DOMNIC NATAVADE DENNIS, MUMBAI V. ITO 24(2)(1), MUMBAI

ITA 8719/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8109 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 14-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K GUPTADR PER R K
• Assessee Lawyers: HARESH PURUSHTAMDAS SHAH
• Keywords: Business expenditure; Fair market value

Judgement Text

1 ITA NO.8719/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI SMC MUMBAI SMC MUMBAI SMC MUMBAI SMC BENCH BENCH BENCH BENCH MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI MUMBAI BENCHES, MUMBAI BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, A BEFORE SHRI R K PANDA, ACCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 8719/MUM/2010 8719/MUM/2010 8719/MUM/2010 8719/MUM/2010 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2007 2007 2007 2007- -- -08 0808 08) )) ) DOMNIC NATAVADE DENNIS SHOP NO. 9 VEENA DALWADI IDL. ESTATE JOGESHWARI (W) MUMBAI 12 VS THE INCOME TAX OFFICER WARD 24(2)(1), MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AEHPD1824N AEHPD1824N AEHPD1824N AEHPD1824N ASSESSEE BY SHRI HARESH PURUSHTAMDAS SHAH REVENUE BY SHRI R K GUPTADR PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 25.10.2010 OF THE CIT(A)-34 MUMBAI RELATING TO ASSE SSMENT YEAR 2007-08. 2 GROUNDS OF APPEAL NOS.1 & 2 READ AS UNDER: 1. THE LD CIT(A) HAS ERRED IN FACTS AND IN LAW THA T THE INCOME FROM THE OTHER HOSE PROPERTY NOT LET OUT HAS TO BE COMPUTED ON THE BASIS OF RATEABLE VALUE U/S 23(1) OF THE I T ACT AND NOT ON THE BASIS OF NOTIONAL INCOME COMPARING THE SAME WITH ANY OTHER LET OUT PR OPERTY. II) THE LD CIT(A) HAS ALSO ERRED IN ESTIMATING THE NOTIONAL INCOME AT RS. 1,44,000/- OF THE PROPERTY NOT LET OUT COMPARIN G WITH THE MARKET RATE AS AGAINST OFFERED BY THE APPELLANT AT RS. 32,995/- DISREGARDING THE PROVISIONS OF LAW. 2.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE H AD TWO SELF OCCUPIED PROPERTIES. THE ASSESSEE HAD CLAIMED ONE PROPERTY A S SELF OCCUPIED PROPERTY AND 2 ITA NO.8719/MUM/2010 THE VALUE HAS TAKEN AT NIL. IN THE CASE OF SECOND PROPERTY I.E. FLAT NO.8, 1 ST SHAMROCK, MAIN AVENUE, LINKING ROAD, NEAR RAM KRISH NA MISSION, SANTACRUZ (W) MUMBAI, THE ASSESSEE HAS SHOWN NOTIONAL INCOME OF R S. 2000/ ONLY. THE ASSESSING OFFICER CONDUCTED INDEPENDENT ENQUIRY AND CAME TO THE CONCLUSION THAT THIS FLAT WILL GET MONTHLY RENT OF RS. 25,000/ -. THE ASSESSING OFFICER CONFRONTED THE SAME TO THE ASSESSEE AND DREW THE AT TENTION OF THE ASSESSEE TO THE PROVISIONS OF SEC. 23(1)(A) OF THE ACT, ACCORDI NG TO WHICH THE ANNUAL VALUE OF THE PROPERTY IS THE SUM FOR WHICH THE PROPERTY COUL D REASONABLY BE EXPECTED TO LET OUT FROM YEAR TO YEAR. REJECTING THE VARIO US EXPLANATIONS GIVEN BY THE ASSESSEE AND DISTINGUISHING THE VARIOUS DECISIONS C ITED BEFORE HIM, THE ASSESSING OFFICER DETERMINED THE ANNUAL VALUE OF T HE SAID PROPERTY AT RS. 3 LACS. AFTER ALLOWING STATUTORY DEDUCTION U/S 24 HE ADDED A SUM OF RS. 2,10,000/- ON ACCOUNT OF INCOME FROM HOUSE PROPERTY. 3 IN APPEAL, THE CIT(A) DIRECTED THE ASSESSING OFFI CER TO ADOPT THE FAIR MARKET VALUE OF RS. 12,000/- PER MONTH AS AGAINST R S. 25,000/- ADOPTED BY HIM BY HOLDING AS UNDER: I HAVE GONE THROUGH THE CONTENTS OF THE IMPUGNED A SSESSMENT ORDER AS WELL AS SUBMISSIONS OF THE LD AR OF THE APPELLANT A LONG WITH MATERIAL AVAILABLE ON RECORD. I FIND THAT THE ASSESSING OFFI CER HAS NOT FOLLOWED THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF SMT RADHA DALMIYA VS CIT 125 ITR 134 SIMPLY BECAUSE THE SAID JUDGMENT CAME PRIOR TO 20001 WHEN FINANCE ACT 2001 HAD AMENDED THE PROV ISIONS OF SEC. 23 OF THE I T ACT WHEREIN CLAUSE WAS INSERTED IN SUB.SE C (1) OF SEC. 123 W.E.F 1.4.2002. FIND THAT THE ASSESSING OFFICER HAS NOT EXAMINED AS TO WHETHER THI AMENDMENT HAS ANY IMPACT ON THE SAID DECISION O F HONBLE ALLAHABAD HIGH COURT (SUPRA). THE IMPUGNED AMENDMENT SIMPLY E NABLE THE ASSESSING OFFICER TO ASCERTAIN THE HOUSE PROPERTY I NCOME ON OTHER SELF OCCUPIED PROPERTIES THAT THE ON THAT HAS BEEN DECLA RED BY THE APPELLANT TO BE THE SELF OCCUPIED PROPERTY U/S 22 WHEREAS THE MO DALITIES TO COMPUTE THE HOUSE PROPERTY INCOME ARE PROVIDED IN SEC. 23 A ND THE DECISION OF HONBLE ALLAHABAD HIGH COURT IS ON THESE MODALITIES ONLY THAT ARE 3 ITA NO.8719/MUM/2010 UNAFFECTED BY THE IMPUGNED AMENDMENT THROUGH FINANC E ACT 2001. THE HONBLE ALLAHABAD HIGH COURT FOUND 7% ON INVESTMENT TO BE THE FAIR RETURN FOR THE HOUSE PROPERTY AGAINST THE DISCLOSED 3% AS FIXED BY MUNICIPAL AUTHORITIES. I WONDER WHY THE ASSESSING OFFICER COU LD HAVE NOT ACCEPTED THE FIGURE OF RS. 12,000/- PER MONTH ADMITTED BY TH E APPELLANT THROUGH THEIR LETTER DATED 8 TH DEC 2009 THAT COMES TO MORE THAN 12% OF THE INVESTMENT THROUGH HE HAS DISCLOSED EXACTLY 12% OF RS. 4,00,000/-IN THE RETURN. SINCE THE APPELLANT HAD HIMSELF STATED IN T HE LETTER DATED 8.12.2009 ADDRESSED TO THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE IMPUGNED FLAT OF TH E APPELLANT COULD HAVE FETCHED COMPENSATION IN CASE GIVEN ON LEAVE & LICENCE NOT MORE THAN RS. 10,000/- TO RS. 12,000/- P.M, THE ASSESSIN G OFFICER IS DIRECTED TO TAKE FAIR MARKET RENT FOR THE IMPUGNED FLAT TO BE R S.12,000/- P.M IN PLACE OF RS. 25,000/- FOR WHICH NO ADVERSE MATERIAL IS AV AILABLE ON RECORD.. HENCE, THE FIGURE OF RS.. 3 LACS IS REDUCED TO RS. 1,44,000/-. THE ASSESSING OFFICER S DIRECTED TO RECOMPUTE THE HOUSE PROPERTY INCOME ACCORDINGLY. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE DECISION OF THE TRIBUNAL IN THE CASE OF PARKPAPER INDUSTRIES P LTD VS ITO REPOR TED IN 25 SOT 406 (MUM) SUBMITTED THAT WHEN THE PROPERTY IS NOT LET OUT, TH E MUNICIPAL VALUE WOULD BE THE PROPER YARDSTICK FOR DETERMINING THE ANNUAL VALUE O F THE PROPERTY. THE LD DR, ON THE OTHER HAND RELIED ON THE ORDER OF THE CIT(A). 6 I HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY B OTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER B OOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECIS IONS CITED BEFORE ME. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS THE OWN ER OF TWO HOUSE PROPERTIES OUT OF WHICH ONE IS SELF OCCUPIED AND THE OTHER ONE IS LYING VACANT. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS SHOWN NO TIONAL ANNUAL INCOME OF 4 ITA NO.8719/MUM/2010 RS. 2000/- ON ACCOUNT OF THE SECOND FLAT. THERE I S ALSO NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER ADOPTED RS. 3 LACS AS AN NUAL RENT OF THE PROPERTY WHICH WAS BROUGHT DOWN TO RS. 1,44,000/- BY THE CI T(A) BEFORE ALLOWING DEDUCTION U/S 22 OF THE I T ACT. IT IS THE SUBMISS ION OF THE LD COUNSEL FOR THE ASSESSEE THAT CHARGES U/S 22 IS NOT ON THE MARKET R ENT BUT ON THE ANNUAL VALUE AND IN THE CASE OF THE PROPERTY, WHICH IS NOT LET O UT, THE MUNICIPAL VALUE WOULD BE A PROPER YARDSTICK FOR DETERMINING THE ANNUAL VA LUE OF THE PROPERTY. 6.1 I FIND THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF PARKPAPER INDUSTRIES P LTD (SUPRA) AT PARA 12 OF THE ORDER HA S HELD AS UNDER: 12. LEARNED COUNSEL FOR THE ASSESSEE RELIED ON SEV ERAL OTHER JUDICIAL PRONOUNCEMENTS IN SUPPORT OF HIS CONTENTION THAT TH E MUNICIPAL VALUE SHOULD BE THE BASIS OF DETERMINING THE ANNUAL VALUE . WE ARE NOT MAKING REFERENCE TO THOSE DECISIONS, SINCE, IN OUR OPINION THE AFORESAID PRONOUNCEMENT OF HONBLE BOMBAY HIGH COURT CONSIDER S THE DECISIONS OF HONBLE CALCUTTA HIGH COURT WHICH IN TURN HAS CONSI DERED THE LAW LAID DOWN BY THE HONBLE APEX COURT ON THE ISSUE. IT IS CLEAR FROM THE AFORESAID EXPOSITION OF LAW THAT CHARGE UNDER S. 22 IS NOT ON THE MARKET RENT; BUT IS ON THE ANNUAL VALUE AND IN THE CASE OF PROPERTY WHI CH IS NOT LET OUT, MUNICIPAL VALUE WOULD BE A PROPER YARDSTICK FOR DET ERMINING THE ANNUAL VALUE. DECISION IN THE CASE OF SHIELA KAUSHISH (SUP RA) MENTIONS STANDARD RENT UNDER THE RENT CONTROL ACT AS ONE OF THE YARDS TICKS. THIS DOES NOT MEAN THAT STANDARD RENT ALONE IS TO BE CONSIDERED. IN THE PRESENT CASE, WE ALSO NOTICE THAT THE AO HAS NOT CHOSEN TO ADOPT THE STANDARD RENT AS PER THE RENT CONTROL ACT AS YARDSTICK FOR DETERMINING T HE ANNUAL VALUE. WE ALSO FIND FROM THE DECISION OF HONBLE CALCUTTA HIG H COURT IN THE CASE OF SMT. PRABHABATI BANSALI (SUPRA) THAT STANDARD RENT, IF IT DOES NOT EXCEED THE MUNICIPAL VALUATION ALONE CAN BE ADOPTED IN PLA CE OF MUNICIPAL VALUATION. FOR ALL THE ABOVE REASONS, WE HOLD THAT THE MUNICIPAL VALUATION SHOULD BE THE BASIS OF DETERMINING ANNUAL VALUE IN THE PRESENT CASE. ACTION OF THE REVENUE AUTHORITIES IN ADOPTING ANNUA L VALUE ON THE BASIS OF INQUIRIES CONDUCTED REGARDING MARKET RENT IN THE VI CINITY OF THE PROPERTY IS NOT IN ACCORDANCE WITH LAW. THE AO IS DIRECTED TO A CCEPT THE INCOME FROM HOUSE PROPERTY ON THE BASIS OF MUNICIPAL VALUATION. 5 ITA NO.8719/MUM/2010 7 RESPECTFULLY FOLLOWING THE DECISION CITED ABOVE, I DIRECT THE ASSESSING OFFICER TO ADOPT MUNICIPAL VALUE AS BASIS FOR THE P URPOSE OF DETERMINING THE ANNUAL VALUE OF THE PROPERTY. THE ASSESSING OFFICER SHALL GIVE REASONABLE OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE THE MUN ICIPAL VALUE OF THE PROPERTY AND DECIDE THE ISSUE IN LIGHT OF THE DECISION OF TH E TRIBUNAL CITED ABOVE. I HOLD AND DIRECT ACCORDINGLY. THE GROUNDS RAISED BY THE A SSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 8 IN GROUNDS OF APPEAL NO.3, THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS. 18,61 4/- MADE BY THE ASSESSING OFFICER ON AD-HOC BASIS OUT OF VARIOUS EXPENSES. 9 AFTER HEARING BOTH THE PARTIES, I FIND THE ASSESS ING OFFICER DISALLOWED A SUM OF RS. 18,614/- BEING 10% OF THE FOLLOWING EXPE NSES FOR WANT OF FULL DETAILS SINCE MOST OF THE EXPENSES CLAIMED ARE MADE IN CA SH WITH SELF MADE VOUCHERS: SL.NO. DESCRIPTION AMOUNT 1 ADVERTISEMENT 5,650/- 2 CONVEYANCE 57,836/- 3 DENALI EXPENSES 29,330/- 4 MOBILE EXPENSES 2,111/ - 5 STAF WELFARE 38298/- 6 SUNDRY EXPENSES 3,095/- 7 TELEPHONE EXPENSES 18,748/- 8 TRAVELLING EXPENSES 31,065/- TOTAL TOTAL TOTAL TOTAL 1,86,133/ 1,86,133/ 1,86,133/ 1,86,133/- -- - THE CIT(A) ALSO UPHELD THE ACTION OF THE ASSESSING OFFICER. ACCORDING TO HIM, SUCH DISALLOWANCE IS NOT EXCESSIVE. 6 ITA NO.8719/MUM/2010 10 I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE PARTIES. THE LD COUNSEL FOR THE ASSESSEE ALSO COULD NOT SUBSTANTIAT E AS TO HOW SUCH DISALLOWANCE IS NOT EXCESSIVE OR UNREASONABLE, UNDER THESE FACTS AND CIRCUMSTANCES OF THE CASE ESPECIALLY WHEN THE PAYMENTS ARE MADE IN CAS H AND VOUCHERS ARE SELF MADE. IT IS THE WELL SETTLED PROPOSITION OF LAW THAT FOR CLAIMING ANY BUSINESS EXPENDITURE, THE ONUS IS ALWAYS ON THE ASSESSEE TO SUBSTANTIATE WITH EVIDENCE TO THE SATISFACTION OF THE ASSESSING OFFICER THAT S UCH EXPENSES ARE GENUINE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SINCE IN THE INSTANT CASE, A FINDING HAS BEEN GIVEN THAT PAYMENTS HAVE BEEN MADE IN CASH AND THE VOUCHERS ARE SELF MADE; THEREFORE, DISALLOWANCE OF 10% ON AD-HOC BASIS IS REASONABLE AND DOES NOT CALL FOR ANY INTERFERENCE. THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE ASSESSING OFFICER HAS NOT POINTED OUT ANY MISTAKE, IN MY OPINION IS WITHOUT ANY FORCE SINCE S OME OF THE VOUCHERS ARE SELF MADE AND THE PAYMENTS HAVE BEEN MADE IN CASH. IN TH IS VIEW OF THE MATTER, I UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND TH E GROUND RAISED BY THE ASSESSEE IS DISMISSED. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 28 TH , DAY OF FEB 2011. SD/- ( R K PANDA ) ( R K PANDA ) ( R K PANDA ) ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 28 TH , FEB 2011 RAJ* 7 ITA NO.8719/MUM/2010 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI