ACIT 11(1), MUMBAI V. VISHESH FILMS P.LTD, MUMBAI

ITA 7644/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83816 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-06-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 04-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SINGH
• Assessee Lawyers: NEELAM JADHAV
• Keywords: Deemed to accrue or arise in india; Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.7644/MUM/2010 ( / ASSESSMENT YEAR :2005-06) ASSTT. COMMISSIONER OF INCOME TAX 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S VISHESH FILMS PVT LTD., 36, SHUBH JEEVAN, 4 TH FLOOR, JVPD SCHEME, ANDHERI (W), MUMBAI-400049. ( / APPELLANT) .. ( !' / RESPONDENT) ./I.T.A. NO.8774/MUM/2010 ( / ASSESSMENT YEAR :2006-07) ASSTT. COMMISSIONER OF INCOME TAX 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S VISHESH FILMS PVT LTD., 36, SHUBH JEEVAN, 4 TH FLOOR, JVPD SCHEME, ANDHERI (W), MUMBAI-400049. ( / APPELLANT) .. ( !' / RESPONDENT) ./ $% ./ PAN/GIRNO.: AAACV9556D ./I.T.A. NO.3666/MUM/2012 ( / ASSESSMENT YEAR :2008-09) ASSTT. COMMISSIONER OF INCOME TAX 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S VISHESH FILMS PVT LTD., 4 TH FLOOR, DURGA CHAMBERS, LINKING ROAD, KHAR (W), MUMBAI-400049. ( / APPELLANT) .. ( !' / RESPONDENT) I.T.A. NO.7644/MUM/2010 I.T.A. NO.8774/MUM/2010 I.T.A. NO.3666/MUM/2012 2 & / REVENUE BY : SHRI P K SINGH !' ' & /ASSESSEE BY : MS NEELAM JADHAV ( ) ' * + / DATE OF HEARING : 27.8.2014 ,- ' * + / DATE OF PRONOUNCEMENT : 12.9.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE THREE APPEALS FILED AT THE INSTANCE OF THE REVENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT(A) AND THEY REL ATE TO THE ASSESSMENT YEARS 2005-06, 2006-07 AND 2008-09. SINCE ONE OF THE ISS UES URGED IN THESE APPEALS IS IDENTICAL IN NATURE, THESE APPEALS WERE HEARD TO GETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENC E. 2. THE COMMON ISSUE URGED IN ALL THESE THREE AP PEALS IS WHETHER THE LD CIT(A) WAS JUSTIFIED IN CANCELLING THE INTEREST EST IMATED BY THE AO ON THE INTEREST FREE SECURITY DEPOSIT OF RS.1.85 CRORES RECEIVED FR OM ITS TENANTS. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE HAD LET OUT ITS PROPERTIES TO FOUR TENANTS AND HAD RECEIVED A SUM OF RS.1.85 CRORES AS INTEREST FREE SECURITY DEPOSIT. THE ASSESSEE DECLARED RENTAL INCOME RECEI VED BY IT AMOUNTING TO RS.1,14,000/- UNDER THE HEAD INCOME FROM HOUSE PROP ERTY. IN ASSESSMENT YEAR 2005-06, THE AO ESTIMATED NOTIONAL INTEREST @ 12% O N RS.1.85 CRORES, WHICH WORKED OUT TO RS.22,20,000/-, AND ASSESSED THE SAME AS INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, IN ASSESSMENT YEARS 2006-07 AND 2008- 09, THE ASSESSING OFFICER ESTIMATED THE ANNUAL LETT ING VALUE OF THE RENTED PROPERTIES AT 8% OF RS.1.85 CRORES REFERRED ABOVE A ND ASSESSED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY IN THE PLACE OF RS.1,14,000/- DECLARED BY THE ASSESSEE. 4. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) DE LETED THE ADDITIONS MADE IN ALL THE THREE YEARS AND HENCE THE REVENUE HAS FILED THESE APPEALS BEFORE US. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. AS STATED EARLIER, THE AO HAS ESTIMATED THE NOTIONAL INTEREST ON THE SECURITY DEPOSIT AT I.T.A. NO.7644/MUM/2010 I.T.A. NO.8774/MUM/2010 I.T.A. NO.3666/MUM/2012 3 RS.22,20,000/- AND ASSESSED THE SAME AS INCOME UNDE R THE HEAD INCOME FROM OTHER SOURCES. THE LD CIT(A) DELETED THE SAID ADDI TION WITH THE FOLLOWING OBSERVATIONS:- 2.1.2 FACTS AND MATERIAL ON RECORD ARE CONSIDERED . IT IS SEEN THAT THOUGH FACTS EMERGE FROM THE DISCUSSION IN RESPECT OF INC OME FROM HOUSE PROPERTY SHOWN BY THE APPELLANT, AO HAS ESTIMATED I NTEREST INCOME ON DEPOSITS RECEIVED BY APPELLANT AND TREATED IT AS DE EMED INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. IT IS APPARENT F ROM THE ASSESSMENT ORDER THAT AO HAS NOT VERIFIED HOW THE DEPOSITS REC EIVED BY APPELLANT WERE UTILISED, WHICH AS PER APPELLANT WERE UTILISED FOR PURPOSE OF APPELLANTS BUSINESS I.E. MAKING OF FEATURE FILMS A ND ALLIED ACTIVITIES AND NOT KEPT AS DEPOSITS IN THE BANK. THERE IS NO FIND ING IN THE ORDER REGARDING UTILISATION OF THE DEPOSIT AND, THEREFORE, THE BASI S FOR ESTIMATING THE DEEMED INCOME IS NOT ESTABLISHED IN THE FACTS OF TH E CASE. IT IS ALSO OBSERVED THAT AO HAS ALSO NOT ADDED THE SAME UNDER THE HEAD INCOME FROM HOUSE PROPERTY FOR DETERMINATION OF ALV. IN THE FACTS OF THE CASE, THE ADDITION OF DEEMED INCOME OF RS.22,20,000/- IS NOT BASED ON FACTS, IS NOT SUSTAINABLE AND DELETED. WE NOTICE THAT THE ASSESSING OFFICER HAS NOT BROUGH T ANY MATERIAL ON RECORD TO SHOW THAT THERE EXISTED AN AGREEMENT BETWEEN THE AS SESSEE AND THE TENANTS TO PAY / CHARGE INTEREST ON THE SECURITY DEPOSIT, REFE RRED ABOVE. THERE SHOULD NOT BE ANY DOUBT THAT TERMS AND CONDITIONS RELATING TO THE SECURITY DEPOSIT ARE REGULATED BY THE AGREEMENT ENTERED BETWEEN THE PART IES. FURTHER, IT IS SEEN THAT THE ASSESSEE ONLY HAS RECEIVED INTEREST FREE SECURI TY DEPOSIT AND IF AT ALL ANY INTEREST IS PAYABLE, IT WOULD BE AN EXPENDITURE IN THE HANDS OF THE ASSESSEE. HENCE, IT IS INCONCEIVABLE AS TO HOW THE AO COULD ASSUME THAT THE ASSESSEE WOULD BE RECEIVING INTEREST INCOME ON THE SECURITY DEPOSIT RECEIVED BY IT. HENCE, IN THE ABSENCE OF ANY MATERIAL TO SUPPORT THE VIEW TAKEN BY THE ASSESSING OFFICER, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN DELETIN G THE NOTIONAL INTEREST ASSESSED BY THE AO UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. IN ASSESSMENT YEARS 2006-07 AND 2008-09, THE AO ESTIMATED ANNUAL LETTING VALUE OF PROPERTIES AT 6% OF THE SECURITY DEPOSIT IN THE PLACE OF ACTUAL RENT OF RS.1,14,000/- DECLARED BY THE ASSESSEE. TH E QUESTION WHETHER NOTIONAL INTEREST CAN FORM PART OF ANNUAL LETTING VALUE WA S EXAMINED BY THE JURISDICTIONAL HIGH COURT IN A RECENT DECISION IN THE CASE OF CIT VS. TIP TOP TYPOGRAPHY (2014)(48 TAXMANN.COM 191). THE OBSERVATIONS MADE BY THE HIGH COURT IN THIS REGARD ARE EXTRACTED BELOW, FOR THE SAKE OF CONVENI ENCE:- I.T.A. NO.7644/MUM/2010 I.T.A. NO.8774/MUM/2010 I.T.A. NO.3666/MUM/2012 4 WE APPROVE THE AFORESAID VIEW OF THE DIVISION BENC H OF THIS COURT AND OPERATIVE WORDS IN SECTION 23(1)(A) OF THE ACT ARE THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM Y EAR TO YEAR. THESE WORDS PROVIDE A SPECIFIC DIRECTION TO THE REVENUE F OR DETERMINING THE FAIR RENT. THE ASSESSING OFFICER, HAVING REGARD TO THE AFORESAID PROVISION IS EXPECTED TO MAKE AN INQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT THE PROPERTY MIGHT FETCH. THUS, IF HE FINDS THAT THE A CTUAL RENT RECEIVED IS LESS THAN THE FAIR / MARKET RENT BECAUSE OF THE REASON THAT THE ASSESSEE HAS RECEIVED ABNORMALLY HIGH INTEREST FREE SECURITY DEP OSIT AND BECAUSE OF THAT REASON, THE ACTUAL RENT RECEIVED IS LESS THAN THE R ENT WHICH THE PROPERTY MIGHT FETCH, HE CAN UNDERTAKE NECESSARY EXERCISE IN THAT BEHALF. HOWEVER, BY NO STRETCH OF IMAGINATION, THE NOTIONAL INTEREST ON THE INTEREST FREE SECURITY CAN BE TAKEN AS DETERMINATIVE FACTOR TO ARRIVE AT A FAIR RENT. THE PROVISIONS OF SEC. 23(1)(A) DO NOT MANDATE THIS . THE DIVISION BENCH IN ASIAN HOTELS LIMITED (2010)(323 ITR 490)(DELHI), THUS, RIGHTLY OBSERVED THAT IN A TAXING STATUTE IT WOULD BE UNSAFE FOR THE COURT TO GO BEYOND THE LETTER OF THE LAW AND TRY TO READ INTO THE PROVISIO N MORE THAN WHAT IS ALREADY PROVIDED FOR. WE MAY ALSO RECORD THAT EVEN THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. J.K. INVESTORS (BOMBAY) LTD (2001)(248 ITR 723)(BOM) CATEGORICALLY REJECTED THE FORMULA OF ADDITION OF NOTIONAL INTEREST WHILE DETE RMINING THE FAIR RENT. IT IS, THUS, MANIFEST THAT VARIOUS COURTS HAVE HELD A CONSISTENT VIEW THAT NOTIONAL INTEREST CANNOT FORM PART OF ACTUAL RENT. HENCE, THERE IS NO JUSTIFICATION TO TAKE A DIFFERENT VIEW THAT WHAT HA S BEEN STATED IN ASIAN HOTELS LIMITED (2010) 323 ITR 490 (DELHI). WE NOTICE THAT THE DECISION RENDERED BY LD CIT(A) I N AY 2006-07 AND 2008-09 IS IN ACCORDANCE WITH THE DECISION OF HONBLE JURISDIC TIONAL HIGH COURT. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH HIS ORDER IN BOTH THE YEARS ON THIS ISSUE. 7. IN ASSESSMENT YEAR 2005-06, THE REVENUE HAS RAISED ONE MORE ISSUE, I.E., THE REVENUE IS ASSAILING THE DECISION OF LD CIT(A) IN REDUCING THE DISALLOWANCE MADE ON PETTY EXPENSES FROM 80% TO 6%. THE FACTS R ELATING TO THE SAME ARE THAT THE AO NOTICED THAT THE ASSESSEE INCURRED SMALL AND PETTY EXPENSES TO THE TUNE OF RS.95,88,428/- BY PAYING CASH. THE AO TOOK THE VIEW THAT THE OCCASION FOR INCURRING CASH EXPENSES HAVE GONE DOWN CONSIDERABLY AND FURTHER, AFTER THE INTRODUCTION OF SEC. 40(A)(I) (SIC), THE LEGISLATUR E HAS INTENDED TO BRING ALL TYPE OF SERVICE EXPENSES UNDER THE AMBIT OF TAXATION. ACCO RDINGLY, THE AO DISALLOWED 80% OF THE EXPENSES INCURRED BY PAYING CASH. THE L D CIT(A) NOTICED THAT THE AO HAD MADE SIMILAR DISALLOWANCES IN THE SISTER CON CERN OF THE ASSESSEE, VIZ., VISHESH ENTERTAINMENT LTD AND THE LD CIT(A) HAD R ESTRICTED THE DISALLOWANCE TO 5.6% OF THE CASH EXPENSES. ACCORDINGLY, IN THE INS TANT CASE, THE LD CIT(A) HELD I.T.A. NO.7644/MUM/2010 I.T.A. NO.8774/MUM/2010 I.T.A. NO.3666/MUM/2012 5 THAT THE ASSESSING OFFICER HAS MADE THE IMPUGNED DI SALLOWANCE BY MAKING GENERAL STATEMENTS. ACCORDINGLY, BY CONSIDERING TH E APPELLATE ORDER PASSED IN THE HANDS OF SISTER CONCERN, REFERRED ABOVE, THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO 6% OF THE EXPENSES. THE REVENUE IS AGGRIEVED BY THE SAID DECISION. 8. WE HAVE HEARD RIVAL CONTENTIONS ON THIS ISSUE . WE NOTICE THAT THE CASH EXPENSES WERE INCURRED AT THE FILM SHOOTING SITE IN THE FORM PAYMENTS MADE TO JUNIOR ARTISTES, LABOURERS, SPOT BOYS, FOOD, TRANSP ORT AND CONVEYANCE. THE LD A.R ALSO SUBMITTED THAT THE ASSESSEE WAS CONSTRAINE D TO INCUR EXPENSES BY PAYING CASH AS THE FILM SHOOTING TAKES PLACE AT VAR IOUS FAR OFF PLACES. HE FURTHER SUBMITTED THAT THE AO HIMSELF, IN AY 2010-11, HAS M ADE DISALLOWANCE AT 5% ONLY. ACCORDINGLY, HE SUBMITTED THAT THE LD CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO 6% OF THE CASH EXPENSES. WE FIND ME RIT IN THE SAID CONTENTIONS. AS NOTICED BY LD CIT(A), THE AO HAS MADE THE IMPUGN ED DISALLOWANCE BY MAKING CERTAIN GENERAL OBSERVATIONS, I.E., THE AO D ID NOT PIN POINT ANY DEFECTS OR INFLATION OR BOGUS NATURE OF EXPENSES. FURTHER, I T IS POINTED OUT THAT THE AO HIMSELF HAS DISALLOWED ONLY 5% OF THE CASH EXPENSES IN A SUBSEQUENT YEAR. UNDER THESE SET OF FACTS, WE ARE OF THE VIEW THAT T HE DISALLOWANCE OF 80% OF THE CASH EXPENSES MADE BY THE AO IS ABNORMAL. ACCORDIN GLY, IN OUR VIEW, THE LD CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANC E TO 6% OF THE CASH EXPENSES. 9. IN THE RESULT, ALL THE THREE APPEALS FILED B Y THE REVENUE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 12TH SEPT, 2014 . ,- ( . /0 1 2 12 TH SEPT, 2014 - ' 3) 4 SD S D ( . . / H.L. KARWA ) ( . . , / B.R. BASKARAN) / PRESIDENT / ACCOUNTANT MEMBER / ( ) MUMBAI : 12TH SEPT, 2014 . . . ./ SRL , SR. PS I.T.A. NO.7644/MUM/2010 I.T.A. NO.8774/MUM/2010 I.T.A. NO.3666/MUM/2012 6 ! ' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT. 3. ( 9* ( ) / THE CIT(A)- CONCERNED 4. ( 9* / CIT CONCERNED 5. 6. :; 3 !*< , + < , / ( ) / DR, ITAT, MUMBAI CONCERNED 3 = ) / GUARD FILE. > ( / BY ORDER, TRUE COPY ? $ (ASSTT. REGISTRAR) + < , / ( ) /ITAT, MUMBAI