VEENA PARIMAL PAREKH, MUMBAI V. ASST. CIT. CIRCLE-26(3), MUMBAI

ITA 7421/MUM/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8031 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 25-12-2018
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Assessee Lawyers: JITENDRA SINGH
• Keywords: Opportunity of being heard; Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “F”, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA No. 7421/MUM/2018 Assessment Year: 2013-14 Veena Parimal Parekh, Parimal, 7/150, Jain Society, Sion (West), Mumbai - 400022 PAN: AAAPB8177D Vs. Assistant Commissioner of Income Tax, Circle 26(3), C-11, Room No. 501, Pratyakshkar Bhavan, Bandra Kurla Complex, Bandra (East), Mumbai - 400051 (Appellant) (Respondent) Assessee by : Shri Jitendra Singh (AR) Revenue by : Shri C T Mathew (DR) Date of Hearing : 02/11/2021 Date of Pronouncement: 22/11/2021 O R D E R PER SAKTIJIT DEY, JM This is an appeal by the assessee against order dated 13.07.2018 of learned Commissioner of Income Tax (Appeals)-38, Mumbai for the assessment year 2013-14. 2. The grounds raised by the assessee are as under:- 1. “The Ld. Commissioner of Income Tax (Appeals) -55, Mumbai [hereinafter referred to as the “Ld. CIT(A)‟] erred in passing the order dated 13.07.2018 upholding the assessment order passed by Ld. Assistant Commissioner of Income Tax, Circle — 26(3), Mumbai [hereinafter referred to as „Ld. A.O.‟] without appreciating the facts and circumstances of the case. Thus, the 2 ITA No. 7421/MUM/2018 Assessment Year: 2013-14 order dated 13.07.2018 passed by Ld. CIT(A) is bad in law and the same may be quashed. 2. Enhancement made by Ld. CIT (A) under the head ‘Income from House Property’ without providing any opportunity of hearing is bad in law. i. The Ld. CIT(A) erred in enhancing the addition made under the head “Income from House Property‟ by adopting deemed rental value of the property at Rs.1,00,000/per month instead of Rs.9,00,000/made by the Ld. A.O. without providing any opportunity of being heard to the Appellant. Thus, the order passed by Ld. CIT(A) is against the principal of natural justice and the same may be quashed. 3. Addition made under the head ‘Income from House Property’ is unjustified – Rs. 6,30,000/- i. The Ld. CIT(A) erred in upholding the action of Ld. A.O. in estimating the “House Property Income‟ at Rs.11,22,027/- as against Rs.2,22,027/-shown by the Appellant, by computing the notional interest on interest free security deposit without appreciating that the provisions of Section 23(1)(a) is not at all applicable to the facts of the case, The Appellant, therefore, prays that the addition of Rs.9,00,000/under the „Income from House Property‟ is not at all justified and hence, the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that property in dispute is governed by the provisions of Maharashtra Rent Control Act, 1999, Hence, the “standard rent” is the actual rent received by the Appellant. The Appellant, therefore, prays that the addition of Rs.9,00,000/under the „Income from House Property‟ is not at all justified and hence, the same may be deleted. iii. Without prejudice to the above the Ld. CIT(A) failed to appreciate that the Ld. A.O. has neither provided the details and information obtained by him to the Appellant nor he has provided the basis or reason to determine the ALP at Rs.11,22,027/-. Hence, the order passed by the Ld. A.O. as well as the CIT(A) is bad in law and may be quashed. 4. Disallowance of annual maintenance charges unjustified Rs.11,34,590/- i. The Ld. CIT(A) erred in upholding the action of Ld. A.O in disallowing the annual maintenance charges amounting to 3 ITA No. 7421/MUM/2018 Assessment Year: 2013-14 Rs.11,34,590/- while determining the ALV of the various properties without appreciating the facts and circumstances of the case. Hence, disallowance of annual maintenance charges amounting to Rs.11,34,590/is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that the annual maintenance charges were paid for earning the rental income which has been offered to tax under the head „Income from House Property‟. Hence, the annual maintenance charges paid by the Appellant are inextricably linked with the rental income earned. The Appellant, therefore, prays that disallowance of annual maintenance charges amounting to Rs.11,34,590/- is unjustified and the same may be deleted.” 3. Briefly the facts are, the assessee is an individual. For the assessment year under dispute, assessee had filed his return of income on 21.09.2013 declaring total income at Rs. 64,12,140/-. In course of assessment proceedings, the Assessing Officer noticed that as per the leave and license agreement executed on 21.10.2011, the assessee has received Rs. 1 crore as interest free security deposit for leasing out a property to M/s Aventis Pharma Limited. He further noticed, as the Leave & License agreement, assessee received monthly rent of Rs. 35,000/-, whereas, for the very same property, the assessee was receiving monthly rent of Rs. 70,000/- from 01.11.2008 to 31.10.2011 from the very same party. Taking note of the reduced rent, the AO deputed the Ward Inspector for ascertaining the fair rent of similar property nearby area. As observed by the AO, the Ward Inspector reported that the market rent in the area varies between Rs. 1,00,000/- to 2,50,000/- per month. Based on such information, the AO concluded that the monthly rental income was reduced to accommodate the interest free security deposit received 4 ITA No. 7421/MUM/2018 Assessment Year: 2013-14 of Rs. 1 crore. Thus, he proceeded to determine the rental income at Rs. 9,00,000/- after allowing statutory deduction he compute the net income from house property at Rs. 6,30,000/-. Further, noticing that it has claimed deduction of society maintenance expenses from the gross annual value, the AO observed that society maintenance expenses not being an allowable deduction under section 23 and 24 of the Act, is not allowable. Accordingly, he disallowed society maintenance expenses. Being aggrieved with the decision of the AO, assessee preferred appeal before learned Commissioner (Appeals) as far as determination of rental income is concerned. Learned Commissioner (Appeals) did not agree with the determination of rental income by the AO at Rs. 9,00,000/-. Following certain judicial precedents, learned Commissioner (Appeals) directed the AO to compute the income from house property by taking the monthly rent at Rs. 1,00,000/-. Further, she also upheld the disallowance of the society maintenance expenses. 4. Learned Counsel for the assessee submitted, learned Commissioner (Appeals) has enhanced the income of the assessee without providing a reasonable opportunity of being heard to the assessee. He submitted, the rent was reduced from 70,00,000/- to 35,000/- due to prevailing circumstances as the assessee was not getting proper tenant to lease out the property. He submitted, though, the AO conducted enquiry through the Ward Inspector and utilized the report for determining rental income, however, enquiry report was never confronted to the assessee. Thus, he submitted, there is violation of rules of natural justice. As regards society maintenance expenses, learned counsel submitted that since the assessee has to incur such expenses for the property, 5 ITA No. 7421/MUM/2018 Assessment Year: 2013-14 it has to be allowed as deduction. He submitted, in case of similar nature, the Tribunal has allowed deduction of society maintenance expenses. 5. Learned Departmental Representative strongly relied upon the observations of the AO and learned CIT (Appeals). However he submitted, if the assessee was not provide an opportunity before enhancing the income the issue may be restored back to the Commissioner (Appeals) for fresh adjudication. 6. We have considered rival submissions and perused the materials on record. It is a fact that though the assessee has rented out the property to very same party, however, there is a reduction in rental income by 50% in the impugned assessment year. It is also a fact that the assessee has received interest free security deposit of Rs. 1 crore from the tenant. Therefore, it has to be seen whether reduction in rental income is directly related to the receipt of interest free security deposit. It is also a fact that while the AO had determined the gross rental income at Rs. 9 lacs, learned Commissioner (Appeals) has directed the AO to take the monthly rental income of Rs. 1 lac. Thus, there is enhancement of assessee’s income at the first appellate stage. As per section 251(2) of the Act, before enhancing the income the assessee has to be given opportunity to show cause as to why enhancement should not be made. In the facts of the present case, as it appears, no such opportunity was provided to the assessee before enhancing the income. Therefore, to that extent, there is violation of statutory mandate as well as rules of natural justice. Therefore, we are of the considered opinion, the issue has to be restored back to the first appellate authority for fresh adjudication after due opportunity of being heard 6 ITA No. 7421/MUM/2018 Assessment Year: 2013-14 to the assessee. As regards deduction of society maintenance expenses, in our view, it needs examination whether it is allowable under section 23 or 24 of the Act. Therefore, we also restore this issue to the first appellate authority to decide afresh keeping in view the judicial precedents, which the assessee may rely upon. Needless to mention, learned Commissioner (Appeals) has to provide reasonable opportunity of being heard to the assessee before deciding the issue. Grounds are allowed for statistical purposes. 7. In the result, appeal is allowed for statistical purposes. Order pronounced in the open court on 22 nd November, 2021. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) ACCOUNTANT MEMBER (SAKTIJIT DEY) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 22/11/2021 Alindra, PS आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, म ुंबई / ITAT, Mumbai