DCIT, Kanpur V. M/s. Lohewala Constructions Pvt. Ltd., Kanpur

ITA 737/LKW/2010

• Counselvise Citation: 73723714 RSA 2010
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-04-2011
• Assessment Year: misc
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KUMARCIT
• Keywords: Depreciation
• Section: 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, A - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO. 737(LKW.)/2010 BLOCK PERIOD ENDING ON 18.11.1999 THE DY.CIT, C.C.-1, VS. M/S.LOHEWALA CONSTRUCTIONS PVT. LTD. KANPUR. 7/25, TILAK NAGAR, KANPUR. PAN AAACL8155C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAVEEN KUMAR,CIT (DR) RESPONDENT BY : SHRI AMIT SHUKLA, ADVOCATE O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-I, KANPUR DATED 12.10.2010 RELATING TO TH E A.Y./BLOCK PERIOD ENDING ON 18.11.1999. 2. IN THIS APPEAL, THE REVENUE HAS TAKEN THE FOLLOW ING GROUNDS: 1. THAT THE CIT(A) ERRED IN LAW AND ON FACTS OF TH E CASE AND IN DIRECTING THE AO TO COMPUTE THE ALV WITHOUT APPRECI ATING THE FACT THAT THE ANNUAL LETTING VALUE OF THE PROPERTY HAS BEEN DECIDED AS PER LAW. IN DOING SO, THE LD. CIT (A) HA S IGNORED THE DECISION OF HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF SMT. RADHA DEVI DALMIA 125 ITR 134 WHICH IS BINDING ON T HE AO BEING THE DECISION OF JURISDICTIONAL HIGH COURT. 2 2. THE CIT (A) ERRED IN DIRECTING THE AO TO ACCEPT THE ALV BASED ON MUNICIPAL VALUATION ON A WRONG APPRECIATION OF F ACTS AS THE MUNICIPAL VALUATION WAS OBTAINED BY THE APPELLANT B Y WAY OF FRAUDULENT MEANS AS THE ASSESSEE DID NOT DISCLOSE T HE FACT THAT THIS WAS A LET OUT PROPERTY AND IT WAS IN THE NAME OF THE COMPANY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY, DERIVING INCOME FROM, INTER ALIA, HOUSE PROPERTY. THE COMPANY OWNS RESIDENTIAL PREMISES 7/25, TILAK NAGAR KANPUR. IT I S ONE OF THE GROUP CASES OF M/S. KOTHARI PRODUCTS LTD. A SEARCH WAS CONDUCTED U/S 132 OF THE INCOME- TAX ACT,1961 (IN SHORT THE ACT) IN THE GROUP CASE S OF M/S. KOTHARI PRODUCTS LTD., ITS DIRECTORS AND THEIR RELATIVES ON 18.11. 1999 AT KANPUR, DELHI AND BARODA. THE RESIDENTIAL PREMISES OF SHRI DEPAK KOT HARI, DIRECTOR OF M/S. KOTHARI PRODUCTS LTD., 7/25, TILAK NAGAR, KANPUR WE RE ALSO SEARCHED ON THE SAME DATE. IT WAS FOUND DURING THE SEARCH THAT SHR I DEEPAK KOTHARI, MANAGING DIRECTOR OF M/S. KOTHARI PRODUCTS LTD. IS RESIDING ALONGWITH HIS FAMILY AT 7/25, TILAK NAGAR, KANPUR, WHICH IS OWNE D BY M/S. LOHEWALA CONSTRUCTION PVT. LTD. OF WHICH SHRI DEEPAK KOTHAR I IS ONE OF THE DIRECTORS. THE INVESTMENTS AS RECORDED IN THE BOOKS OF ACCOUNT S OF THE ASSESSEE- COMPANY IN THE RELEVANT ASSESSMENT YEARS HAVE BE EN DISCLOSED IN THE REGULAR RETURN OF INCOME FILED BY THE ASSESSEE-COMP ANY. THE RESIDENCE OCCUPIED BY SHRI DEEPAK KOATHARI AND HIS SON, SHRI MITHESH WAS FOUND WELL FURNISHED WITH ALL MODERN AMENITIES, ARTIFACTS, PAI NTING, MURALS, FURNITURE AND ALL ULTRA MODERN GADGETS. SUBSEQUENTLY, ASSESSMENT WAS COMPLETED UNDER SECTION 158BC OF THE ACT IN RESPECT OF THE BLOCK PE RIOD AND RATIO OF THE DECISION OF THE HON'BLE HIGH COURT OF ALLAHABAD IN THE CASE OF SMT.RADHA DEVI DALMIA (125 ITR 134) WAS APPLIED AND THE ALV O F THE PROPERTY WAS DETERMINED AT 7% OF THE TOTAL INVESTMENT IN THE PRO PERTY. IN ADDITION, 3 NOTIONAL RENT OF FURNITURE ETC. WAS ALSO DETERMINED AT THE RATE OF 10% AND ADDED TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVE D, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A)-I, KANPUR WHEREBY BOTH THE ADDITIONS MADE BY THE ASSESSING OFFICER WERE UPHOLD. THEREAFTER, THE APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LUCKNOW BENCH OF THE TRIBUNAL, WHICH REMANDED THE MATTER TO THE ASSESSING OFFICERS FILE FOR FRESH ADJUDICATION. THE ASSESSING OFFICER PASSED ORDER UNDER SECTION 158BC READ WITH 158BD READ WITH 254 OF THE ACT ON 30.12.2008 AND RECALCULATED THE ALV A T THE RATE OF 7% OF THE INVESTMENT IN THE PROPERTY. ALSO THE ISSUE OF NOTIO NAL RENT ON FURNITURE AND OTHER ASSETS WAS RE-VISITED BY THE ASSESSING OFFICE R AND AN ADDITION OF 10% OF THE COST OF THE ASSETS WAS ADDED TO THE INCOME O F THE ASSESSEE BUT NO DEPRECIATION OF THE SAME WAS ALLOWED. 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER DATED 30.12.2008, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) A ND THE LD.CIT(A) VIDE HIS ORDER DATED 12.10.2010, ALLOWED THE APPEAL OF THE A SSESSEE OBSERVING AS UNDER : 10. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT AND THE MATERIAL PLACED ON RECORD. THE CASES CITED BY THE A PPELLANT ARE ALSO RELEVANT TO ITS CASE AND CLEARLY LAY DOWN THE PRINC IPALS FOR DETERMINATION OF THE ALV OF A LET OUT PROPERTY. AS REGARDS THE DECISION OF THE HON'BLE ALLAHABAD HI GH COURT IN THE CASE OF SMT.RADHA DEVI DALMIA, 125 ITR 134, THE HON 'BLE ITAT IN THE PERSONAL CASE OF DEEPAK KOTHARI (SUPRA) WHO IS ONE OF THE DIRECTORS OF THE APPELLANT COMPANY HAS CATEGORICALLY STATED T HAT THE SAME IS NOT APPLICABLE TO PROPERTIES WHICH ARE LET OUT AND IN T HAT CASE THE ACTUAL RENT RECEIVED HAS BEEN DETERMINED TO BE THE ALV. IN CASE OF LET OUT PROPERTIES THE LAW IS VERY CLEAR . THE ALV OF A LET OUT PROPERTY SHALL BE THE HIGHEST OF: 4 A. THE STANDARD RENT OF THE PROPERTY. B. THE MUNICIPAL VALUATION C. THE ACTUAL RENT RECEIVED. AS REGARDS THE APPELLANT'S CASE, THE PROPERTY OF TH E APPELLANT DOES NOT FALL UNDER THE UTTAR PRADESH BUILDINGS (REGULATION OF LETTING, RENT & EVICTION) ACT, 1972. THEREFORE STANDARD RENT IS NOT AVAILABLE. HOWEVER, MUNICIPAL VALUATION OF THE PROPERTY IS AVA ILABLE ON RECORDS. HOWEVER, THE SAME HAS BEEN DETERMINED CONSIDERING T HE PROPERTY AS SELF OCCUPIED AND THE APPELLANT HAS GIVEN THE GUIDE LINES FOR WORKING OUT THE SAME ON THE BASIS OF TENANTED PROPERTY. 11. I, THEREFORE, DIRECT THE AO TO WORK OUT THE AL V OF THE PROPERTY AS THE HIGHER OF: A. MUNICIPAL VALUE AS DETERMINED BY THE AUTHORITIES , ENHANCED IN ACCORDANCE WITH THE RULES FOR TENANTED PROPERTY. B. THE ACTUAL RENT RECEIVED BY THE APPELLANT. THEREFORE, GROUNDS NO.1 TO 6 OF APPEAL OF THE APPELLANT SUCCE ED. 5. BEFORE US, SHRI PRAVEEN KUMAR, LD.CIT(DR) RELIED ON THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SM T.RADHA DEVI DALMIYA VS. CIT (1980) 125 ITR 134 (ALL.) AND SUBMITTED THA T THE LD.CIT(A) HAS IGNORED THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT (SUPRA), WHICH IS BINDING ON THE INCOME-TAX AUTHORITIES BEING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT. HE, THEREFORE, SUBMITTED THAT IN VIEW OF THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT(SUPRA) , THE ORDER OF THE LD.CIT(A) MAY BE REVERSED AND RESTORE THAT OF THE A SSESSING OFFICER. 5 6. SHRI AMIT SHUKLA, ADVOCATE, WHILE APPEARING FOR THE ASSESSEE, REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW. HE ALSO RELIED ON THE DECISION OF THE I.T.A.T., LUCKNOW BENCH B, LUCKNOW DATED 7.7.2006 PASSED IN THE CASE OF SHRI DEEPAK KOTHARI VS. ACIT, C.C.V, KANPUR IN ITA NO.675(LUC.)/2005 RELATING TO THE ASS ESSMENT YEAR 2003-04. SHRI AMIT SHUKLA, ADVOCATE, LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT IN THE CASE OF DEEPAK KOTHARI, WHILE DETERMINING THE I NCOME FROM HOUSE PROPERTY, THE AO APPLIED THE RATE OF 7% ON THE COST OF PROPERTY. HOWEVER, THE ASSESSEE HAD SHOWN RENTAL INCOME IN RESPECT OF HOUSE PROPERTY AT MUMBAI. THE INCOME SHOWN BY SHRI DEEPAK KOTHATI WAS THE ACTUAL RENT RECEIVED BY HIM WHICH WAS STATED TO BE HIGHER THAN THE MUNICIPAL VALUATION. HOWEVER, THE AO PLACING RELIANCE ON THE JUDGMENT OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SMT.RADHA DEVI DALMIYA (S UPRA) AND ALSO ON THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHRI SAKARLAL BALABHAI VS. ITO (1975) 100 ITR 97(GUJ.) DETERMINED THE RATE OF RETURN AT 7% OF THE TOTAL INVESTMENT IN THE PROPERTY AND TOOK 50% THEREOF AS ANNUAL LETTING VALUE. THE LD.CIT(A) CONFIRMED THE SAME. SH RI AMIT SHUKLA, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN SECOND A PPEAL, THE TRIBUNAL HAD CATEGORICALLY HELD THAT THE DECISIONS OF THE HON'BL E ALLAHABAD HIGH COURT IN THE CASE OF SMT.RADHA DEVI DALMIYA AND ALSO THAT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SHRI SAKARLAL BALABHAI WERE NO T APPLICABLE TO THE FACTS OF THE CASE OF DEEPAK KOTHARI. HE, THEREFORE, SUB MITTED THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE I.T.A.T. B BENCH, LUCKNOW IN THE CASE OF DEEPAK KOTHARI (SUPRA) AND THEREFORE, THE O RDER OF THE LD.CIT(A) MAY BE UPHELD. 6 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. IN OUR CONSIDERED VI EW, THE ISSUE IS SQUARELY COVED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE BY THE DECISIONS OF THE I.T.A.T., LUCKNOW BENCH B DATED 7.7.2006 IN T HE CASE OF DEEPAK KOTHARI VS. ACIT, CC-V, KANPUR IN I.T.A.NO.675(LUC. )/2005 RELATING TO THE ASSESSMENT YEAR 2003-04. THE RELEVANT FINDINGS OF T HE TRIBUNAL READ AS UNDER : 7. IT IS NOT DISPUTED THAT THE ANNUAL VALUE OF THE PROPERTY HAS TO BE DETERMINED AS PER SECTION 23 OF THE ACT. CLAUSE (A) OF SECTION 23(1) PROVIDES THAT THE ANNUAL VALUE OF ANY PROPERTY SHAL L BE DEEMED TO BE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. CLAUSE (B) OF THE SAME SECTION PROVIDES THAT WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THER EOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), THE AMOUNT SO RE CEIVED OR RECEIVABLE WILL BE THE ANNUAL VALUE OF THE PROPERTY. IT HAS B EEN HELD IN A NUMBER OF JUDGMENTS THAT WHERE THE PROPERTY IS CONTROLLED BY THE RENT CONTROL LEGISLATION, THE STANDARD RENT AS DEFINED BY OR FIXED UNDER SUCH LEGISLATION WILL HAVE TO BE TAKEN FOR DETERMIN ING THE BONAFIDE ANNUAL VALUE. THE MOST RELEVANT JUDGMENTS ARE THOSE OF THE SUPREME COURT IN THE CASE OF DEWAN DAULAT RAI KAPOOR (122 I TR 700) AND SHEILA KAUSHISH (131 ITR 435). IN THE PRESENT CASE , IT IS NOT THE CASE OF THE DEPARTMENT THAT THE STANDARD RENT OF THE IM PUGNED PROPERTY IS HIGHER THAN THE ACTUAL RECENT RECEIVED BY THE ASSES SEE. ON THE OTHER HAND, THE ACTUAL RENT RECEIVED BY THE ASSESSEE IS H IGHER THAN THE MUNICIPAL VALUATION AND IT CAN FAIRLY BE PRESUMED THAT THE SAID RENT WOULD BE HIGHER THAN THE STANDARD RENT ALSO. THERE FORE, THE INCOME SHOWN BY THE ASSESSEE IS IN ACCORDANCE WITH THE PR OVISIONS OF SECTION 23 AND THE REVENUE AUTHORITIES WERE NOT JUSTIFIED I N DETERMINING THE ANNUAL VALUE ARBITRARILY BY ADOPTING A NOTIONAL RAT E OF RETURN ON INVESTMENT. THEREFORE, IT IS DIRECTED THAT THE RENT AL INCOME SHOWN BY THE ASSESSEE BE ACCEPTED. 7.1 IN THE ABOVE DECISION, THE TRIBUNAL HAS CATEGOR ICALLY HELD THAT INCOME SHOWN BY THE ASSESSEE WAS IN ACCORDANCE WITH THE P ROVISIONS OF SECTION 23 7 OF THE ACT AND THE REVENUE AUTHORITIES WERE NOT JUS TIFIED IN DETERMINING THE ANNUAL LETTING VALUE ARBITRARILY BY ADOPTING A NOTI ONAL RATE OF RETURN OF INVESTMENT. THE TRIBUNAL HAS CATEGORICALLY HELD THA T THE DECISIONS OF THE HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF SMT. R ADHA DEVI DALMIYA (SUPRA) AND ALSO THAT OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAKARLAL BALABHAI(SUPRA) WERE NOT APPLICABLE TO THE FACTS OF THAT CASE. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA),WE UPHO LD THE ORDER OF THE LD.CIT(A) IN DIRECTING THE AO TO WORK OUT THE ANNUA L LETTING VALUE OF THE PROPERTY AS THE HIGHER OF : A. MUNICIPAL VALUE AS DETERMINED BY THE AUTHORITIE S, ENHANCED IN ACCORDANCE WITH THE RULES OF TENANTED PROPERTY. B. THE ACTUAL RENT RECEIVED BY THE ASSESSEE. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE ORDE R OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 8. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 19.4.11 . SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT APRIL 19TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.