M/s Pragathi Investments, Bangalore V. ITO, Bangalore

ITA 761/BANG/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51255 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-08-2011
• Assessment Year: 1993-1994
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANESH RAO
• Assessee Lawyers: V SRINIVASAN
• Keywords: Fair market value
• Section: 234B; 148

Judgement Text

PAGE 1 OF 8 ITA NOS.758 TO 761/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, J.M ITA NOS.758 TO 761/BANG/2010 (ASSESSMENT YEARS 1990-91 TO 1993-94) M/S PRAGATHI INVESTMENTS, #33/34, SESHADRI ROAD, BANGALORE. - APPELLANT PAN : AABFP 1535E VS THE INCOME TAX OFFICER, CIRCLE-3(4), BANGALORE. - RESPONDENT DATE OF HEARING : 23/8/2011 DATE OF PRONOUNCEMENT : 26/8/2011 APPELLANT BY : SHRI V SRINIVASAN, C.A. RESPONDENT BY : SHRI GANESH RAO, ADDL. CIT ORD ER PER BENCH : THESE FOUR APPEALS INSTITUTED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A)-II, BANGALORE DATED 12.2.2010. THE RELEVANT ASST. YEARS ARE 1990-91 TO 1993-94. 2. SINCE COMMON ISSUE IS INVOLVED IN THESE APPEALS AND THEY PERTAIN TO THE SAME ASSESSEE, THEY ARE DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. PAGE 2 OF 8 ITA NOS.758 TO 761/BANG/2010 2 3. IDENTICAL GROUNDS ARE RAISED IN THESE APPEALS. THE SOLITARY ISSUE INVOLVED IN ALL THESE APPEALS RELATE TO THE COMPUTATION OF GROSS ANNUAL VALUE OF A PROPERTY LET OUT BY THE ASSES SEE TO M/S PRASHANT HOTELS PVT. LTD. 4. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A PARTNERSHIP FIRM DERIVING AN IN COME FROM HOUSE PROPERTY AND BUSINESS. RETURNS OF IN COME WERE FILED BY THE ASSESSEE FIRM FOR THE CONCERNED ASST. YEARS. THE RETURNS WERE ACCEPTED U/S 143(1) OF THE ACT. LATER, NOTICES U/S 148 WERE ISSUED FOR THE ABOVE SAID ASST. YEARS AND THE ORIGINAL ASSE SSMENTS WERE COMPLETED ON 31.1.1997 FOR THE ASST. YEAR 1990-91 AN D FOR ASST. YEARS 1991-92 TO 1993-94 ON 28/12/1997. 4.1 THE ASSESSEE IN THE RETURNS OF INCOME FOR THE ABOVE SAID ASST. YEARS HAD DISCLOSED INCOME FROM HOUSE PROPERT Y BEING ACTUAL RENT RECEIVED FROM LETTING OUT THE PROPERTY TO M/S P RASHANT HOTELS PVT. LTD. THE AO IN THE ORIGINAL ASSESSMENTS COMPL ETED ON 31.1.97 FOR THE ASST. YEAR 1990-91 AND ON 28.12.97 FOR THE ASST. YEARS 1991-92 TO 1993-94 HELD THAT THE ASSESSEE FIRM HAD ACCEPTED A DEPOSIT OF RS.40 LAKHS FROM THE AFORESAID TENANT FOR LETTING OUT THE PROPERTY AND THAT 15% OF THE SAID DEPOSIT WAS REQUIRED TO BE CONSIDER ED AS ADDITIONAL INCOME UNDER THE HEAD HOUSE PROPERTY. ON APPEAL, THE VIEW TAKEN BY THE AO WAS AFFIRMED BY THE CIT(A). ON FURTHER APPE AL, THE TRIBUNAL HELD THAT THE ADDITION OF 15% OF THE DEPOS IT RECEIVED BY THE PAGE 3 OF 8 ITA NOS.758 TO 761/BANG/2010 3 ASSESSEE AS NOTIONAL RENTAL INCOME UNDER THE HEAD HOUSE PROPERTY IS UNJUSTIFIED AND ADDITION SO MADE WAS ACCORDINGLY DEL ETED. 4.2 THE REVENUE BEING AGGRIEVED BY THE ORDER OF THE TRIBUNAL TOOK UP THE MATTER BEFORE THE HONBLE HIGH COURT IN APPEAL. THE HONBLE HIGH COURT DISPOSED OFF THE MATTER BY REMITT ING THE ISSUE TO THE TRIBUNAL FOR FRESH CONSIDERATION IN ACCORDANCE WITH LAW. THE HONBLE HIGH COURT DIRECTED THE TRIBUNAL TO FOLLOW THE RATIO OF THE DECISIONS LAID DOWN BY THE HONBLE APEX COURT IN THE CASES OF DEEWAN DOULAT RAJ KAPOOR V NMDC (122 ITR 700), MRS. SHEILA KAUSHIK V CIT (131 ITR 435) AND AMOLAK RAM KHOSLA V CIT (131 ITR 589). THE TRIBUNAL ONCE AGAIN HEARD THE MATTER AND RESTORED T HE ISSUE TO THE AO FOR DENOVO ADJUDICATION TO DETERMINE THE GROSS A NNUAL VALUE. 5. SUBSEQUENT TO THE SET ASIDE OF THE ASSESSMENTS BY THE TRIBUNAL, THE ASSESSMENT ORDERS WERE COMPLETED ON 2 8.12.2007 FOR ALL THE ASST. YEARS FIXING THE GROSS ANNUAL VALUE UNIFOR MLY AT RS.7,70,200/-. THE AO TOOK THE FAIR RENTAL VALUE A S FIXED BY THE MUNICIPAL AUTHORITIES OF BANGALORE AS THE AMOUNT OF RENT ASSESSABLE (RS.7,70,200). 6. AGGRIEVED BY THE ASSESSMENTS, THE ASSESSEE FIRM TOOK UP THE ISSUE BEFORE THE FIRST APPELLATE AUTHORITY. TH E CIT(A) REDUCED THE GROSS ANNUAL VALUE TO RS.4,81,375/- AS AGAINST THE SUM OF RS.7,70,200/- DETERMINED BY THE AO. THE RELEVANT FI NDING OF THE CIT(A) READS AS FOLLOWS:- PAGE 4 OF 8 ITA NOS.758 TO 761/BANG/2010 4 3.7 I FIND FORCE IN THE APPELLANTS CONTENTION THAT THE SUPERSTRUCTURE IN BLOCK A WAS LEASED OUT TO M/S PRASHANT HOTELS PVT. LTD. AND RENT WAS PAID THEREON TO M/S ICDS LTD. SECONDLY, THE MUNICIPAL VALUATION FIXED FOR THE ENTIRE PROPERTY CONSISTS OF BLOCKS A, B AND D. THE AO IS DIRECTED TO RECOMPUTE THE INCOME FROM HOUSE PROPERTY. (I) HOWEVER, THE MUNICIPALITY VALUED THE PROPERTY MUNICIPAL NUMBER-WISE AS UNDER: NO.33 RS.3,85,100 NO.34 RS.3,85,100 (II) THE FACTS DISCUSSED ABOVE SHOW THAT THE PROPERTY BEARING NO.33 HAS BEEN TRANSFERRED TO THE APPELLANT AND ONLY A PORTION OF THE PROPERTY NO.34 WAS LEASED OUT TO M/S PRASHANT HOTELS PVT. LTD. ON WHICH A HOTEL IS BEING RUN IN THE NAME OF HOTEL RAJMAHAL. ACCORDINGLY, THE FAIR RENTAL VALUE IS WORKED AS UNDER: PROPERTY NO.33 RS. 3,85,100 PROPERTY NO.34 (25% OF RS.3,85,100) RS. 96,275 TOTAL RS.4,81,375 (III) THE SAME PROPORTIONAL MUNICIPAL TAX PAID IS ALLOWABLE AGAINST THE FAIR RENT AS UNDER:- PROPERTY NO. AY 1990- 91 AY 1991- 92 AY 1992-93 AY 1993- 94 33 14,732 14,732 1,26,120 1,26,120 34 *5,526 *5,526 #31,831 #31,831 [* 25% OF RS.22,106; # 25% OF RS.1,27,325] PAGE 5 OF 8 ITA NOS.758 TO 761/BANG/2010 5 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSES SEE FIRM IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) HAS ERRED IN REDUCING THE GROSS ANNUAL VALUE ONLY TO RS.4,81,375/-. HE REITERATED THE SUBMISSIONS, THAT IS EXTRACTED AT PAGES 9 AND 10 OF THE IMPUGNED ORDER OF THE CIT(A). IT WAS CONTENDED THAT THE CIT(A) HAS ERRED IN HIS CONCLUSI ON THAT PROPERTY NO.33 HAS BEEN TRANSFERRED TO ASSESSEE FIRM AND ONL Y A PORTION OF THE PROPERTY NO.34 WAS LEASED OUT TO M/S PRASHANT HOTELS PVT. LTD. ON THE CONTRARY, IT WAS SUBMITTED THAT THE ENTIRE PROP ERTY NO.33 AND 34 (CONSISTING OF NEW BLOCK A AND OLD BLOCKS B AND D) WAS TRANSFERRED TO THE ASSESSEE FIRM AND THE SAME WAS LEASED TO M/S PRASHANT HOTELS PVT. LTD. HOWEVER, THE NEW BLOCK A WAS CONSTRUCT ED BY THE PREDECESSOR LESSEE AND THE SAID PROPERTY DID NOT BEL ONG TO THE ASSESSEE FIRM. THEREFORE, IT WAS SUBMITTED THAT PR OPORTIONATE GROSS ANNUAL VALUE OF THE NEW BLOCK SHOULD ACCORDINGLY BE REDUCED. THE LEARNED COUNSEL HAD FILED A PAPER BOOK RUNNING INTO 67 PAGES CONSISTING INTER ALIA COPIES OF THE LEASE DEEDS EXECUTED BETWE EN ICDS AND THE LESSEE PRASHANT HOTELS PVT. LTD., COPY OF THE WRITTE N SUBMISSIONS FILED BEFORE THE CIT(A), COPY OF THE WORKING AREA OF VARIO US BUILDINGS SITUATED ON THE LAND ETC. 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E FINDINGS OF THE AO. PAGE 6 OF 8 ITA NOS.758 TO 761/BANG/2010 6 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE HISTORICAL BACKGROUND OF T HE PROPERTY IN QUESTION IS SETOUT IN PARAGRAPH 3.5 OF THE IMPUGNED ORDER OF THE CIT(A); HENCE, THE SAME IS NOT REITERATED HERE. TH E FIRST APPELLATE AUTHORITY IN PRINCIPLE HAD ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE SUBJECT MATTER OF THE LEASED LAND WAS WITH REFERENCE TO A, B AND D BLOCKS AND THE SUPER STRUCTURE IN B A ND D ONLY, AS THE SUPER STRUCTURE, A BLOCK WAS NOT THE PROPERTY OF I CDS. ACCORDINGLY, THE CIT(A) HAD WORKED OUT THE FAIR MARKET VALUE AS UNDER:- PROPERTY NO.33 RS. 3,85,100 PROPERTY NO.34 (25% OF RS.3,85,100) RS. 96,275 TOTAL RS.4,81,375 10.1 IT WAS THE SUBMISSION OF THE ASSESSEE FIRM TH AT BOTH WESTERN AND EASTERN PORTION OF THE PROPERTY IN 33 AN D 34 IS TRANSFERRED TO THE ASSESSEE AND LEASED TO M/S PRASH ANT HOTELS PVT. LTD. IT WAS CONTENDED BY REFERRING TO PAGE 21 OF THE PAPER BOOK THAT THE MAJOR PORTION OF THE PROPERTY IS BLOCK A, WHICH IS CONSTRUCTED BY THE LESSEE FOR WHICH THE ASSESSEE IS NOT HAVING OWNERSHIP. THE DETAILS OF THE IMPUGNED PROPERTY ARE AS FOLLOWS:- HOTEL RAJMAHAL TOTAL LAND AREA OF HOTEL RAJMAHAL 19,716 SQ FT,NO.33 AND 34, CONSISTS OF 3 (THREE) BUILDINGS NAMELY A BLOCK, B BLOCK AND D BLOCK. PAGE 7 OF 8 ITA NOS.758 TO 761/BANG/2010 7 1) A BLOCK WAS CONSTRUCTED IN THE YEAR 1979-80 BY HOTEL RAJMAHAL TOTAL BUILT-UP AREA 4031.95 SQ MTRS (APPROX. 43,380 SQ FT) 2) B BLOCK WAS CONSTRUCTED IN THE YEAR 1957 BY EARLIER OWNERS TOTAL BUILT-UP AREA -768.10 SQ MTRS (APPROX. 8265 SQ FT) 3) D BLOCK WAS CONSTRUCTED IN THE YEAR 1959 BY EARLIER OWNERS TOTAL BUILT-UP AREA 1275.36 SQ MTRS (APPROX. 13,723 SQ FT). 10.2 IT WAS CONTENDED THAT BLOCK A IS CONSTRUCTE D IN PROPERTY NO.33 AND 34 AND 75% OF VALUE FIXED BY THE M UNICIPAL AUTHORITIES IS TOWARDS BLOCK A BELONGING TO THE L ESSEE; THEREFORE, ONLY 25% OF THE VALUE FIXED FOR THE PROPERTY NO.33 AN D 34 BY THE MUNICIPAL AUTHORITIES ALONE SHOULD BE ADOPTED AS RE NTAL VALUE IN THE HANDS OF THE ASSESSEE FIRM. FROM THE DETAILS PRODU CED, IT IS CLEAR THAT BLOCK A CONSTRUCTED BY THE PREDECESSOR OF LES SEE IS A MODERN BUILDING AND IS HAVING MORE AREA THAN BLOCK B AND D OWNED BY THE ASSESSEE. THE CIT(A) ACCEPTED THE CONTENTION OF TH E ASSESSEE THAT IT IS NOT HAVING OWNERSHIP OF BLOCK A AND CONSEQUENT LY, HAD REDUCED THE ANNUAL RENTAL VALUE. AS STATED EARLIER, IT WAS CON TENDED THAT BLOCK A IS SITUATED BOTH IN PROPERTY NO.33 AND 34 AND DISCOU NT OUGHT TO HAVE BEEN GRANTED FOR THE ENTIRE PROPERTY. ON THIS ASPEC T, THERE IS NO CLARITY WITH REFERENCE TO THE FINDING ENTERED BY THE FIRST APPELLATE AUTHORITY; THEREFORE, IN THE INTEREST OF JUSTICE, T HIS ISSUE IS REMITTED BACK TO THE FIRST APPELLATE AUTHORITY TO GIVE A PROP ER FINDING AND ACCORDINGLY, GRANT RELIEF. PAGE 8 OF 8 ITA NOS.758 TO 761/BANG/2010 8 11. GROUND NO. 4 RELATES TO LEVY OF INTEREST U/S 23 4B OF THE ACT. 11.1 LEVY OF INTEREST U/S 234B IS MANDATORY AND CONS EQUENTIAL IN NATURE. 12. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED ON FRIDAY, THE 26 TH DAY OF AUGUST, 2011 AT BANGALORE. SD/- SD/- (N BARATHVAJA SANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.