UND ER CONSIDERATION IS LESS THAN THE MUNICIPAL RATEABLE VALUE AS SHOWN BY THE LD A.R. IN THE CASE LAWS RELIED UPON BY THE ASSESSEE, IT HAS BEEN HELD THAT THE MUNICIPAL RATEABLE VALUE SHOULD BE ADOPTED AS THE FAIR RENTAL VALUE U/S 23(A) OF THE ACT . ACCORDIN GLY, WE AGREE WITH THE SUBMISSIONS MADE BY LD A.R THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE SHOULD BE TAKEN AS ANNUAL VALUE U/S 23(C) OF THE ACT . ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO ADOPT THE ACTUAL RENT RECEIVED BY THE ASSESSEE AS ANNUAL VALUE FOR THE YEAR UNDER CONSIDERATION. 8. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF INCOME BELONGING TO ASSESSEES SPOUSE AND DAUGHTER. THE ASSESSEE OWNS A PREMISES AT AGGRAWAL CENTRE AND THE SAME WAS LET OUT TO M /S TALWALKAR BETTER VALUE FITNESS PVT. LTD. THE AO NOTICED THAT THE ABOVE SAID COMPANY HAS ALSO PAID A SUM OF RS.5,50,000/ - TO ASSESSEES WIFE AND RS.4,00,000/ - TO ASSESSEES DAUGHTER - IN LAW AS SERVICE CHARGES . THE AGREEMENT ENTERED BY THE ASSESSEE WITH THE ABOVE SAID COMPANY WAS TOWARDS RENT AND SEPARATE AGREEMENTS WERE PROPOSED FOR SERVICE CHARGES. HENCE T HE AO TOOK THE VIEW THAT THE ASSESSEE HAS DIVERTED THE INCOME TO HIS WIFE AND DAUGHTER - IN - LAW. FURTHER, AO TOOK THE VIEW THAT THE ASSESSEE SHOULD H AVE DEDUCTED THE TAX AT SOURCE ON THE INCOME SO DIVERTED TO THE ABOVE SAID TWO LADIES. ITA NO. 6686 / MUM/ 201 3 4 HENCE, ON BOTH COUNTS, THE AO ASSESSED THE AMOUNT OF RS.9,50,000/ - RECEIVED BY THE ASSESSEES WIFE AND DAUGHTER - IN - LAW AS INCOME OF THE ASSESSEE. THE LD. CIT(A) ALSO C ONFIRMED THE VIEW TAKEN BY THE AO ON DIVERSION OF INCOME AND HENCE HE DID NOT ADJUDICATE THE ISSUE RELATING TO SEC. 40(A)(IA) BY STATING THAT THE SAME HAS BECOME INFRUCTUOUS . 9. THE LD. AR SUBMITTED THAT THE ASSESSEE HAS ENTERED INTO A LEAVE AND LICE NCE AGREEMENT WITH THE ABOVE SAID COMPANY FOR RENTING OUT THE PREMISES. THE SAID AGREEMENT STATED THAT A SEPARATE AGREEMENT IN RESPECT OF SERVICES AND ALSO FOR CAR PARKING MAY BE ENTERED LATER. HOWEVER, THE AGREEMENT FOR SERVICES WAS ENTERED BY THE ABOV E SAID COMPANY WITH THE ASSESSEES WIFE AND DAUGHTER - IN - LAW . ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS NOT PROVIDED ANY SERVICE TO M/S TALWALKAR AND IT IS THE LADIES, WHO HAVE PROVIDED THE PRESCRIBED SERVICES IN THEIR PERSONAL CAPACITY BY VI RTUE OF THE AGREEMENT ENTERED BY THEM. THE LD. AR FURTHER SUBMITTED THAT BOTH THE PERSONS HAVE RECEIVED PAYMENT DIRECTLY FROM THE COMPANY AND TDS WAS ALSO DEDUCTED THERE FROM. ACCORDINGLY HE SUBMITTED THAT THE AO WAS NOT RIGHT IN PRESUMING THAT THE PAYMEN T WAS RECEIVED BY THE ASSESSEE AND THEN HANDED OVER TO THE TWO LADIES CITED ABOVE. HE FURTHER SUBMITTED THAT BOTH OF THEM HAVE DECLARED SERVICE CHARGES IN THEIR RESPECTIVE RETURN OF INCOME AND CLAIMED TDS . ACCORDINGLY, THE LD. AR SUBMITTED THAT THE ASS ESSEE CANNOT BE HELD TO HAVE DIVERTED THE INCOME , SINCE THE ASSESSEE WAS NOT ENTITLED TO RECEIVE THE INCOME AT ALL. HE FURTHER SUBMITTED THAT THERE IS NO REQUIREMENT TO DEDUCT TDS , SINCE THE ASSESSEE HAS NOT PAID ABOVE INCOME TO THE LADIES. 10 . ON THE C ONTRARY, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS SO ARRANGED HIS AFFAIRS THAT HIS WI F E AND DAUGHTER - IN - LAW WOULD RECEIVE INCOME FROM THE COMPANY AND ACCORDINGLY, HE SUBMITTED THAT IT IS A CASE ITA NO. 6686 / MUM/ 201 3 5 OF DIVERSION OF ASSESSEES INCOME ONLY . ACCORDINGLY, HE SUB MITTED THAT THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE ASSESSMENT OF THE ABOVE SAID AMOUNT OF RS.9,50,000/ - IN THE HANDS OF THE ASSESSEE. 1 1 . WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT LEA VE AND LICENCE AGREEMENT WAS ENTERED BY THE ASSESSEE WITH M/S TALWALKAR BETTER VALUE FITNESS PVT.LTD. IN RESPECT OF RENT ING OF THE PREMISES ONLY. IN THE SAID AGREEMENT, IT WAS PROVIDED THAT A SEPARATE AGREEMENT WOULD BE ENTERED FOR PROVI SION OF SERVICES . HOWEVER, FOR PROVISION OF SERVICES, THE ABOVE SAID COMPANY HAS ENTERED INTO SEPARATE AGREEMENT WITH THE ASSESSEES WIFE AND DAUGHTER - IN - LAW . HENCE, IT IS NOT A CASE THAT THE ORIGINAL AGREEMENT ENTERED BY THE ASSESSEE WITH THE ABOVE SAID COMPANY INCLUDED THE ISSUE RELATING TO PROVISION OF SERVICES. IF THAT BE THE CASE, THEN THE RESPONSIBILITY TO PROVIDE SERVICES WOULD HAVE BEEN TAKEN UP BY THE ASSESSEE AND HENCE THE ISSUE RELATING TO DIVERSION OF INCOME OR NOT WOULD HAVE ARISEN. THIS IS NOT THE POSITION IN THE INSTANT CASE. UNDER COMMERCIAL TRANSACTIONS, THE AGREEMENTS ARE GENERALLY ENTERED ACCORDING TO THE CONVENIENCE OF PARTIES . HENCE, ONE CANNOT COMPEL M/S TALWALKAR TO ENTER INTO THE AGREEMENT WITH THE ASSESSEE ALONE AND NOT WITH ANYONE ELSE. 12. WE HAVE EARLIER NOTICED THAT M/S TALWALKAR BETTER VALUE FITNESS PVT. LTD HAS ENTERED INTO SEPARATE AGREEMENTS WITH THE ASSESSEES WIFE AND DAUGHTER - IN - LAW FOR PROVISION OF PRESCRIBED S ERVICES AND THE PAYMENTS HAVE ALSO BEEN MADE DIRECTLY TO THEM. ACC ORDING TO LD A.R, THE AO HAS WRONGLY PRESUMED THAT THE ASSESSEE HAS ENTERED INTO THE AGREEMENT FOR PROVISION OF SERVICES AND THE SAME IS CONTRARY TO THE FACTS AVAILABLE ON RECORD. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THE VIEW ENTERTAINED BY HIM. ON THE CONTRARY, ITA NO. 6686 / MUM/ 201 3 6 THE ASSESSEE HAS SUBMITTED THAT THE TWO LADIES CITED HAVE ONLY RECEIVED THE PAYMENTS, FROM WHICH TDS WAS DEDUCTED BY M/S TALWALKAR. FURTHER, I T IS NOT THE CASE OF THE AO THAT THE WIFE OF THE ASSESSEE AND DAUGHTER - IN - LAW DID NOT PROVIDE ANY SERVICE TO M/S TALWALKAR BETTER VALUE FITNESS PVT. LTD. THE LD. AR ALSO SUBMITTED THAT TWO LADIES HAVE DECLARED THE INCOME RECEIVED FROM M/S TALWALKAR BETTER VALUE FITNESS PVT. LTD IN THEIR R ESPECTIVE HA NDS AND TDS DEDUCTED BY M/S TALWALKAR BETTER VALUE FITNESS PVT. LTD FROM THE SAME WAS ALSO CLAIMED BY THEM. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT THE PURPOSE OF PAYMENT HAS CLEARLY BEEN DE MARKED AND THERE IS NO MATERIAL ON RECORD TO SUSPECT TH E SAME. ACCORDINGLY, WE ARE OF THE VIEW THAT THERE IS NO REASON TO ASSESS THE INCOME RECEIVED BY THE ASSESSEES WIFE AND DAUGHTER - IN - LAW IN THE HANDS OF ASSESSEE . S INCE THE ASSESSEE HAS NOT RECEIVED ANY INCOME AND PAID ANY PAYMENT TO ASSESSEES WIFE AND DAUGHTER - IN - LAW, THE QUESTION OF DEDUCTION OF TDS AND APPLICATION OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT ALSO DOES NOT ARISE. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF LD. CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF RS.9,50,000/ - REFERRED ABOVE. 11. IN THE RESULT , THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED ACCORDINGLY ON 5TH JAN,2016 . 5 TH JAN, 2016 S D SD ( AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 5TH JAN , 2015 . . . ./ SRL , SR. PS ITA NO. 6686 / MUM/ 201 3 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, T RUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI