Smt Kamla Sewa Vishwakarma, Nagda V. The CIT,

ITA 80/IND/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8798 (ITAT-INDORE)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 06-07-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 24-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R K CHOWDHARY
• Assessee Lawyers: RAVI SARDA
• Keywords: Revision of order; Charitable institution; Fair market value; Set aside
• Section: 143(3); 56(2); 205; 6; 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI BHAVNESH SAINI, J.M. AND SHRI M.L.GUSIA,A.M. PAN NO. : ABEPV7525N I.T.A.NO. 80/IND/2009. A.Y. : 2005-06 SMT. KAMLABAI VISHWAKARMA COMMISSIONER OF INCOME- TAX, W/O SHREE JAGDISH VISHWAKARMA VS UJJAIN 104, JAWAHAR MARG, NAGDA APPELLANT RESPONDENT APPELLANT BY : SHRI RAVI SARDA, ADV. RESPONDENT BY : SHRI R.K.CHOWDHARY, CIT DR O R D E R PER SAINI, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF LD. CIT, UJJAIN, DATED 24 TH DECEMBER,2008, FOR ASSESSMENT YEAR 2005-06 PASSED U/S 263 OF THE INCOME-TAX ACT, 1961. -: 2 :- 2 2. BRIEFLY THE FACTS OF THE CASE ARE THAT RETURN DECLA RING INCOME OF RS. 4,36,080/- INCLUDING LONG TERM CAPITAL GAIN OF RS. 2,82,955/- WAS FILED ON 27 TH MARCH, 2006. HOWEVER, THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 26 TH FEBRUARY, 2007, ON AN INCOME OF RS. 5,36,230/-. THE ADDITION IS ON ACCOUNT OF INCORRECT WORKING OF CAPITAL GAIN SHOWN BY THE ASSESSEE WAS MADE. 3. THE LD. COMMISSIONER ON GOING THROUGH THE RECORDS N OTICED THAT THE ASSESSEE HAD RENTED A FACTORY SHED ALONGWI TH MACHINERY TO HER SPOUSE (HUSBAND) @ RS.20,000/- PER MONTH FROM 1.4.2 001. HOWEVER, IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL. IT WAS NOTICED THAT FOR THE SAME PROPERTY REFERRED TO ABOV E, THE RENT W.E.F. 1.9.2002 HAS BEEN SOWN @ RS.22,000/- PER MONTH, WHI CH HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. THE LD. COMMISSI ONER, THEREFORE, NOTED THAT THE RENT OF THE ABOVE BUILDING AFTER THR EE YEARS IS BOUND TO INCREASE AND NOT REDUCED TO ITS 1/10 TH VALUE. THE ASSESSMENT ORDER WAS, THEREFORE, CONSIDERED TO BE ERRONEOUS AND PREJUDICI AL TO THE INTERESTS OF REVENUE, AS THE RENTAL INCOME HAS NOT BEEN PROPERLY ASSESSED BY THE -: 3 :- 3 ASSESSING OFFICER. THE LD. COMMISSIONER ALSO NOTED THAT THE ASSESSEE HAD SHOWN THE INCOME ONLY UNDER THE HEAD HOUSE PRO PERTY, INTEREST FROM BANK UNDER THE HEAD OTHER SOURCES AND CAPITA L GAINS. THE AO HAS ALLOWED EXPENDITURE ON ACCOUNT OF SALARY, LEGAL FEE, BANK COMMISSION ETC. WITHOUT EXAMINING WHETHER THE SAME CAN BE ALLOWED UNDER THE HEAD AGAINST WHICH INCOME HAS BEEN SHOWN BY THE ASSESSEE. SHOW CAUSE NOTICE U/S 263 OF THE INCOME-TAX ACT, 19 61, WAS ISSUED, WHICH WAS REPLIED BY THE ASSESSEE AND IT WAS BRIEFL Y CONTENDED THAT EARLIER RENT AGREEMENT WAS TERMINATED AND AS PER NE W AGREEMENT, RS. 20 LAKHS WAS GIVEN AS SECURITY DEPOSIT BY THE HUSBAND OF THE ASSESSEE FOR THE TENANTED PROPERTY AND THE RENT WAS FIXED @ RS. 2000/- PER MONTH. THE SECURITY DEPOSIT WAS GIVEN IN ORDER TO COMPENSA TE THE ASSESSEE FOR SHORT PAYMENT OF THE RENT AND ON SUCH SECURITY DEPO SIT IN THE BANK, THE ASSESSEE EARNED THE INTEREST. IT WAS ALSO EXPLAINED THAT THE ASSESSEE HAD CLAIMED EXPENSES LIKE SALARY, LEGAL FEE, BANK COMMI SSION ETC. AND THE RENTAL INCOME HAS BEEN ASSESSED BY THE ASSESSING OF FICER UNDER THE HEAD INCOME FROM OTHER SOURCES. THEREFORE, SUCH E XPENDITURE WAS -: 4 :- 4 ALLOWABLE. HOWEVER, THE LD. COMMISSIONER DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE AND SET-ASIDE THE ASSESS MENT ORDER ON BOTH THE POINTS AND DIRECTED THE AO TO EXAMINE THE ISSUE AND ASSESSED THE INCOME PROPERLY. THE FINDINGS OF THE LD. COMMISSION ER ARE REPRODUCED AS UNDER :- 1. AS FAR AS THE FIRST ARGUMENT OF THE ASSESSEE IS CONCERNED IT IS CLEARLY PROVIDED IN SECTION 23(1) T HAT THAT RENTAL VALUE OF THE PROPERTY IS TO BE TAKEN FOR WHI CH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FRO M YEAR TO YEAR. THERE IS NO DOUBT AS PER THE PROVISIONS OF THE SECTION 23(1) THE RENTAL VALUE OF THE PROPERTY COUL D NOT HAVE BEEN LESS THAN THE VALUE WHICH WAS ON 1.4.2001. IN FACT TAKING INTO CONSIDERATION THE MARKET VALUE AS ON 1. 4.2004 THE RENTAL VALUE OF THE PROPERTY WAS REQUIRED TO BE ASSESSED. EVEN IF THE RENTAL INCOME FROM THE PROPERTY WAS ASS ESSED UNDER THE HEAD OTHER SOURCES BY THE AO THAN ALSO TH E FAIR MARKET VALUE WAS REQUIRED TO BE DETERMINED AS ON 1. 4.2004 -: 5 :- 5 BY THE ASSESSING OFFICER FOR DETERMINING THE RENTA L INCOME FROM THE ABOVE PROPERTY. THE GIVING OF A DEPOSIT OF RS. 20 LACS TO THE ASSESSEE IS IMMATERIAL FOR DETERMINING THE RENTAL VALUE OF THE PROPERTY. THE AO WITHOUT GOING INTO TH E VARIOUS ISSUES HAVE WRONGLY ACCEPTED THE RENTAL INC OME SHOWN BY THE ASSESSEE. THEREFORE, THERE IS NO DOUBT I THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER PASSED BY THE ASSESSING OFFICER IS NOT ONLY ERRONEOUS BUT ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE ON THIS POINT. THIS ISSUE IS RESTORED TO THE FILE OF THE AO AND THE AO IS DIRECTED TO ENQUIRE AND DETERMINE THE MARKET RENTAL VALUE OF THE PROPERTY AS ON 1.4.2004 AND ASSESS THE SAME AS RENT AL INCOME OF THE PROPERTY. 2. REGARDING THE ARGUMENT OF THE ASSESSEE AS THE RENTA L INCOME OF THE ASSESSEE HAS BEEN ASSESSED UNDER THE HEAD OTHER SOURCES THEREFORE, THE VARIOUS EXPENSES ARE ALLOWABLE IS TOTALLY INCORRECT. AS PER THE PROVISIO NS OF -: 6 :- 6 SECTION 57(III) THE ONLY EXPENDITURE WHICH CAN BE ALLOWED AGAINST THE INCOME FROM OTHER SOURCES IS TH E EXPENDITURE WHICH HAS BEEN LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARRING SUCH INCOME. THERE IS NO DOUBT THE AO HAS NOT EXAMINED AT ALL WHETHER THE EXPENDITURE INCURRE D BY THE ASSESSEE WHICH HAS BEEN ALLOWED BY HIM HAS BEEN EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE RENTAL INCOME. THEREFORE, ON THIS POINT ALSO THE ORDER OF THE AO W AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE, AS THE SAME WAS ALLOWED WITHOUT TAKING INTO CONSIDERATION THE PROVISION OF SECTION 57(III) NOTE D ABOVE. THEREFORE, ON THIS ISSUE ALSO THE ORDER OF T HE AO IS SET ASIDE WITH THE DIRECTION THAT HE SHOULD EXAMINE THE VARIOUS EXPENDITURE TAKING INTO CONSIDERATION THE PROVISIONS OF SECTION 57(III) OF THE -: 7 :- 7 INCOME-TAX ACT, 1961, AND THEN DECIDE THE ALLOWABILITY OF THE SAME. 3. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER OF THE AO IS SET ASIDE ON BOTH THE POINTS AND HE IS DIRECTED TO ASSESSEE THE INCOME PROPERLY AND ALSO EXAMINE THE CLAIM OF EXPENSES TAKING INTO CONSIDERATION THE DIRECTIONS MENTIONED ABOVE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED TH E SUBMISSION MADE BEFORE THE LD. COMMISSIONER AND SUBMITTED THAT RENT WAS PAID AS PER THE AGREEMENT. THEREFORE, THE SAME CANNOT BE QU ESTIONED BY THE LD. COMMISSIONER AND THE RELIED UPON THE DECISION OF TH E M.P. HIGH COURT IN THE CASE OF BIRLA GWALIOR PRIVATE LIMITED VS. CI T, 44 ITR 847, AND DECISION OF MADRAS HIGH COURT IN THE CASE OF EAST I NDIA COMPANY VS. CIT, 31 ITR 803. HE HAS ALSO SUBMITTED THAT THE ORD ER OF THE AO CANNOT BE SAID TO BE ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTERESTS OF REVENUE, BECAUSE THE ASSESSEE HAS PRODUCED RELEVANT MATERIAL BEFORE THE -: 8 :- 8 AO, WHICH WAS EXAMINED AND PROPER ORDER HAS BEEN PA SSED. HE HAS RELIED UPON THE DECISION OF HON'BLE SUPREME COURT I N THE CASE OF MALABAR INDUSTRIES INDUSTRIAL CO. VS. CIT, 243 ITR 83,AND DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. GABRIEL IN DIA LIMITED, 203 ITR 108. HE HAS SUBMITTED THAT BEFORE INVOKING THE PROVISIONS OF SECTION 263, LD. COMMISSIONER HAS TO SATISFY TWO CO NDITIONS THAT THE ORDER SOUGHT TO BE REVISED IS ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF REVENUE. HE HAS SUBMITTED THAT SUCH POWER CANNOT BE INVOKED MERELY ON PRESUMPTION OR POSSIBILITY OF UNDER ESTIM ATION OF INCOME AND RELIED UPON THE DECISION OF RAJSTHAN HIGH COURT IN THE CASE OF CIT VS. TRUSTEES ANUPAM CHARITABLE TRUST, 167 ITR 129. HE H AS ALSO RELIED UPON THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. ARVIND JEWELLERS, 259 ITR 502, IN WHICH IT WAS HELD THAT W HEN THE AO CONSIDERED THE MATERIAL AND FRAMED ASSESSMENT, 263 JURISDICTION SHOULD NOT BE EXERCISED. HE HAS ALSO RELIED UPON THE DECIS ION OF DELHI HIGH COURT IN THE CASE OF NABHA INVESTMENT PRIVATE LIMIT ED VS. UNION OF INDIA, 246 ITR 41, AND DECISION OF M.P. HIGH COURT IN THE CASE OF -: 9 :- 9 KESHRIMAL BABULAL VS. CIT, 252 ITR 764. HE, THEREFO RE, SUBMITTED THAT THE ORDER OF THE LD. COMMISSIONER MAY BE SET-ASIDE AND QUASHED. 5. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE RELIED UPON THE ORDER OF THE LD. COMMISSIONER AND S UBMITTED THAT THE AO DID NOT INQUIRE INTO THE MATTER PROPERLY AND HAS NOT EXAMINED THE REASONABLENESS OF THE RENT CONSIDERING THE HISTORY OF THE ASSESSEE. HE HAS SUBMITTED THAT THE AO SHOULD HAVE ASSESSED THE INCOME AS INCOME FORM THE HOUSE PROPERTY INSTEAD OF INCOME FROM OTHE R SOURCES AND RELIED UPON THE DECISION OF M.P. HIGH COURT IN THE CASE OF CIT VS. DEEPAK KUMAR GARG, 212 CTR 153 IN WHICH IT WAS HELD AO HAVING MADE PERFUNCTORY INQUIRY IN A SLIP SHOD MANNER AND THEREBY SUBSTANTIAL AMOUNT OF TAXABLE INCOME HAVING NOT BEEN BROUGHT TO TAX, THE AOS ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF REVENUE. 6. WE HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE FA CTS NOTED BY THE AUTHORITIES BELOW AND THE CASE LAWS REFERRED TO BY THE PARTIES. THE FACTS AS NOTED BY THE LD. COMMISSIONER ARE NOT IN DISPUTE THAT THE ASSESSEE -: 10 :- 10 HAD RENTED A FACTORY SHED ALONGWITH MACHINERY TO HE R HUSBAND INITIALLY @ RS. 20,000/- PER MONTH FROM 1.4.2001. THE SAME PR OPERTY WAS LATER ON LET BY SUBSEQUENT AGREEMENT, WHICH WAS EFFECTIVE FROM 1.9.2004, IN WHICH THE RENT WAS REDUCED FROM RS. 20,000/- TO RS. 2,000/- ONLY. IT IS STATED IN SUCH AGREEMENT THAT THE TENANT WOULD PAY RS. 20 LAKHS I.E. RS. 10 LAKHS THROUGH CHEQUE AND RS. 10 LAKHS IN SIX INS TALMENTS FOR SECURITY OF THE MACHINERY ON WHICH NO INTEREST SHALL BE PAYA BLE TO THE TENANT. THE ASSESSEE PRODUCED THIS AGREEMENT BEFORE THE AO AT THE TIME OF ASSESSMENT AND THE AO VERIFIED THE FACT WITH REGARD TO THE RECEIPT OF INTEREST FREE SECURITY OF RS. 20 LAKHS. THE AO, THE REFORE, DID NOT MAKE ANY INQUIRY INTO THE MATTER WHETHER THE RENT REDUCE S FROM RS. 20000/- TO RS. 2000/- IS REASONABLE AND PROPER. THE AO HAS ALSO NOT EXAMINED AND ENQUIRED INTO THE ASPECT, THE CIRCUMSTANCES UND ER WHICH THE RENT WAS REDUCED SUBSTANTIALLY IN RESPECT OF THE SAME TE NANTED PREMISES INCLUDING THE LETTING OUT THE PLANT AND MACHINERY. THE AO MERELY EXAMINED THAT SINCE BUILDING AND MACHINERY HAVE BE EN LET OUT AND BUILDING IS INSEPARABLE FROM THE LETTING OF THE SAI D MACHINERY, THEREFORE, -: 11 :- 11 SUCH RENTAL INCOME IS ASSESSABLE UNDER THE HEAD INC OME FROM OTHER SOURCES U/S 56(2)(III) OF THE INCOME-TAX ACT, 1961. THE AO FORGOT TO NOTE THAT THE PROVISIONS OF SECTION 56(2) PROVIDES IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GENERALITY OF THE PROVISIO NS OF SUB SECTION (1), THE ABOVE WOULD BE CHARGEABLE UNDER INCOME FROM OTH ER SOURCES. THE AO DID NOT NOTICE THE LANGUAGE OF SECTION 5691) OF THE INCOME-TAX ACT, 1961, THROUGH WHICH IT IS PROVIDED THAT SUCH INCOME WILL BE ASSESSED INCOME FROM OTHER SOURCES IF IT IS NOT CHARGEABLE TO INCOME TAX UNDER ANY OF THE HEAD SPECIFIED IN SECTION 14, ITEMS A TO E. SECTION 23(1) OF THE INCOME-TAX ACT, 1961, PROVIDES AS UNDER :- ANNUAL VALUE HOW DETERMINED. 23. (1) FOR THE PURPOSES OF SECTION 22 , THE ANNUAL VALUE OF ANY PROPERTY SHALL BE DEEMED TO BE ( A ) THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR; OR -: 12 :- 12 ( B ) WHERE THE PROPERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE ( A ), THE AMOUNT SO RECEIVED OR RECEIVABLE; OR ( C ) WHERE THE PROPERTY OR ANY PART OF 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 : PROVIDED THAT THE TAXES LEVIED 1 BY ANY LOCAL AUTHORITY IN RESPECT OF THE PROPERTY SHALL BE DEDUCTED (IRRESPEC TIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUC H TAXES WAS INCURRED BY THE OWNER ACCORDING TO THE METHOD O F ACCOUNTING REGULARLY EMPLOYED BY HIM) IN DETERMININ G -: 13 :- 13 THE ANNUAL VALUE OF THE PROPERTY OF THAT PREVIOUS Y EAR IN WHICH SUCH TAXES ARE ACTUALLY PAID BY HIM. EXPLANATION. FOR THE PURPOSES OF CLAUSE ( B ) OR CLAUSE ( C ) OF THIS SUB-SECTION, THE AMOUNT OF ACTUAL RENT RECE IVED OR RECEIVABLE BY THE OWNER SHALL NOT INCLUDE, SUBJECT TO SUCH RULES AS MAY BE MADE IN THIS BEHALF, THE AMOUNT OF RENT WHICH THE OWNER CANNOT REALISE. HONBLE DELHI HIGH COURT CONSIDERING THE ABOVE PROV ISIONS IN THE CASE OF JOHN TINSON & CO. PVT. LTD. & OTHERS VS. CIT, RE PORTED IN 298 ITR 407 HELD AS UNDER :- SECTION 23(1)(B) OF THE INCOME-TAX ACT, 1961, ENVIS AGES THAT EVEN WHERE THE PROPERTY IS LET OUT AND THE ASS ESSING OFFICER ACCEPTS THE VERACITY OF THE SUM STATED BY T HE OWNER (ASSESSEE) TO BE RECEIVABLE BY IT AS RENT, IF THIS ACTUAL RENT IS HIGHER THAN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET (STANDARD RENT ) THE ACTUAL -: 14 :- 14 RENT WOULD CONSTITUTE THE BASIS OF COMPUTATION OF T AXATION. THE DIFFERENCE IS THAT WHERE THE PROPERTY HAS NOT B EEN RENTED OUT OR WHERE THE RENT STATED BY THE ASSESSEE /OWNER IS FOUND BY THE ASSESSING OFFICER NOT TO BE THE ACTUAL RENT, THE LATTER WOULD HAVE TO METICULOUSLY CALCULATE THE SU M FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET WHEREAS IN OTHER INSTANCES HE WOULD HAVE TO ARRIVE AT A ROUGH AND READY COMPUTATION SO AS TO ENSURE THAT TH E TAX BASIS IS THE ACTUAL RENT IF IT IS HIGHER THAN THE REASONABLE RENT. IN OTHER WORDS, THE SECTION LEAVES NO ROOM FO R THE ASSESSEE TO CONTEND THAT IT IS ONLY THE REASONABLE RENT AND NOT THE ACTUAL RENT WHICH SHOULD BE TAKEN INTO AC COUNT BY THE ASSESSING OFFICER. THE ASSESSING OFFICER IN DUTY BOUND TO CALCULATE T HE STANDARD RENT OF A PROPERTY UNDER SECTION 23. FOR T HIS PURPOSE, IT IS INCUMBENT ON THE ASSESSEE TO PROVIDE ALL NECESSARY INFORMATION AND MATERIAL TO THE ASSESSING OFFICER -: 15 :- 15 SO THAT HE CAN DISCHARGE THIS OBLIGATION. THE STAND ARD RENT IS SYNONYMOUS WITH THE SUM FOR WHICH THE PROPERTY MIG HT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. S ECTION 23(1) IS A DEEMING PROVISION AND IF THE LEGISLATURE INTENDED THAT IT WOULD BE REASONABLE THAT INCOME-TAX MUST BE PAID ON LIMITED RENT BASIS IT SHOULD HAVE EXPRESSLY AND UNEQUIVOCALLY STATED SO. A HEALTHY BALANCE HAS BEEN INTRODUCED BY THE AMENDMENTS CARRIED OUT IN 1975 SINCE PRIOR THERETO IT WAS POSSIBLE FOR AN ASSESSEE TO INSIST THAT THE STANDAR D RENT SHOULD BE CALCULATED FOR THE PURPOSE OF ASSESSABILI TY TO INCOME TAX AND ACTUAL RENT/INCOME SHOULD BE IGNORED . THIS EQUILIBRIUM SHOULD NOT BE DISTURBED BY INTERPRETING THE PROVISIONS OF THE ACT IN A MANNER SUCH AS WOULD PER MIT A PERSON TO BE SUBJECTED TO TAX MUCH BEYOND THE INCO ME WHICH HAS ACTUALLY BEEN RECEIVED BY HIM. IT IS NOT NECESSARY THAT THE STANDARD RENT SHOULD BE FIXED BY THE RENT -: 16 :- 16 CONTROLLER UNDER THE RENT ACT FOR IT TO BE TAKEN IN TO RECKONING FOR THE PURPOSES OF SECTION 23(1). SINCE THE ASSESSING OFFICER HAD NOT CORRECTLY COMPUTED THE SU M FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO BE LET FROM YEAR TO YEAR, THE MATTER WAS REMANDED TO THE ASSESSING OFFICER FOR A FRESH DETERMINATION UNDER S ECTION 23(1). 7. THE AO, THOUGH IN THIS CASE HAS TREATED THE RENTAL INCOME AS INCOME FROM OTHER SOURCES, BUT HE NEVER EXAMINED TH E ISSUE IN THE LIGHT OF THE PROVISIONS OF SECTION 23(1) OF THE INCOME-TA X ACT, 1961, IN ORDER TO DETERMINE FAIR MARKET VALUE OF THE PROPERTY IN Q UESTION FOR THE PURPOSE OF DETERMINATION OF RENTAL INCOME EVEN FROM THE ANGLE OF INCOME FROM HOUSE PROPERTY OR INCOME FROM OTHER SOU RCES. WE MAY ALSO NOTE HERE THAT THE FACTS AND CIRCUMSTANCES OF THE CASE WERE SAME AT THE TIME OF LETTING OUT THE PROPERTY INITIALLY @ RS . 20,000/- PER MONTH, BECAUSE AT THAT TIME OF BUILDING AS WELL AS MACHIN ERY WAS LET OUT @ RS. -: 17 :- 17 20,000/- PER MONTH, BUT THE SAME PROPERTY WAS LET O UT @ RS. 2000/- LATER ON AND SECURITY IS ACCEPTED IN RESPECT OF THE MACHINERY. THE AO HAS NOT EXAMINED THE FACT THAT WHEN THE MACHINERY A ND BUILDING WERE EARLIER LET OUT WITHOUT GIVING ANY SECURITY AMOUNT INITIALLY THEN WHAT WAS THE PURPOSE IN GIVING SECURITY LATER ON. THE AO HAS ALSO NOT ENQUIRED INTO WHY SECURITY AMOUNT WAS GIVEN IN RESP ECT OF RENTED BUILDING AND MACHINERY, WHICH WAS ALREADY ON RENT W ITH THE TENANT, PARTICULARLY WHEN THERE IS A RELATIONSHIP OF WIFE A ND HUSBAND BETWEEN THE LANDLORD AND TENANT. EVEN IF THE ASSESSEE HAS P RODUCED BOTH THE AGREEMENTS BEFORE THE AO BUT THE CIRCUMSTANCES LEAD ING TO REDUCTION OF THE RENT IS NOT EXAMINED BY THE ASSESSING OFFICER. THE AO HAS ALSO NOT ENQUIRED INTO THE FAIR MARKET VALUE OF THE PROPERTY IN QUESTION FOR THE PURPOSE OF DETERMINING RENTAL INCOME OF THE ABOVE P ROPERTY. THE GIVING OF AMOUNT OF RS. 20 LAKHS ON WHICH THE ASSESSEE HAD EARNED INTEREST, MAY HAVE SOME BEARING WITH THE DETERMINATION OF THE FAIR MARKET VALUE, BUT THE AO SHOULD HAVE ENQUIRED THE EFFECT OF THE S AME ALSO WHILE DETERMINING THE ANNUAL VALUE OF THE PROPERTY FOR TH E PURPOSE OF -: 18 :- 18 DETERMINING THE RENTAL INCOME. NONE OF THESE ASPECT S HAVE BEEN EXAMINED BY THE ASSESSING OFFICER. AS REGARDS THE E XPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF TAKING THE RENTAL INC OME AS INCOME FROM OTHER SOURCES, BUT THE AO HAS NOT EXAMINED THE ISSU E WHETHER THE EXPENDITURE LIKE SALARY, LEGAL FEE, BANK COMMISSION ETC. WERE LET OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME FROM OTHER SOURCES. IN THE ABSENCE OF A NY ENQUIRY WITH REGARD TO THE NEXUS OF THE EXPENDITURE WITH THE EAR NING OF THE INCOME FROM OTHER SOURCES, THE LD. COMMISSIONER WOULD BE J USTIFIED IN SETTING ASIDE THE ORDER OF THE AO. HONBLE M.P. HIGH COURT IN THE CASE OF DEEPAK KUMAR GARG (SUPRA) HAS HELD THAT ON THE LACK OF PROPER ENQUIRY, THE ORDER OF THE AO WAS ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF REVENUE. IT IS SETTLED LAW THAT WHEN T HE AO IS EXPECTED TO MAKE ANY ENQUIRY OF A PARTICULAR ITEM OF INCOME AND HE DOES NOT MAKE AN ENQUIRY AS EXPECTED, THAT WOULD BE A GROUND FOR THE CIT TO INTERFERE U/S 263 OF THE INCOME-TAX ACT, 1961, WITH THE ORDER PASSED BY THE ASSESSING OFFICER, SINCE SUCH AN ORDER PASSED BY TH E ASSESSING OFFICER -: 19 :- 19 IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF RE VENUE. WE ARE FORTIFIED IN OUR VIEW BY THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF K.A. RAMASWAMY CHETTIAR VS. CIT, 220 ITR 657, JU DGMENT OF GAUHATI HIGH COURT IN THE CASE OF TARZAN TEA CO. VS . CIT, 205 ITR 45 AND DECISION OF DELHI HIGH COURT IN THE CASE OF GEE VEE ENTERPRISES VS. ADDL. CIT, 99 ITR 375. 8. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON SE VERAL DECISION AS NOTED ABOVE. HOWEVER, IN THE CASE OF BI RLA GWALIOR PRIVATE LIMITED (SUPRA) AND EAST INDIA COMPANY (SUPRA), THE ISSUE WAS WITH REGARD TO RATE OF AGREED INTEREST, WHICH COULD NOT BE QUESTIONED BY THE INCOME TAX AUTHORITIES. THE PRINCIPLE OF LAW DECIDE D IN OTHER CASES IS NOT IN DISPUTE. HOWEVER, CASES ARE CLEARLY DISTINGU ISHABLE ON FACTS FROM THE ABOVE CASE UNDER APPEAL. 9. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE IN THE LIGHT OF THE FINDINGS OF THE AO AND THE LD. COMMISS IONER, WE ARE OF THE VIEW THAT THE AO HAS NOT EXAMINED AND ENQUIRED INTO BOTH THE ISSUES PROPERLY AND IN ACCORDANCE WITH LAW. THEREFORE, THE LD. CIT WAS -: 20 :- 20 JUSTIFIED IN HOLDING THE SAME ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE. WE, THEREFORE, DO NOT FIN D ANY MERIT IN THE APPEAL OF THE ASSESSEE. THE SAME IS ACCORDINGLY DIS MISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMIS SED. THIS ORDER HAS BEEN PRONOUNCED ON 10TH JULY, 2009. SD/- SD/- (M.L.GUSIA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 10TH JULY, 2009. CPU* 897