CENTRAL DISPOSITORY SERVICES (INDIA) LTD, MUMBAI V. ASST CIT RG 2(1)(1),

ITA 918/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5442 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITTAL
• Assessee Lawyers: YASH PARMAR
• Keywords: Deemed owner of house property; Depreciation; Earning of tax free income
• Section: 142(1); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.1129/MUM/2017 ASSESSMENT YEAR: 2012-13 D /A CIT 2(1) ( 1 ), MUMBAI. VS. CENTRAL DEPOSITORY SERVICES (INDIA) LTD., 17 TH FLOOR, P J TOWERS, DALAL STREET, FORT, MUMBAI 400 023. PAN AAACC6233A (APPELLANT) (RESPONDENT) ITA NO.918/MUM/2017 ASSESSMENT YEAR: 2012-13 CENTRAL DEPOSITORY SERVICES (INDIA) LTD., MUMBAI 400 023. PAN AAACC6233A VS. ACIT 2(1)(1), MUMBAI. (APPELLANT) (RESPONDENT) FOR THE REVENUE : SHRI RAJAT MITTAL FOR THE ASSESSEE : SHRI YASH PARMAR DATE OF HEARING : 1 0 .0 7 .201 8 DATE OF PRONOUNCEMENT : 25 .0 7 . 201 8 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-3, MUMBAI, DAT ED 10.01.2016 AND IT PERTAINS TO A.Y. 2012-13. ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 2 2. WE SHALL FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 918/MUM/2017, WHEREIN FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED: 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN ADDING THE ALV OF THE RESIDENTIAL PROPERTY AS INCOME FROM HOUSE PROPERTY, WITHOUT CONSIDERING THE FACT THAT THE SAID PROPERTY WAS USED FOR THE PURPOSE OF BUSINESS. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN DISALLOWING THE EXPENSES (I.E. DEPRECIATION, ELECTR ICITY, MAINTENANCE EXPENSES) PERTAINING TO RESIDENTIAL PROPERTY WHICH WAS USED FOR THE PURPOSE OF BUSINESS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E M/S. CENTRAL DEPOSITORY SERVICES (INDIA) LTD., IS A PUBLIC LIMITED COMPANY JOINTED PROMOTED BY BSE LTD. AND OTHER LEADING FINANCIAL INSTITUTIONS SUCH AS SBI AN D OTHER NATIONALIZED BANKS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 2012-1 3 ON 28.09.2012, DECLARING TOTAL INCOME OF ` 56,81,37,750/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND NOTICES U/S. 143(2) AND 142(1) WERE ISSUED AND SERVED ON THE ASS ESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT AS PER THE WEALTH TAX RETURN FILED FOR A.Y. 2012-13, THE ASSESSEE HAS SHO WN RESIDENTIAL FLAT AT PRABHADEVI VALUING ` 1,73,76,753/- AS A TAXABLE ASSET U/S. 2(EA) OF WEA LTH TAX ACT, 1957. HOWEVER, IT HAD NOT OFFERED ANY INCOME FROM IT UNDE R THE HEAD INCOME FROM HOUSE PROPERTY. THEREFORE, THE ASSESSEE WAS ASKED TO EX PLAIN AS TO WHY THE ANNUAL LETTING VALUE (ALV) OF THIS PROPERTY SHOULD NOT BE ASSESSED AS PER THE PROVISIONS OF SECTION 22 OF THE INCOME TAX ACT, 1961. IN RESPONS E TO NOTICE, THE ASSESSEE VIDE LETTER DATED 01.12.2014, SUBMITTED THAT THE SAID PR OPERTY IS USED FOR THE PURPOSE OF BUSINESS IN THE FORM OF GUEST HOUSE, WHEREIN THE OU TSTATION DIRECTORS CAN COME AND STAY FOR THE BOARD MEETINGS HELD BY THE ASSESSEE AS PER THE STATUTORY REQUIREMENTS FOR DECIDING DAY TO DAY BUSINESS ISSUES. SINCE THE PROPERTY IS USED FOR BUSINESS PURPOSE, IT WAS UNDER THE BONA FIDE BELIEF THAT THE ALV OF THE PROPERTY NEED NOT BE COMPUTED AS PER THE PROVISIONS OF SECTION 22 OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER AFTER CONSIDERING THE RELEVANT SU BMISSIONS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE ITSELF CONTRADICTED FROM ITS SUBMISSIONS, WHERE ON ONE SIDE ASSESSEE PLEADS THAT RESIDENTIAL PROPERTY IS T AXABLE U/S. 2(EA) OF THE WEALTH ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 3 TAX ACT 1957, AND ON THE OTHER SIDE CLAIMS THAT THE SAID PROPERTY IS USED FOR BUSINESS PURPOSE AND, HENCE, NO INCOME IS ASSESSABL E U/S. 22 OF THE INCOME TAX ACT, 1961. THE ASSESSING OFFICER FURTHER OBSERVED THAT EVEN THOUGH THE ASSESSEE CLAIMS TO HAVE USED THE SAID PREMISES FOR BUSINESS PURPOSE IN THE FORM OF GUEST HOUSE FOR OUT STATION EMPLOYEES, NO DETAILS HAVE BE EN FILED INCLUDING GUEST LOG BOOK TO PROVE ITS EMPLOYEES WERE USING THE GUEST HOUSE F OR OFFICIAL PURPOSE. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE ALV @ 8% OF THE COST OF THE PROPERTY TO DETERMINE THE INCOME FROM HOUSE PROPERTY ASSESSAB LE AT ` 9,73,098/-. SIMILARLY, THE ASSESSING OFFICER HAS DISALLOWED THE EXPENSES C LAIMED ON SAID PROPERTY BEING DEPRECIATION ON THE FLAT & FURNITURE/EQUIPMENTS IN THE FLAT, MAINTENANCE EXPENSES AND ELECTRICITY EXPENSES AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, BY THE ASSESSMENT ORDER THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A) THE ASSESSEE REITERATED ITS SU BMISSIONS MADE BEFORE THE ASSESSING OFFICER TO ARGUE THAT RESIDENTIAL PROPERT Y OWNED BY THE COMPANY HAS BEEN USED AS GUEST HOUSE TO ACCOMMODATE OUTSTATION DIREC TORS, WHO COME FOR COMPANYS BOARD MEETINGS. THEREFORE, EVEN THOUGH THE SAID AS SET HAS BEEN CONSIDERED AS TAXABLE U/S. 2(EA) OF THE WEALTH TAX ACT, 1957, INC OME FROM THE SAID PROPERTY IS NOT ASSESSABLE U/S. 22 OF THE INCOME TAX ACT, 1961. TH E ASSESSEE FURTHER CLAIMS THAT ALTERNATIVELY, THE ALV OF THE PROPERTY MAY BE CONSI DERED AT ` 4,776/-. IN SO FAR AS DISALLOWANCE OF EXPENSES TO WARDS SAID PROPERTY, IT WAS SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENSES T OWARDS MAINTENANCE OF GUEST HOUSE WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS, WHIC H IS EVIDENT FROM THE FACT THAT THE SAID FLAT HAS BEEN USED AS GUEST HOUSE TO ACCOMMODA TE OUTSTATION EMPLOYEES OF THE ASSESSEE. THEREFORE, THE QUESTION OF DISALLOWA NCE OF EXPENSES INCURRED TO MAINTAIN SAID GUEST HOUSE DOES NOT ARISE. THE LEAR NED CIT(A) AFTER CONSIDERING THE RELEVANT SUBMISSIONS OF THE ASSESSEE HELD THAT THE ASSESSEE HAS ADMITTEDLY SHOWN RESIDENTIAL FLAT AT PRABHADEVI IN THE WEALTH TAX RE TURN, WHICH IS TAXABLE U/S. 2(EA) OF THE WEALTH TAX ACT, 1957. MOREOVER, THE ASSESSEE H AS USED THE SAID PREMISES FOR THE PURPOSE ACCOMMODATING THEIR DIRECTORS/EMPLOYEES STATIONED OUTSIDE AND ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 4 VISITING MUMBAI FOR BOARD MEETINGS. EVEN IF THE AS SESSEE USED THE RESIDENTIAL PROPERTY FOR COMMERCIAL PURPOSE, WHICH HAS BEEN SHO WN AS TAXABLE ASSET U/S 2(EA) OF THE WEALTH TAX ACT, ATTRACT ALV TO BE ASSESSED A S INCOME FROM HOUSE PROPERTY. THE ASSESSING OFFICER, CONSIDERING THE LOCATION AND THE AREA, HAS TAKEN A CONSERVATIVE ESTIMATE OF ALV @8% OF THE COST OF THE PROPERTY AND, THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE DETERMINATION OF THE ALV BY THE ASSESSING OFFICER. THE CIT(A) FURTHER HELD THAT SINCE THE ASSESSING OF FICER HAS DETERMINED THE ALV OF THE PROPERTY AND COMPUTED INCOME AFTER ALLOWING STA NDARD DEDUCTION AS PROVIDED U/S. 24 OF THE INCOME TAX ACT, NO FURTHER EXPENSES/ EXPENDITURE INCURRED ON THE SAID PROPERTY IS ALLOWABLE AND, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE EXPENSES CLAIMED ON THE SAID PROPERTY TO THE EXTENT OF ` 5,75,550/-. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT T HE CIT(A) ERRED IN CONFIRMING THE ADDITIONS MADE BY THE ASSESSING OFFI CER TOWARDS DETERMINATION OF ALV OF THE PROPERTY, WHICH WAS USED FOR BUSINESS WI THOUT APPRECIATING THE FACT THAT EXCEPT FOR THE REASON THAT THE SAID PROPERTY IS PAR T OF THE TAXABLE WEALTH UNDER THE WEALTH TAX ACT, 1957, THE ASSESSING OFFICER HAS NO T BROUGHT OUT ANY COGENT EVIDENCE/REASONS TO DETERMINE THE ALV OF THE PROPER TY U/S. 22 OF THE INCOME TAX ACT, 1961. THE AR FURTHER SUBMITTED THAT THE ASSES SEE HAS USED THE SAID PREMISES FOR THE PURPOSE OF MAINTAINING IT AS GUEST HOUSE TO ACCOMMODATE ITS OUTSTATION EMPLOYEES, WHO REGULARLY VISIT MUMBAI FOR OFFICIAL WORK. ALTHOUGH, THE ASSESSEE HAS INCLUDED THE SAID PROPERTY IN TAXABLE WEALTH U/S. 2 (EA) OF THE WEALTH TAX ACT, THE FACT REMAINS THAT THE SAID PROPERTY HAS BEEN USED A S GUEST HOUSE THEREFORE, THERE IS NO REASON TO COMPUTE ALV OF THE PROPERTY TO BE TAXA BLE U/S. 22 OF THE INCOME TAX ACT, 1961. IN THIS REGARD RELIANCE WAS PLACED ON T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MODI INDUSTRIES LTD. ( 210 ITR 1). THE LEARNED AR FURTHER SUBMITTED THAT THE LEARNED CIT(A) ERRED IN DISALLOWING THE EXPENSES BEING DEPRECIATION ON THE BUILDING AND MAINTENANCE EXPENS ES, WHICH WAS USED FOR THE PURPOSE OF BUSINESS WITHOUT APPRECIATING THE FACT T HAT THE SAID PREMISES WAS USED AS GUEST HOUSE TO ACCOMMODATE ITS OUTSTATION EMPLOY EES, WHO REGULARLY VISIT ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 5 MUMBAI FOR OFFICIAL WORK. THEREFORE, THE EXPENSES INCURRED FOR MAINTENANCE OF GUEST HOUSE USED FOR BUSINESS PURPOSE WOULD COME WI THIN THE PROVISIONS OF SECTION 37(1) AND, HENCE, THE ASSESSEE HAS RIGHTLY CLAIMED THE DEDUCTIONS TOWARDS MAINTENANCE EXPENSES. HE FURTHER SUBMITTED THAT TH E EXPENSES INCURRED FOR MAINTENANCE OF GUEST HOUSE ARE NOT PERSONAL EXPENSE S OF THE ASSESSEE BUT HAD BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOS E OF BUSINESS THEREFORE FOR THE REASON THAT THE PROPERTY IS RESIDENTIAL PREMISES CA NNOT BE JUSTIFICATION FOR DISALLOWING GENUINE EXPENDITURE FOR MAINTAINING PRO PERTY. IN THIS REGARD, HE RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN T HE CASE OF GREAVES COTTON & CO. LTD. VS. CIT (2005) [279 ITR 42]. 6. ON THE OTHER HAND, LEARNED DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE ITSELF HAD ADMITTED THAT RESIDENTIAL PROPERTY OWNED BY IT IS TAXABLE U/S. 2(EA) OF THE WEALTH TAX ACT 1 957 AND, HENCE, THE CLAIM OF THE ASSESSEE THAT THE SAID PROPERTY WAS USED AS GUEST H OUSE FOR ITS STAFF IS NOT BASED ON ANY EVIDENCE. THE ASSESSING OFFICER BROUGHT OUT CL EAR FACTS TO THE EFFECT THAT THE ASSESSEE HAS NOT FILED ANY EVIDENCE TO PROVE THE MA INTENANCE OF GUEST HOUSE FOR ITS BUSINESS PURPOSE IN THE SAID RESIDENTIAL PROPERTY, THEREFORE, HE HAS RIGHTLY COMPUTED ALV OF THE PROPERTY TO BE TAXED UNDER THE HEAD INC OME FROM HOUSE PROPERTY. THE ORDER OF THE CIT(A) SHOULD THEREFORE, BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE FACT WITH REGARD TO OWNERSHIP OF RESIDENTIAL PR OPERTY AT PRABHADEVI, MUMBAI, IS NOT DISPUTED BY THE ASSESSEE. IT IS ALSO AN ADMITT ED FACT THAT THE ASSESSEE HAS INCLUDED THE SAID FLAT WITHIN THE MEANING OF ASSET AS DEFINED U/S. 2(EA) OF THE WEALTH TAX ACT, 1957, WHICH IS TAXABLE UNDER THE WE ALTH TAX ACT. THE ASSESSING OFFICER COMPUTED ALV OF THE PROPERTY @8% OF TOTAL I NVESTMENT IN THE PROPERTY ON THE GROUND THAT THE ASSESSEE OWNS A RESIDENTIAL PRO PERTY BUT NOT COMPUTED ALV AS PER THE PROVISIONS OF SECTION 22 OF THE INCOME TAX ACT, 1961. ACCORDING TO THE ASSESSING OFFICER, THE ASSESSEE ITSELF HAS ADMITTED THE FACT THAT RESIDENTIAL PROPERTY IS TAXABLE U/S. 2(EA) OF THE WEALTH TAX ACT, 1957. IF AT ALL THE SAID PROPERTY HAS BEEN USED AS GUEST HOUSE FOR THE BUSINESS PURPOSE O F THE ASSESSEE AS CLAIMED, THE ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 6 ASSESSEE WOULD NOT HAVE INCLUDED THE SAME IN THE TA XABLE WEALTH U/S. 2(EA) OF THE WEALTH TAX ACT, 1957. THE ASSESSING OFFICER FURTHE R OBSERVED THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE TO PROVE THAT THE SAID P ROPERTY IS USED AS GUEST HOUSE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE I.E. FO R ITS OUTSTATION EMPLOYEES. IT IS THE CONTENTION OF THE ASSESSEE THAT THOUGH THE PROP ERTY HAS BEEN CONSIDERED AS TAXABLE UNDER THE WEALTH TAX ACT, 1957, FACT REMAIN S THAT THE SAID PROPERTY HAS BEEN USED AS GUEST HOUSE FOR THE PURPOSE OF ITS EMP LOYEES WHO COME ON REGULAR VISIT TO MUMBAI ON OFFICIAL VISIT AND, HENCE, THE Q UESTION OF COMPUTING ALV AS PER PROVISIONS OF SECTION 22 OF THE INCOME TAX ACT DOES NOT ARISE. 8. HAVING HEARD BOTH THE SIDES AND CONSIDERING THE MATERIAL ON RECORD, WE DO NOT FIND ANY MERIT IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE NEVER DISPUTED THE FACT THAT THE SAID PROPERTY HAS BEEN INCLUDED IN THE TAXABLE WEALTH U/S. 2(EA) OF THE WEALTH TAX ACT, 1957. THE ASSESSEE HAS ALSO NOT FILED ANY EVIDENCE TO PROVE THAT THE SAID PROPERTY HAS BEEN U SED AS GUEST HOUSE BY ITS EMPLOYEES FOR BUSINESS PURPOSE. IF AT ALL THE PROP ERTY HAS BEEN USED AS GUEST HOUSE FOR BUSINESS PURPOSE, THE ASSESSEE WOULD HAVE INCURRED CERTAIN EXPENSES TO MAINTAIN THE GUEST HOUSE. IN THIS CASE, EXCEPT THE CLAIM OF DEPRECIATION ON THE BUILDING, ELECTRICITY AND MAINTENANCE EXPENSES, NO OTHER EXPENSES HAVE BEEN INCURRED TO MAINTAIN GUEST HOUSE. FROM THIS IT IS ABUNDANTLY CLEAR THAT THERE IS NO MERIT IN THE CLAIM OF THE ASSESSEE THAT THE SAID PR OPERTY HAS BEEN USED AS GUEST HOUSE FOR ITS BUSINESS PURPOSE. ALTHOUGH, THE ASSE SSEE HAS FILED LOG BOOK MAINTAINED FOR THE GUEST HOUSE TO PROVE THAT IT HAS BEEN USED BY THE ASSESSEES DIRECTORS, THE EVIDENCE FILED BY THE ASSESSEE PERTA INS TO SUBSEQUENT PERIOD THEREFORE BASED ON SUCH EVIDENCE IT CANNOT BE CONCLUDED THAT THE SAID PROPERTY HAS BEEN USED FOR THE PURPOSE OF GUEST HOUSE FOR THE IMPUGNE D ASSESSMENT YEAR. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OF FICER WAS RIGHT IN COMPUTING ALV OF THE PROPERTY AS PER THE PROVISIONS OF SECTION 22 OF THE INCOME TAX ACT. 9. HAVING SAID SO, LET US EXAMINE THE METHOD OF DET ERMINATION OF ALV BY THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS DETER MINED ALV OF THE PROPERTY @8% OF THE COST OF THE ASSET. ACCORDING TO HIM THE ALV DETERMINED BY THE ASSESSEE OF ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 7 ` 4,776/- IS NOT ACCEPTABLE, THEREFORE, HE PROCEEDED ON TO DETERMINE THE PROPERTY ON ADHOC BASIS BY ESTIMATING 8% OF THE TOTAL COST O F THE ASSET. IT IS THE CONTENTION OF THE ASSESSEE THAT IN CASE OF DEEMED LET OUT PROP ERTIES, THE ANNUAL VALUE SHALL BE DETERMINED ON THE BASIS OF SOME FOR WHICH THE PROPE RTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR OR WHERE THE PROP ERTY OR ANY PART OF THE PROPERTY IS LET AND THE ACTUAL RENT RECEIVED OR RECEIVABLE B Y THE ASSESSEE IN RESPECT THEREOF IS IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A), IT IS THE AMOUNT SO RECEIVED OR RECEIVABLE. SINCE THE PROPERTY HAS NOT BEEN LET OU T, THE ALV OF THE PROPERTY SHOULD BE DETERMINED BASED ON THE FAIR RENT OF THE PROPERT Y, WHEREAS THE ASSESSING OFFICER HAS DETERMINED ALV OF THE PROPERTY ON ADHOC BASIS, WHICH IS INCORRECT. THE ASSESSING OFFICER HAS DETERMINED THE ALV OF THE PRO PERTY @ 8% OF THE COST OF THE ASSET WITHOUT ASSIGNING ANY REASONS FOR NOT CONSIDE RING FAIR RENT OF THE PROPERTY. THE ASSESSING OFFICER ALSO HAS NOT GIVEN ANY REASON S AS TO HOW THE ALV DETERMINED @8% REFLECTS THE FAIR RENT CONSIDERING THE LOCATION AND AREA OF THE FLAT. THERE ARE SEVERAL METHODS FOR DETERMINING THE ALV OF THE FLAT AND ONE SUCH METHOD IS MUNICIPAL RATEABLE VALUE. ALTHOUGH, MUNICIPAL RATE ABLE VALUE MANY NOT BE BINDING ON THE ASSESSING OFFICER, BUT THAT IS ONLY IN CASES WHERE HE IS CONVINCED THAT THE INTEREST FREE SECURITY DEPOSIT AND MONTHLY COMPENSA TION DO NOT REFLECT PREVAILING RATE OF PROPERTY. IN THIS CASE, THE ASSESSING OFFI CER HAS NOT MADE ANY EFFORT TO ASCERTAIN FAIR RENTAL VALUE OF THE PROPERTY CONSIDE RING THE LOCATION AND AREA. IN SO FAR AS THE CASE LAWS RELIED UPON BY THE ASSESSEE OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MODI INDUSTRIES LTD. (SUPRA), W E FIND THAT IN SAID CASE THE FACTS WERE CLEAR IN AS MUCH AS THE PROPERTY HAS BEEN USED FOR BUSINESS PURPOSE OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE FAILED TO PRO VE WITH ANY EVIDENCE THAT THE SAID PROPERTY HAS BEEN USED FOR ITS BUSINESS AS GUEST HO USE. THEREFORE, THE CASE LAW RELIED UPON BY THE ASSESSEE IS NOT CONSIDERED. THU S, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE RECONSIDERED BY THE ASSESSING OFF ICER IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF TIP TOP TYPOGRAPHY (2014) [368 ITR 330], WHEREIN IT WAS HELD THAT IF THE PREMISES IS C ONTROLLED BY RENT CONTROL ACT, THEN THE ASSESSING OFFICER MUST UNDERTAKE THE DETERMINAT ION OF RENT HIMSELF IN TERMS OF ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 8 THE SAID ACT OR DETERMINE IT ACCORDING TO THE PREVA ILING RATE IN THE LOCALITY. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF ASSESSING OFF ICER AND DIRECT HIM TO RE-CONSIDER THE ISSUE IN THE LIGHT OF OUR DISCUSSION HEREIN ABO VE. 10. COMING TO THE DISALLOWANCE OF EXPENSES INCURRED IN RELATION TO RESIDENTIAL PROPERTY. THE ASSESSEE HAS CLAIMED EXPENSES BEING DEPRECIATION ON BUILDING, FURNITURE & EQUIPMENTS, MAINTENANCE CHARGES AND ELE CTRICITY EXPENSES. THE ASSESSING OFFICER HAS DISALLOWED EXPENSES INCURRED ON THE GROUND THAT ONCE STANDARD DEDUCTION AS PROVIDED U/S. 24 IS ALLOWED A GAINST RENTAL INCOME/ALV, THEN NO OTHER EXPENSES/EXPENDITURE INCURRED ON THE SAID PROPERTY IS ALLOWABLE. WE FIND THAT THE ASSESSING OFFICER HAS ALLOWED STANDARD DED UCTION U/S. 24 OF THE INCOME TAX ACT, 1961, AGAINST ALV DETERMINED FROM THE PROP ERTY TO COMPUTE INCOME FROM HOUSE PROPERTY. ONCE STANDARD DEDUCTION IS ALLOWE D, THEN NO FURTHER DEDUCTIONS CAN BE ALLOWED TOWARDS ANY EXPENDITURE INCURRED ON SAID PROPERTY, WHETHER OR NOT SUCH EXPENSES ARE INCURRED IN THE COURSE OF CARRYIN G OUT BUSINESS OF THE ASSESSEE. THE EXPENSES, WE ARE OF THE CONSIDERED VIEW THAT TH E ASSESSING OFFICER WAS RIGHT IN DISALLOWING EXPENSES TOWARDS PROPERTY. THE LEARNED CIT(A) AFTER CONSIDERING RELEVANT SUBMISSIONS HAS UPHELD THE ADDITIONS MADE BY THE ASSESSING OFFICER. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A), H ENCE WE ARE INCLINED TO AFFIRM THE FINDINGS OF THE CIT(A) AND REJECT THE GROUND TAKEN BY THE ASSESSEE. THUS, THE APPEAL FILED BY THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. 11. WE SHALL NOW TAKE UP THE REVENUES APPEAL IN IT A NO. 1129/MUM/2017, WHEREIN, FOLLOWING GROUNDS HAVE BEEN RAISED: '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE EXCLUSION OF INVES TMENTS IN 'MUTUAL FUNDS GROWTH OPTION' WHILE CALCULATION THE DISALLOWANCE U /S 14A R.W.R. 8D - BEING INVESTMENT YIELDING TAXABLE INCOME - WITHOUT APPRECIATING THE FACT THAT THE 'MUTUAL FUNDS - GROWTH OPTION' GENERATE LO NG TERM CAPITAL GAIN (STT PAID), WHICH IS ALSO EXEMPT FROM TAX.' ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 9 12. AT THE TIME OF HEARING, THE LEARNED AR FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT, D BENCH, MUMBAI, FOR A.Y. 2011-12 IN ITA NO. 1588/MUM /16, WHEREIN ON SIMILAR SET OF FACTS, THE TRIBUNAL HAS DIRECTED THE ASSESSING O FFICER TO DETERMINE DISALLOWANCE CONTEMPLATED U/S. 14A READ WITH RULE 8D(2)(III) AFT ER EXCLUDING THE INVESTMENTS WHICH ARE CAPABLE OF EARNING TAXABLE INCOME. ON TH E OTHER HAND, LEARNED DR SUBMITTED THAT THOUGH THE ISSUE HAS BEEN CONSIDERED BY THE ITAT IN EARLIER YEAR, THE FACT REMAINS THAT THE LEARNED CIT(A) ERRED IN A LLOWING THE EXCLUSION OF INVESTMENT OF MUTUAL FUNDS WHILE CALCULATING THE DI SALLOWANCE U/S. 14A WITHOUT APPRECIATING THE FACT THAT MUTUAL FUNDS GROWTH OPTI ON GENERATE LONG TERM CAPITAL GAINS, WHICH IS ALSO EXEMPT FROM TAX. 13. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACT WITH REGARD TO EARNING EXEMPT INCOME AND A PPLICABILITY OF PROVISIONS OF SECTION 14A READ WITH RULE 8D IS NOT DISPUTED BY BO TH THE PARTIES. IN FACT, THE ASSESSEE ITSELF HAS SUO MOTO DISALLOWED A SUM OF ` 49,80,383/- U/S. 14A OF THE ACT. THE AO DETERMINED THE DISALLOWANCE OF ` 1,24,26,845/- @0.5% OF AVERAGE VALUE OF INVESTMENT, WHICH INCLUDES INVESTMENTS IN MUTUAL FU ND GROWTH OPTION. WE FIND THAT THE CO-ORDINATE BENCH OF ITAT, MUMBAI, D BEN CH, IN ITA NO. 1588/MUM/2016 FOR A.Y. 2011-12 HAS CONSIDERED SIMILAR ISSUE AND A FTER ANALYSING FACTS OF THE CASE HELD THAT FOR THE PURPOSE OF COMPUTING AVERAGE VALU E OF INVESTMENTS, INVESTMENTS IN MUTUAL FUND GROWTH OPTION, WHICH ARE CAPABLE OF EARNING TAXABLE INCOME SHALL BE EXCLUDED. THE RELEVANT PORTION OF THE SAID TRIBUNA L ORDER IS EXTRACTED BELOW: 5. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US INCLUDING THE ORDERS OF AUTHORITIES BELOW AND CASE LAW RELIED UPON BY THE ASSESSEE. WE FIND THAT THE ISSUE INVOLVED IN THE CURRENT YEAR IS WHETHER THE INVESTM ENTS ON WHICH THE INCOME IS NOT EXEMPT FROM TAX IS TO BE INCLUDED OR EXCLUDED WHILE CALCULATING THE DISALLOWANCE U/S 14A R.W.R.8D. WE F IND THAT THE IDENTICAL ISSUE (SUPRA) HAS BEEN DECIDED BY THE CO-ORDINATE B ENCH OF THE TRIBUNAL, WHEREIN VIDE PARA FOUR OF THE ORDER, IT HAS BEEN HE LD BY THE TRIBUNAL AS UNDER : ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 10 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THE ONLY DISPUTE QUA THE DISALLOWANCE UNDER SECTION 14A WHICH HAS BEEN RAISE D BY THE LD. COUNSEL BEFORE US IS THAT, THERE ARE CERTAIN INVEST MENTS WHICH ARE GENERATING TAXABLE INCOME AND THEREFORE, THESE INVESTMENTS SHOULD BE REMOVED FROM THE WORKING OF THE AVERAGE I NVESTMENT UNDER FORMULA PRESCRIBED UNDER RULE 8D(2)(III). THE DETAILS OF THE INVESTMENT CONSIDERED FOR DISALLOWANCE AND ALSO THE INVESTMENT WHICH ARE GENERATING TAXABLE INCOME WERE GIVEN IN T HE FOLLOWING MANNER:- PARTICULARS AS ON 31.03.2010 AS ON 31.03.2009 TOTAL INVESTMENTS RS. 2,22, 51,04, 146 RS. 1,21,57,53,656 LESS: INVESTMENTS GENERATING TAXABLE INCOME SCHEDULE(L) RS. 40,60,85,329 RS. 25,65,26,626 INVESTMENT CONSIDERED FOR SEC 14A DISALLOWANCE RS. 1,81,90,18,817 RS. 95,92,27,030 SCH. 1: INVESTMENT GENERATING TAXABLE INCOME PARTICULARS 31.03.2010 31.03.2009 IN RS. IN RS. INVESTMENT IN TAXABLE BONDS 1 1.35% IDBI OMNI BONDS 2008 SR. XV 10,00,00,000 10,00,00,000 NCD TATA CAPITAL LIMITED (12%) 5,00,00,000 5,00,00,000 9 . 62% L & T FINANCE 2,81,06,000 - 7.70% REC 4,94,01,550 - 7.90% REC 10,04,62,550 - TOTAL INVESTMENT IN TAXABLE BONDS(A) 32,79,70,100 15,00,00,000 INVESTMENT IN MUTUAL FUND (GROWTH PLANS) FORTIS FLEXI DEBT FUND - REGULAR GROWTH PLAN 1,02,38,889 1,02,38,889 BIRLA FIXED TERM PLAN - INSTITUTIONAL SERIES BK- GROWTH 3,25,00,000 3,25,00,000 HDFC FMP 13M MARCH 2008 (VII}(2) - WHOLESALE PLAN GROWTH _ 3,10,21,498 ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 11 HDFC FIXED TERM SERIES 63 - INSTITUTIONAL GROWTH - 3,23,90,000 ICICI PRUDENTIAL INSTITUTIONAL SHORT TERM PLAN - CUMULATIVE OPTION 3,76,340 3,76,240 ICICI PRUDENTIAL FIXED MATURITY PLAN - SERIES 51-1 YEAR PLAN A - CUMULATIVE 3,50,00,000 _ TOTAL INVESTMENT IN MUTUAL FUND (GROWTH PLANS) -(B) 7,81,15,229 10,65,26,627 TOTAL INVESTMENTS GENERATING TAXABLE INCOME - (A) + (B) 40,60,85,329 25,65,26,627 WE AGREE WITH THE CONTENTION OF LD. COUNSEL THAT, I F THE INVESTMENT WHICH ARE GENERATING TAXABLE INCOME OR ARE CAPABLE OF EARNING TAXABLE INCOME, THEN SAME SHOULD BE REMOVED FROM THE WORKIN G OF THE AVERAGE INVESTMENT UNDER THE FORMULA GIVEN UNDER RULE 8D(2) (III), BECAUSE THE SAID CLAUSE ITSELF REFERS TO THE WORKING OF THE AVE RAGE VALUE OF THE INVESTMENT, THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THIS INTER ALIA MEANS THAT, IF THE IN VESTMENT WHICH IS GENERA TING INCOME OR IS CAPABLE OF EARNING TAXABLE INCOME , THEN SAME SHOULD NOT BE THE PART OF THE WORKING OF AVERAGE VALUE OF THE INVESTMENT. THUS, WE DIRECT THE ASSESSING OFFICER TO REMOVE THE INVES TMENTS, WHICH ARE EITHER GENERATING TAXABLE INCOME OR CAPABLE OF EARN ING TAXABLE INCOME. THE DISALLOWANCE UNDER RULE 8D(2)(III) THUS, SHOULD BE WORKED OUT AFTER REMOVING SUCH INVESTMENTS. THE GROUNDS RAISED BY TH E ASSESSEE ARE ACCORDINGLY TREATED AS ALLOWED 6. WE, THEREFORE, MAINTAINING THE CONSISTENCY WITH THE EARLIER YEAR ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, HOLD THAT THE DISALLOWANCE MADE UNDER RULE 8D(2)(III) HAS TO BE WORKED OUT AFT ER EXCLUDING THE INVESTMENTS WHICH ARE CAPABLE OF EARNING OF TAXABLE INCOME. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 14. FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO B RING ON RECORD ANY CONTRARY DECISION TO COUNTER THE FINDINGS OF FACT RECORDED B Y THE ITAT. THEREFORE, BEING CONSISTENCY WITH THE VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE INVESTMENT IN MUTUAL FUND GROWTH OPTION FOR THE PURPOSE OF DETERMINING OF AVERAGE VALUE OF INVESTMENTS. FURTH ER, THE ASSESSEE HAS FILED A WORKING OF DISALLOWANCE U/S. 14A AS PER WHICH SUO M OTO DISALLOWANCE MADE BY THE ASSESSEE WORKS OUT TO ` 51,05,383/-, WHEREAS AS PER THE ASSESSMENT ORDER T HE ASSESSING OFFICER HAS TAKEN THE SUO MOTO DISALLOWAN CE AT ` 49,80,383/-. THEREFORE, WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR TH E LIMITED PURPOSE OF VERIFICATION OF ITA NO.918 & 1129/MUM/2017 CENTRAL DEPOSITORY SERVICES (INDIA) LTD. 12 FACT WITH REGARD TO THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE TO ASCERTAIN WHETHER IT IS ` 49,80,383/- OR ` 51,05,383/-. HENCE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO MAK E NECESSARY ENQUIRIES IN LIGHT OF COMPUTATION FILED BY THE ASSESSEE. WE ORDERED ACCO RDINGLY. THUS, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 15 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 5 TH JULY 2018. SD/- SD/- (RAVISH SOOD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 25 TH JULY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI