SILVER TEXTILE MILLS, MUMBAI V. ADDL CIT RG 14(2), MUMBAI

ITA 8148/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3643 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 15-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: A K LAL
• Keywords: Notional interest

Judgement Text

ITA NO.8148 OF 2011 SILVER TEXTILE MILLS MUMBAI PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL 'E' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.8148/MUM/2011 (ASSESSMENT YEAR: 2008-09) SILVER TEXTILE MILLS 30, BHAGAWADI SHOPPING CENTRE, KALBADEVI ROAD, MUMBAI 400002 PAN: AACFS 3390 M VS. ADDITIONAL CIT, RANGE 14(2) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI A.K. LAL DEPARTMENT BY: SMT. PARMINDER, DR DATE OF HEARING: 15/04/2013 DATE OF PRONOUNCEMENT: 19/04/2013 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDERS OF THE CIT(A)25, MUMBAI DATED 29.09.2011. THE ISSUE IN THI S APPEAL IS WITH REFERENCE TO THE ADDITION OF NOTIONAL INTEREST TO THE RENT RECEIVED ON THE INTEREST FREE DEPOSIT. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT (A) 25 HAS ERRED IN RETAINING I NTEREST AT 8% AS NOTIONAL INCOME ON THE INTEREST FREE SECUR ITY DEPOSIT RECEIVED FOR RENTING OF PROPERTY. 2. A PRAYS THAT ADDITION OF ` .9,68,400( ` .14,52,600 LESS RELIEF GRANTED ` .4,84,200) BY CIT (A)25 AS NOTIONAL INTEREST ON THE INTEREST FREE DEPOSIT MAY PLEASE BE DELETED. 2. BRIEFLY STATED, ASSESSEE IS THE OWNER OF THE PROPER TY SITUATED AT MIDC ANDHERI (EAST) AND HAS LET OUT THE PROPERTY AT A MONTHLY RENT OF ` .24,21,000. IT HAS OFFERED ANNUAL RENT RECEIVED FOR THE PREVIOUS YEAR AT ` .2,58,25,526. ON THE REASON THAT ASSESSEE TOOK ITA NO.8148 OF 2011 SILVER TEXTILE MILLS MUMBAI PAGE 2 OF 4 INTEREST FREE DEPOSIT OF ` .1,45,26,000, AO ENHANCED THE RENT RECEIVED BY ADDING THE NOTIONAL INTEREST SUPPOSEDLY UNDER SECTION 23(1)(A) BY TAKING THE INTEREST AT 12%, THEREBY MAK ING AN ADDITION OF ` .14,52,600 FOR A PERIOD OF TEN MONTHS. THE LEARNED CIT (A) REDUCED THE RATE OF INTEREST FROM 12% TO 8% ON THE BASIS OF THE BMC AUTHORITYS RATABLE VALUE HOWEVER, CONFIRMING THE A DDITION OF NOTIONAL INTEREST. 3. IT WAS THE SUBMISSION THAT ASSESSEE HAD TO TAKE SIX MONTHS RENT AS A SECURITY DEPOSIT TO SAFEGUARD THE PROPERT Y FROM THE LICENSEE TOWARDS ELECTRICITY CHARGES, DAMAGES, REPA IRS ETC AND ALSO FOR PROPER VACATION OF THE PROPERTY AFTER THE LEASE PERIOD. ASSESSEE RELIED ON THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. VS. D C I T 248 ITR 723 (BO M.) AND ALSO THE DECISION OF THE ITAT IN THE CASE OF DCIT VS. RECLAM ATION REALITY INDIA PVT. LTD IN ITA NOS.1411 TO 1413/MUM/2007 DAT ED 26.11.2010. IT WAS FURTHER SUBMITTED THAT THE MUNIC IPAL RATABLE VALUE UPTO 31.03.2008 WAS ONLY ` .2,05,975 AND AFTER THIS DATE IT WAS REVALUED TO ` .54,57,170. LOOKING AT EITHER WAY, THE ADDITIONS SO MADE AND CONFIRMED BY THE CIT (A) DOES NOT ARISE ON THE FACTS OF THE CASE. THE LEARNED DR RELIED ON THE ORDERS OF AO AND THE CIT (A). 4. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS . AS SEEN FROM THE FACTS, IT IS NOT A CASE WHERE ASSESSE E HAS TAKEN SUBSTANTIAL DEPOSIT SO AS TO CONSIDER THAT THERE WA S REDUCTION IN THE MARKET RENT. AS SEEN FROM THE INTEREST FREE SEC URITY DEPOSIT, IT WAS ONLY SIX MONTHS RENT I.E. 6 X 24,21,000 THAT WA S TAKEN AS DEPOSIT. THIS DEPOSIT AS EXPLAINED WAS TAKEN AS A S ECURITY TOWARDS THE ELECTRICITY AND WATER CHARGES OR DAMAGES TO THE PROPERTY AND IN NO WAY CAN BE CONSIDERED AS AN EXTRA ORDINARY DEPOS IT SO AS TO HAVE ANY EFFECT ON THE RATABLE VALUE OF THE PROPERTY. EV EN OTHERWISE, THE MUNICIPAL RATABLE VALUE FOR THAT YEAR AS SUBMITTED WAS ONLY ` .2,05,975. THE RENT RECEIVED EVEN FOR A PERIOD OF T EN MONTHS DURING THE YEAR, WAS TO AN EXTENT OF ` .2.58 CRORES, THEREFORE, IT CANNOT BE ITA NO.8148 OF 2011 SILVER TEXTILE MILLS MUMBAI PAGE 3 OF 4 STATED THAT ASSESSEE TRIED TO REDUCE THE RENT BY TA KING A SECURITY DEPOSIT. MOREOVER THE ADDITION OF NOTIONAL INTEREST TO THE RENT RECEIVED CANNOT BE UPHELD FOLLOWING THE PRINCIPLES LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JK INVESTORS (SUPRA). 5. THE LEARNED COUNSEL RELIED ON THE DECISION OF THE I TAT IN THE CASE OF DCIT VS. RECLAMATION REALITY INDIA PVT. LTD (SUPRA) IN WHICH IT WAS HELD THAT: (I) THE CHARGE U/S.22 IS NOT ON THE MARKET RENT BUT IS ON THE ANNUAL VALUE AND IN THE CASE OF PROPERTY WHICH IS NOT LET OUT, MUNICIPAL VALUE WOULD BE A PROPER YARDSTICK FOR DETERMINING THE ANN UAL VALUE. IF THE PROPERTY IS SUBJECT TO RENT CONTROL LAWS AND THE FA IR RENT DETERMINED IN ACCORDANCE WITH SUCH LAW IS LESS THAN THE MUNICIPAL VALUATION, THEN ONLY THAT CAN BE SUBSTITUTED BY THE MUNICIPAL VALUE ; (II) THE BOMBAY HIGH COURT WHICH IS THE JURISDICTIO NAL HIGH COURT HAS HELD THAT RATABLE VALUE UNDER THE MUNICIPAL LAW HAS TO BE ADO PTED AS ANNUAL VALUE U/S.23(1)(A) OF THE ACT. THE DECISION OF THE MUMBAI BENCH OF ITAT IN THE CASE OF MAKRUPA CHEMICALS (108 ITD 95) (MUM.), FOLLOWING THE DECISION OF PATNA HIGH COURT IN THE C ASE OF KASHI PRASAD KATARVKA V. CIT, (101 ITR 810) (PAT.) HAS HE LD THAT RATABLE VALUE IS NOT BINDING ON THE AO IF THE AO CAN SHOW T HAT THE RATABLE VALUE UNDER THE MUNICIPAL LAW DOES NOT REPRESENT CO RRECT FAIR RENT. SINCE THE DECISION OF MUMBAI TRIBUNAL IS CONTRARY T O THE RATIO LAID DOWN BY JURISDICTIONAL HIGH COURT IT CANNOT BE FOLL OWED. ALSO, THE DECISION IN THE CASE OF BAKER TECHNICAL SERVICES (P ) LTD., ON WHICH RELIANCE WAS PLACED BY THE REVENUE, BEING CONTRARY TO THE DECISION OF THE BOMBAY HIGH COURT, CANNOT BE FOLLOWED; (III) THE DECISIONS IN THE CASE OF FIZZ DRINKS LTD. AND TIVOLI INVESTMENT & TRADING CO. (P) LTD., RELIED UPON BY THE REVENUE, ARE DISTINGUISHABLE; ITA NO.8148 OF 2011 SILVER TEXTILE MILLS MUMBAI PAGE 4 OF 4 (IV) THE MUNICIPAL VALUATION/RATABLE VALUE ADOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY AT RS.27,50, 835 SHOULD BE THE DETERMINING FACTOR FOR APPLYING THE PROVISIONS OF S . 23(1)(A) OF THE ACT. SINCE THE RENT RECEIVED BY THE ASSESSEE WAS MORE TH AN THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR, THE ACTUAL RENT RECEIVED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY U/S.23(1)(B) OF THE ACT. NOTIONAL INTEREST ON INTEREST-FREE SECURITY DEPOSIT/RENT RECEIVED IN ADVANCE SHOULD NO T BE ADDED TO THE SAME IN VIEW OF THE DECISION OF THE BOMBAY HIGH COU RT IN THE CASE OF J. K. INVESTORS (BOMBAY) LTD. 6. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN THE REIN, WE ARE OF THE VIEW THAT THE ORDER OF AO AND THE CIT (A) IS NOT CORRECT BOTH ON FACTS AS WELL AS ON LAW. THEREFORE, WE HAVE NO H ESITATION IN DIRECTING AO TO ACCEPT THE RENT RECEIVED AS SUCH. A DDITION SO MADE BY AO STANDS DELETED. 7. IN THE RESULT APPEAL FILED BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2013 SD/- SD/- (AMIT SHUKLA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 19 TH APRIL, 2013. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI