EVEREST KANTO INVESTMENT & FIANANCE LTD, MUMBAI v. ACIT CEN CIR-20, MUMBAI

ITA 1747/MUM/2009 | 2005-2006
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 174719914 RSA 2009
Assessee PAN AAACE4794L
Bench Mumbai
Appeal Number ITA 1747/MUM/2009
Duration Of Justice 1 year(s) 10 month(s) 11 day(s)
Appellant EVEREST KANTO INVESTMENT & FIANANCE LTD, MUMBAI
Respondent ACIT CEN CIR-20, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 28-01-2011
Date Of Final Hearing 18-01-2011
Next Hearing Date 18-01-2011
Assessment Year 2005-2006
Appeal Filed On 18-03-2009
Judgment Text
1 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI P.M. JAGTAP A.M. AND SHRI N.V. VASUDEV AN JM ITA NOS. 1718 TO 1722/MUM/2009 ASSESSMENT YEARS 2001-02 2002-03 2003-04 2004-05 & 2006-07 ITA NO. 1747/MUM/2009 ASSESSMENT YEAR 2005-06 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. 501 RAHEJA CENTRE FREE PRESS JOURNAL MARG 214 NARIMAN POINT MUMBAI 400 021. PAN AAACE 4794L VS. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 20 401 AAYAKAR BHAWAN M.K. ROAD MUMBAI. 20 APPELLANT RESPONDENT APPELLANT BY SHRI SHEKHAR GUPTA RESPONDENT BY SHRI HEMANT LAL ORDER PER P.M. JAGTAP A.M. THESE SIX APPEALS FILED BY THE ASSESSEE AGAINST SI X SEPARATE ORDERS PASSED BY THE LD. CIT(A) IV MUMBAI DATED 19.1.09 INVOLVE COMMON ISSU ES AND THE SAME THEREFORE HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS SINGLE COMPOSITE ORDER. 2. THE FIRST COMMON ISSUE RELATING TO THE ADDITION MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON ACCOUNT OF RENTAL INCOME IS RA ISED BY THE ASSESSEE IN GROUND NO. 1 OF ITS APPEAL FOR A.Y. 2001-02 AND 2003-04 TO 2006-07. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH BELONGS TO M/S EVEREST KANO CYLINDER GROUP. IT DERIVES INCOME FROM BUSINESS AS WELL AS RENTAL INCOME FROM THE PROPERTY LET OUT. A SEARCH AND SEIZURE ACTION U/S 1 32 WAS CONDUCTED IN THE CASES 2 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. BELONGING TO M/S EVEREST KANTO CYLINDER GROUP INCLU DING THE CASE OF THE ASSESSEE ON 10.8.05. CONSEQUENT TO THE SAID ACTION PROCEEDING S U/S 153-A WERE INITIATED BY THE A.O. FOR THE YEARS UNDER CONSIDERATION I.E. A.Y. 2001-02 TO 2006-07. IN THE RETURNS ORIGINALLY FILED THE ASSESSEE HAD DECLARED INCOME FROM BUSINE SS CENTRE IN THE FORM OF RENT AS ITS BUSINESS INCOME AGAINST WHICH VARIOUS EXPENSES WERE CLAIMED. IN THE RETURNS FILED IN RESPONSE TO NOTICES ISSUED BY THE A.O. U/S 153-A T HE ASSESSEE HOWEVER OFFERED THE SAID INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND AFTER CLAIMING DEDUCTION U/S 24(A) FOR REPAIRS AND MAINTENANCE ON FIXED PERCENTA GE BASIS THE BALANCE AMOUNT WAS OFFERED TO TAX. IN A.Y. 2001-02 THE GROSS RENTAL INCOME RECEIVED BY THE ASSESSEE WAS DECLARED AT ` 14 25 000/-. ACCORDING TO THE A.O. THE ASSESSEE SHOULD HAVE DECLARED GROSS RENTAL INCOME OF ` 14 70 000/- FOR A PERIOD OF SIX MONTHS FROM OCTOBE R TO MARCH 2001 CALCULATED @ ` 2 45 000/- PER MONTH AS PER THE LEASE AGREEMENTS W ITH THREE TENANTS. HE THEREFORE ADOPTED THE SAID AMOUNT OF ` 14 70 000/- AS GROSS RENTAL INCOME RECEIVED BY THE ASSESSEE FOR THE PURPOSE OF COMPUTING ITS TOTAL INCOME. IN A.Y. 2002-03 THE ASSESSEE HAD DECLARED GROSS RENTAL INCOME OF ` 29 40 000/- WHICH WAS ACCEPTED BY THE A.O. 4. IN A.Y. 2003-04 THE GROSS RENTAL INCOME WAS DEC LARED BY THE ASSESSEE AT ` 27 15 000/- AND IN A.Y. 2004-05 TO 2006-07 THE GROS S RENTAL INCOME WAS SHOWN BY THE ASSESSEE AT THE SAME FIGURE OF ` 20 40 000/-. IT WAS NOTED BY THE A.O. IN THIS REG ARD THAT THE ASSESSEE HAD ENTERED INTO A SUPPLEMENTARY AGREE MENT WITH ONE TENANT I.E. M/S EVEREST KANTO CYLINDERS LTD. WHEREBY MONTHLY RENT WAS REDUC ED FROM ` 2 25 000/- TO ` 1 50 000/- AND SIMULTANEOUSLY THE SECURITY DEPOSIT WAS INCREASED FROM ` 1.25 CRORES TO ` 2 CRORES. THE REMAINING TERMS AND CONDITIONS OF TH E AGREEMENT HAVE REMAINED UNCHANGED. IT WAS ACCEPTED ON BEHALF OF THE ASSESSE E THAT MONTHLY RENT WAS REDUCED AS A RESULT OF HIGHER SECURITY DEPOSIT RECEIVED FROM M/S EVEREST KANTO CYLINDERS LTD. ACCORDING TO THE A.O. THE MARKET RENT OF THE COMME RCIAL PREMISES SITUATED AT NARIMAN POINT MUMBAI WAS NOT LIKELY TO DECREASE OVER THE P ERIOD AND THE SAME COULD ONLY INCREASE KEEPING IN VIEW THE PREVAILING MARKET COND ITIONS. HE HELD THAT THE SUM FOR WHICH THE PROPERTY OWNED BY THE ASSESSEE MIGHT REAS ONABLY BE EXPECTED TO LET FOR FROM 3 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. YEAR TO YEAR THUS SHOULD HAVE GONE UP W.E.F. 1.1.20 03 FROM THE EARLIER RENT OF ` 2 25 000/- RECEIVED BY THE ASSESSEE INSTEAD OF REDUCTION THERE OF TO ` 1 50 000/- AS SHOWN BY THE ASSESSEE. HE THEREFORE ESTIMATED THE RENT FOR WHI CH THE PROPERTY OF THE ASSESSEE MIGHT BE EXPECTED TO LET BY TAKING THE INCREASE OF 20% OVER THE AMOUNT OF ` 2 25 000/- PER MONTH RECEIVED UPTO 31.12.2002 AND RELYING ON THE PROVIS IONS OF SECTION 23(1)(A) HE ADOPTED THE GROSS RENTAL INCOME OF THE ASSESSEE AT ` 30 87 000/- ` 37 04 400/- ` 44 45 280/- AND ` 53 34 336/- FOR A.Y. 2003-04 2004-05 2005-06 AND 2006-07 RESPECTIVELY. 5. ON APPEAL THE LD. CIT(A) UPHELD THE ACTION OF T HE A.O. IN INCREASING THE GROSS RENTAL INCOME OF THE ASSESSEE FOR A.Y. 2001-02 AND 2003-04 TO 2006-07 OBSERVING THAT WHEN A DEPOSIT WAS GIVEN TO COMPENSATE FOR A SHORT PAYMENT OR REDUCTION IN RENT INTEREST ELEMENT ATTRIBUTABLE TO SUCH DEPOSIT MUST FORM PART OF THE ANNUAL LETTING VALUE FOR THE PURPOSE OF COMPUTING THE INCOME OF THE ASSESSEE FRO M HOUSE PROPERTY. HE HELD THAT THE A.O. WAS CORRECT IN FACTORING THIS CONSIDERATION OF HIGHER SECURITY DEPOSIT WHILE CALCULATING THE SUM FOR WHICH THE PROPERTY IN QUEST ION MIGHT REASONABLY BE EXPECTED TO LET OUT WHICH REPRESENTED ANNUAL LETTING VALUE OF T HE SAID PROPERTY IN THE CASE OF THE ASSESSEE. AS REGARDS THE CLAIM OF THE ASSESSEE THA T THE ANNUAL LETTING VALUE OF THE SAID PROPERTY SHOULD BE TAKEN AT ` 79 898/- BEING THE ANNUAL RATABLE VALUE AS DETERMI NED BY THE MUNICIPAL CORPORATION THE LD. CIT(A) HELD THAT THE SAID VALUE CLAIMED BY THE ASSESSEE WAS WHOLLY UNSUBSTANTIATED AND IT WAS NOT SUPPORTED BY ANY CERTIFICATE ISSUED BY THE BOMBAY MUNICIPAL CORPORATION AND WAS ALSO BERE FT OF ANY CLARIFICATION AS TO HOW THE ANNUAL VALUE WAS DETERMINED. THE LD. CIT(A) THUS C ONFIRMED THE ADDITIONS MADE BY THE A.O. ON THIS ISSUE. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT IN SO FAR AS A.Y. 2001-02 IS CONCERNED THE PROPERTY WAS LET OUT BY THE ASSESSEE ONLY W.E.F. 7.10.2000 AND NOT W.E.F. 1.10.2000 AS TAKEN BY THE A.O. HE INVITED OUR ATTEN TION TO THE COPY OF THE RELEVANT AGREEMENT TO SUBSTANTIATE THIS SUBMISSION AND POINT ED OUT THAT THE RENTAL INCOME RECEIVABLE TO THE ASSESSEE FOR THE PERIOD 7.10.2000 TO 31.3.2001 WAS ACTUALLY ` 4 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. 14 25 000/- AND NOT ` 14 70 000/- AS CALCULATED BY THE A.O. BY TAKING TH E RENTAL PERIOD AS 1.10.2000 TO 31.3.2001. AS REGARDS A.Y. 2003-04 TO 2006-07 HE SUBMITTED THAT THE RENT ACTUALLY RECEIVED BY THE ASSESSEE IN THE SAID YEARS WAS MORE THAN MUNICIPAL VALUATION AND THE SAME THEREFORE WAS RIGHTLY TAKEN BY THE ASS ESSEE FOR COMPUTING ITS INCOME CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AS PER THE PROVISIONS OF SECTION 23(1)(B). HE SUBMITTED THAT ALTHOUGH THE P ROPERTY OF THE ASSESSEE IS COVERED BY RENT CONTROL ACT THE STANDARD RENT IN RESPECT OF T HE SAID PROPERTY WAS NOT FIXED. HE SUBMITTED THAT THE ANNUAL RATABLE VALUE OF THE SAID PROPERTY HOWEVER WAS DETERMINED BY THE BOMBAY MUNICIPAL CORPORATION AT ` 79 898/- AND THE RENT ACTUALLY RECEIVED BY THE ASSESSEE BEING MORE THAN THE SAID VALUE THE ADDITI ON MADE BY THE A.O. BY TAKING THE HIGHER FIGURE ON ESTIMATED BASIS TREATING THE SAME AS THE AMOUNT WHICH THE PROPERTY OF THE ASSESSEE MIGHT BE EXPECTED TO LET OUT WAS NOT J USTIFIED. HE CONTENDED THAT SUCH AMOUNT AS PER THE PROVISIONS OF SECTION 23(1)(A) IS TO BE TAKEN AS THE MUNICIPAL VALUATION AS HELD BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL I N ITS RECENT DECISION RENDERED IN THE CASE OF M/S RECLAMATION REALTY (I) P. LTD. VIDE ITS ORDER DATED 26.6.10 PASSED IN ITA NO. 1411 TO 1413 1733 & 1434/MUM/07. 7. THE LEARNED D.R. ON THE OTHER HAND SUBMITTED T HAT THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARELY COVERED IN FAVOUR OF THE R EVENUE AND AGAINST THE ASSESSEE BY THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE O F BECKER TECHNICAL SERVICES P. LTD. 126 TTJ 455 WHEREIN A SIMILAR ISSUE HAS BEEN DECIDE D IN FAVOUR OF THE REVENUE IN THE SIMILAR FACTS AND CIRCUMSTANCES. HE CONTENDED THAT THE SAID DECISION OF THIRD MEMBER IS BINDING ON THIS DIVISION BENCH AND THE DIVISION BEN CH IN THE CASE OF M/S RECLAMATION REALTY (I) P. LTD. WAS NOT JUSTIFIED IN TAKING A DI FFERENT VIEW THAN WHAT WAS TAKEN BY THE THIRD MEMBER. HE CONTENDED THAT WHILE DOING SO THE DIVISION BENCH IN THE CASE OF RECLAMATION REALTY (I) P. LTD. HAS RELIED ON THE DE CISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD. 248 ITR 723 WHICH WAS ALREADY CONSIDERED IN THE THIRD MEMBER DECISION. 5 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSEE COMPANY IS THE OWNER OF THREE IMMOVABLE PROPERTIES AT RAHEJA CENTRE NARIMAN POINT MUMBAI WHICH WERE LEASED OUT BY IT TO ITS THREE SISTER CONCERNS DURING THE YEARS UNDER CONSID ERATION. IN TERMS OF THE SAID LEASE AGREEMENT MONTHLY RENTAL @ RS. 10 000/- PER MONTH EACH WAS RECEIVED BY THE ASSESSEE FROM M/S MEDICAL ENGINEERS & KHURANA GASES PVT. LTD . AND THE RENTAL INCOME OF THE THIRD PROPERTY WAS RECEIVED BY THE ASSESSEE FROM IT S SISTER CONCERN M/S EVEREST KANTO CYLINDERS LTD. THE SAID THIRD PROPERTY WAS LET OUT BY THE ASSESSEE W.E.F. 7.10.2000 ON MONTHLY RENT WHICH WAS INITIALLY FIXED AT ` 2 25 000/- WITH INTEREST FREE SECURITY DEPOSIT @ ` 1.25 CRORES RECEIVED FROM THE TENANT. THE RENT AC TUALLY RECEIVED BY THE ASSESSEE FOR THE PERIOD 7.10.2000 TO 31.3.2001 AMOUNTING TO ` 14 25 000/- WAS SHOWN BY THE ASSESSEE WHILE COMPUTING ITS INCOME UNDER THE HEAD INCOME F ROM HOUSE PROPERTY. THE A.O. HOWEVER TOOK THE SAME AT ` 14 70 000/- CALCULATED FOR A PERIOD OF SIX MONTHS I.E. FROM OCTOBER 2000 TO MARCH 2001 @ ` 2 25 000/- PER MONTH UNDER THE WRONG IMPRESSION TH AT THE PROPERTY WAS LET OUT BY THE ASSESSEE W.E.F. 1.1 0.2000. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE FROM THE RELEVANT AGREEMEN T THE SAID PROPERTY WAS ACTUALLY LET OUT BY THE ASSESSEE W.E.F. 7.10.2000 AND THE RENT R ECEIVED BY IT ` 14 25 000/- AS RECEIVED FROM THE SAID PROPERTY @ ` 2 25 000/- PER MONTH WAS CORRECT. SINCE THIS POSI TION CLEARLY EVIDENT FROM THE RELEVANT AGREEMENT IS ACCEPTED EVE N BY THE LEARNED D.R. WE DIRECT THE A.O. TO DELETE THE ADDITION MADE BY HIM BY TAKING T HE RENTAL INCOME OF THE SAID PROPERTY AT ` 14 70 000/-. GROUND NO. 1 OF THE ASSESSEES APPEA L FOR A.Y. 2001-02 IS ACCORDINGLY ALLOWED. 9. IN A.Y. 2002-03 THE ASSESSEE COMPANY CONTINUED TO RECEIVE THE RENTAL INCOME FROM M/S EVEREST KANTO CYLINDERS LTD. @ ` 2 25 000/- PER MONTH AND THE SAME OFFERED BY IT TO TAX WAS ACCEPTED BY THE A.O.. IN A.Y. 200 3-04 THE ASSESSEE CONTINUED TO RECEIVE RENTAL INCOME OF ` 2 25 000/- IN RESPECT OF THE SAID PROPERTY UPTO 31 .12.02. THE TERMS AND CONDITIONS OF THE LEASE HOWEVER WERE CHANGED W.E.F. 1.1.03 WHEREBY THE RENT PER 6 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. MONTH WAS REDUCED FROM ` 2 25 000/- TO ` 1 50 000/- AND SIMULTANEOUSLY INTEREST FREE DEPOSIT WAS INCREASED FROM ` 1.25 CRORES TO ` 2 CRORES. ACCORDINGLY THE RENT ACTUALLY RECEIVED IN RESPECT OF THE SAID PROPERTY @ ` 2 25 000/- PER MONTH FOR A PERIOD OF NINE MONTHS I.E. 1.4.02 TO 31.12.02 AND @ ` 1 50 000/- FOR A PERIOD OF THREE MONTHS I.E. 1.1.0 3 TO 31.3.03 AGGREGATING TO ` 27 15 000/- WAS DECLARED BY THE ASSESSEE. THE A.O . DID NOT MAKE ANY ENHANCEMENT ON ACCOUNT OF RENT ACTUALLY RE CEIVED BY THE ASSESSEE BY TAKING INTO CONSIDERATION ANY INTEREST ON NOTIONAL BASIS O N THE INTEREST FREE SECURITY DEPOSIT. HE HOWEVER HELD THAT AS PER THE PROVISIONS OF SECTION 23(1)(A) THE ACTUAL VALUE OF THE PROPERTY WAS LIABLE TO BE TAKEN AT THE SUM FOR WHIC H THE SAID PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. HE NOTED IN THIS CONTEXT THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE FROM ALL THE THREE TENANTS WAS ` 2 45 000/- FOR A PERIOD OF ABOUT THREE YEARS AND KEEPING IN VIEW THE LOCATION OF THE PROPE RTY AND THE PREVAILING MARKET CONDITIONS THE SAME SHOULD HAVE GONE UP ATLEAST BY 20% W.E.F. 1.1.03. ACCORDINGLY HE CALCULATED THE SUM FOR WHICH THE PROPERTY OF THE AS SESSEE MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR AT ` 30 87 000/- FOR A.Y. 2003-04 AND BY INCREASING THE SAID AMOUNT BY 20% EVERY YEAR THE GROSS RENTAL INCOME OF THE A SSESSEE WAS TAKEN BY HIM AT ` 37 04 400/- ` 44 45 280/- AND ` 53 34 336/- FOR A.Y. 2004-05 2005-06 AND 2006-07 RESPECTIVELY. ON APPEAL THE LD. CIT(A) UPHELD THIS ACTION OF THE A.O. IN INCREASING THE ANNUAL LETTING VALUE OF THE ASSESSEES PROPERTY BY RELYING ON THE PROVISIONS OF SECTION 23(1)(A) AND WHILE SUPPORTING THE CASE OF THE REVEN UE ON THIS ISSUE THE LD. D.R. HAS PLACED STRONG RELIANCE ON THE THIRD MEMBER DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. BAKER TECHNICAL SERVICES (P) LTD. (SUPRA) WHERE IN IT WAS HELD THAT RELYING ON THE DECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF KASHI PRASAD KATARVKA VS. CIT 101 ITR 810 THAT THE RATABLE VALUE DETERMINED UNDER THE MUNICIPAL LAW IS NOT BINDING ON THE A.O. IF THE A.O. CAN SHOW THAT THE SAID VALUE DOES NOT REPRESENT THE CORRECT FAIR RENT. 10. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND HAS RELIED ON THE DECISION OF CO-ORDINATE BENCH OF DIVISION BENCH OF THIS TRIB UNAL IN THE CASE OF RECLAMATION 7 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. REALTY INDIA (P) LTD. (SUPRA) IN SUPPORT OF THE ASS ESSEES CASE ON THIS ISSUE. HE HAS ALSO FILED A COPY OF THE SAID ORDER PASSED BY THE TRIBUN AL IN THE SAID CASE AND A PERUSAL OF THE SAME SHOWS THAT THE THIRD MEMBER DECISION IN THE CA SE OF BAKER TECHNICAL SERVICES (P) LTD. (SUPRA) HAS BEEN TAKEN INTO CONSIDERATION BY D IVISION BENCH WHILE DECIDING A SIMILAR ISSUE IN FAVOUR OF THE ASSESSEE IN THAT CASE. 11. AS ALREADY MENTIONED THE A.O. AS WELL AS THE L D. CIT(A) HAS RELIED ON THE PROVISIONS OF SECTION 23(1)(A) TO TAKE THE ANNUAL V ALUE OF THE ASSESSEES PROPERTY AT A HIGHER AMOUNT THAN THE RENT ACTUALLY RECEIVED BY TH E ASSESSEE HOLDING THAT THE SAME REPRESENTED THE SUM FOR WHICH THE PROPERTY OF THE ASSESSEE MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. IT IS PERTINENT TO NOTE HERE THAT AS PER THE RELEVANT PROVISIONS OF SECTION 23(1) AS APPLICABLE UP TO A.Y. 1975-76 THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR ALO NE REPRESENTED ACTUAL VALUE OF THE PROPERTY FOR THE PURPOSE OF COMPUTING INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THEREAFTER AMENDMENT WAS MADE AND AS PE R THE AMENDED PROVISIONS OF SECTION 23(1)(B) MADE APPLICABLE FROM A.Y. 1976-77 THE ACTUAL RENT RECEIVED WAS TREATED TO REPRESENT THE ANNUAL VALUE PROVIDED IT EXCEEDS T HE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. T HE LEGISLATIVE INTENTION OF THE SAID AMENDMENT WAS EXPLAINED BY CBDT IN CIRCULAR NO. 204 DTD. 24.7.76 AND AFTER TAKING NOTE OF THE SAID CIRCULAR AND AFTER REPRODUCING THE RELEVANT PORTION THEREOF IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. L TD. (SUPRA) THE TRIBUNAL HELD THAT THE POSITION OF LAW PRIOR TO INTRODUCTION OF SECTION 23 (1)(B) AS CLARIFIED BY THE BOARD ITSELF WAS THAT THE ANNUAL VALUE WAS EQUAL TO THE MUNICIPA L VALUATION OF THE PROPERTY. THE TRIBUNAL HELD THAT THIS IS HOW THE BOARD SOUGHT TO INTERPRET THE EXPRESSION THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR USED IN SECTION 23(1)(A). 8 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. 12. THE TRIBUNAL ALSO TOOK NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DIWAN DAULAT KAPOOR VS. NEW DELHI MUNICIPAL COMM ITTEE 122 ITR 700 (SC) WHEREIN THE QUESTION THAT HAD ARISEN FOR CONSIDERATION WAS AS TO WHAT SHOULD BE THE BASIS OF DETERMINING THE ANNUAL VALUE FOR THE PURPOSE OF LEV Y OF PROPERTY TAX. THE EXPRESSION ANNUAL VALUE AS DEFINED IN THE DELHI MUNICIPAL CO RPORATION ACT 1957 AND PUNJAB MUNICIPAL ACT 1911 WAS GROSS ANNUAL RENT AT WHICH SUCH HOUSE OF BUILDING MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE SUPREME COURT HELD THAT THE ANNUAL VALUE IS ALWAYS RENT REALIZABLE BY LANDL ORD AND THAT ACTUAL RENT IS ONLY AN INDICATOR WHAT THE LANDLORD MIGHT REASONABLY EXPECT TO GET FROM A HYPOTHETICAL TENANT. THE HONBLE SUPREME COURT FURTHER HELD THAT WHERE T ENANCY IS SUBJECT TO RENT CONTROL LEGISLATION STANDARD RENT WOULD BE A PROPER MEASUR E AND IN ANY EVENT ANNUAL VALUE CANNOT EXCEED SUCH STANDARD RENT. 13. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. ALSO TOOK NOTE OF THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF MRS. SHEILA KAUSHISH VS. CIT 131 ITR 435 (SC) WHEREIN THE QUES TION AROSE IN THE CONTEXT OF PROVISIONS OF SECTION 23 OF THE INCOME TAX ACT AND IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE RATIO OF ITS DECISION IN THE CASE OF DEWAN DAULAT RAI KAPOOR (SUPRA) WOULD BE EQUALLY APPLICABLE IN INTERPRETING THE DEFINITIO N OF ANNUAL VALUE GIVEN IN SECTION 23(1) OF THE INCOME TAX ACT. IT WAS HELD THAT THESE DEFINITIONS ARE GIVEN IN IDENTICAL TERMS AND IT WAS IMPOSSIBLE TO DISTINGUISH THE DEFI NITION OF ANNUAL VALUE GIVEN IN SECTION 23(1) OF THE INCOME TAX ACT FROM THE DEFINI TION OF THAT TERM GIVEN IN THE DELHI MUNICIPAL CORPORATION ACT 1957 AND THE PUNJAB MUNIC IPAL ACT 1911. IT WAS THEREFORE HELD ADOPTING IDENTICAL LINE OF REASONING THAT EVEN IF THE STANDARD RENT OF A BUILDING HAS NOT BEEN FIXED BY THE CONTROLLER THE ANNUAL VALUE OF THE BUILDING AS PER SECTION 23(1) OF THE INCOME TAX ACT MUST BE HELD TO BE A STANDARD RE NT DETERMINABLE UNDER THE PROVISIONS OF THE RENT CONTROL ACT AND NOT THE ACTUAL RENT REC EIVED BY THE LANDLORD FROM THE TENANT. THE HONBLE APEX COURT ALSO OBSERVED THAT THIS INTE RPRETATION WHICH WAS BEING PLACED ON THE LANGUAGE OF SECTION 23(1) OF THE INCOME TAX ACT CAN BE SAID TO HAVE RECEIVED 9 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. LEGISLATIVE APPROVAL BY THE AMENDMENT MADE IN THE SAID PROVISIONS WHEREBY IT WAS PROVIDED IN SECTION 23(1)(B) THAT WHERE THE PROPERT Y IS LET AND THE ANNUAL RENT RECEIVED OR RECEIVABLE BY THE OWNER IN RESPECT THEREOF IS IN EX CESS OF THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR THE AMOUNT SO RECEIVED OR RECEIVABLE SHALL BE DEEMED TO THE ANNUAL VALUE OF T HE PROPERTY. 14. THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THEN WENT ON TO REFER TO THE DECISION OF HO NBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PRABHABATI BANSALI 141 ITR 419 WHEREI N IT WAS HELD THAT RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F DEWAN DAULAT RAI KAPOOR (SUPRA) AND MRS. SHEILA KAUSHISH (SUPRA) WHILE DECIDING THE ISSUE RELATING TO DETERMINATION OF ACTUAL VALUE OF THE ASSESSEES PROPERTY IN MUMBAI T HE INCOME FROM HOUSE PROPERTY MUST BE COMPUTED ON THE BASIS OF THE SUM WHICH MIGHT REA SONABLY BE EXPECTED TO LET FROM YEAR TO YEAR AND WITH THE ANNUAL MUNICIPAL VALUE PROVIDE D SUCH A VALUE IS NOT ABOVE THE STANDARD RENT RECEIVABLE AND THE SAME COULD BE ADOP TED AS THE SAFEST GUIDE FOR THIS PURPOSE. AS MENTIONED BY THE TRIBUNAL IN ITS ORDER PASSED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THE SAID DECISION WAS RENDERED BY THE HONBLE CALCUTTA HIGH COURT AFTER TAKING INTO CONSIDERATION THE PROVISION S OF SECTION 154 OF THE BOMBAY MUNICIPAL CORPORATION ACT WHEREIN THE MANNER OF DET ERMINATION OF RATABLE VALUE WAS LAID DOWN WHICH WAS BASED ON THE ANNUAL RENT FOR WHICH T HE PROPERTY MIGHTY REASONABLY BE EXPECTED TO LET FROM YEAR TO YEAR. THE HONBLE CALC UTTA HIGH COURT HELD THAT THE MUNICIPAL VALUATION AND ANNUAL VALUE U/S 23(1)(A) O F THE INCOME TAX ACT THUS ARE ONE AND SAME. AS NOTED BY THE TRIBUNAL IN ITS ORDER PAS SED IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) THE SAID DECISION OF THE HON BLE CALCUTTA HIGH COURT IN THE CASE OF PRABHABATI BANSALI (SUPRA) HAS BEEN SUBSEQUENTLY FO LLOWED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M.V. SONAVALA VS. CIT 177 ITR 246 (BOM) WHEREIN THE QUESTION POSED TO THEIR LORDSHIPS WAS WHETHER THE ACTUAL COM PENSATION RECEIVED COULD BE TAKEN AS ANNUAL VALUE OF THE PROPERTY AS AGAINST THE MUNI CIPAL RATABLE VALUE AND THE SAME WAS 10 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. ANSWERED BY THE HONBLE BOMBAY HIGH COURT IN THE NE GATIVE THAT IS AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSEE. 15. IN OUR OPINION THE ISSUE INVOLVED IN THE PRES ENT CASE THUS IS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RECLAMATION REALTY INDIA P. LTD. (SUPRA) WHICH IN TURN HAS RELIED ON AND FOL LOWED THE JUDGMENTS OF HONBLE APEX COURT AND JURISDICTIONAL HIGH COURT ON A SIMILAR IS SUE AND RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENTS WE REVERSE THE IMPUGNED OR DER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO ADOPT THE RENT ACTUALLY RECE IVED BY THE ASSESSEE DURING A.Y. 2003- 04 TO 2006-07 AS ANNUAL VALUE OF THE PROPERTY BEING MORE THAN THE MUNICIPAL RATABLE VALUE. THE ADDITIONS MADE BY THE A.O. AND CONFIRME D BY THE LD. CIT(A) ON THIS ISSUE ARE ACCORDINGLY DELETED ALLOWING GROUND NO. 2 OF THE AS SESSEES APPEALS FOR A.Y. 2003-04 TO 2006-07. 16. THE OTHER COMMON ISSUE WHICH IS RAISED BY THE A SSESSEE IN GROUND NO. 2 OF ITS APPEAL FOR A.Y. 2001-02 AND A.Y. 2003-04 TO 2006-0 7 AND IN GROUND NO. 2 OF ITS APPEAL FOR A.Y. 2002-03 RELATES TO THE DISALLOWANCE MADE B Y THE A.O. AND CONFIRMED BY THE LD. CIT(A) OUT OF VARIOUS EXPENSES CLAIMED BY THE ASSES SEE U/S 37(1) BY TREATING THE SAME AS ATTRIBUTABLE TO EARNING OF HOUSE PROPERTY INCOME. 17. WHILE COMPUTING ITS BUSINESS INCOME THE ASSESS EE COMPANY HAD CLAIMED DEDUCTION ON ACCOUNT OF VARIOUS EXPENSES. HAVING RE GARD TO THE NATURE OF THE SAID EXPENSES INCURRED BY THE ASSESSEE THE A.O. WAS OF THE OPINION THAT THE SAME WERE PARTLY ATTRIBUTABLE TO THE INCOME EARNED BY THE ASSESSEE F ROM HOUSE PROPERTY IN THE FORM OF RENT. HE THEREFORE HELD THAT THE SAID EXPENSES WERE REQ UIRED TO BE APPORTIONED BETWEEN ASSESSEES BUSINESS INCOME AND HOUSE PROPERTY INCOM E. ACCORDINGLY HE APPORTIONED THE SAID EXPENSES ON THE BASIS OF TURNOVER OF ASSESSEE S BUSINESS AND GROSS RENTAL INCOME 11 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. RECEIVED BY IT FROM HOUSE PROPERTY AND THE EXPENSES PERTAINING TO HOUSE PROPERTY INCOME WERE DISALLOWED BY HIM IN THE YEARS UNDER CONSIDERA TION AS UNDER:- A.Y. 2001-02 - ` 1 53 144/- A.Y. 2002-03 - ` 1 99 959/- A.Y. 2003-04 - ` 1 50 593/- A.Y. 2004-05 - ` 1 50 593/- A.Y. 2005-06 - ` 1 24 156/- A.Y. 2006-07 - ` 88 538/- ON APPEAL THE LD. CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE A.O. ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO EARNING OF RENTAL INCOME O BSERVING THAT MOST OF THE EXPENSES CLAIMED BY THE ASSESSEE AS DEDUCTION AGAINST BUSINE SS INCOME WERE PERTAINING TO OVERALL ENTITY AND OPERATIONS OF THE ASSESSEE COMPANY WHICH THE A.O. HAD RIGHTLY APPORTIONED BETWEEN BUSINESS INCOME AND HOUSE PROPERTY INCOME. 18. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. WE HAVE ALSO PERUSED THE DETAI LS OF EXPENSES CLAIMED BY THE ASSESSEE UNDER THE VARIOUS HEADS. AS RIGHTLY OBSERVED BY TH E LD. CIT(A) THE NATURE OF MOST OF THE SAID EXPENSES IS SUCH THAT THEY CAN BE SAID TO HAVE BEEN INCURRED TO MAINTAIN THE ENTITY OF THE ASSESSEE COMPANY AND ITS OVERALL OPERATIONS. T HE POSSIBILITY OF THE SAID EXPENSES HAVING BEEN PARTLY INCURRED BY THE ASSESSEE IN RELA TION TO EARNING OF HOUSE PROPERTY INCOME THUS CANNOT BE RULED OUT AND IN THE ABSENCE OF ANY DETAILS PREPARED AND FURNISHED BY THE ASSESSEE GIVING EXACT BREAK-UP OF THE SAID E XPENSES THE APPORTIONMENT THEREOF IS REQUIRED TO BE MADE ON SOME REASONABLE BASIS. IN T HIS REGARD THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ELECTRICITY CHARGES PAID BY THE ASSESSEE IN RESPECT OF PORTION OF THE PREMISES LET OUT WERE RECOVERED FROM THE TENANTS TO THE EXTENT OF 90% AS PER THE TERMS OF THE AGREEMENT. KEEPING IN VIEW TH IS SUBMISSION OF THE ASSESSEE AND HAVING REGARD TO ALL THE FACTS OF THE CASE WE ARE OF THE VIEW THAT IT WOULD BE FAIR AND 12 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. REASONABLE TO ESTIMATE THE EXPENSES ATTRIBUTABLE TO THE EARNING OF HOUSE PROPERTY INCOME AT 20% OF THE TOTAL EXPENSES. ACCORDINGLY WE MODIF Y THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE A.O. TO RECOMPU TE THE DISALLOWANCE. GROUND NO. 2 OF THE ASSESSEES APPEAL FOR A.Y. 2001-02 AND A.Y. 200 3-04 TO 2006-07 AS WELL AS GROUND NO. 1 FOR A.Y. 2002-03 THUS ARE PARTLY ALLOWED. 19. IN THE RESULT ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON 28 TH JANUARY 2011. SD/- SD/- (N.V. VASUDEVAN) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI DATED 28 TH JANUARY 2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV - MUMBAI 4. THE CIT- CENTRAL II MUMBAI 5. THE DR BENCH E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI 13 ITA 1718 TO 1722/MUM/09 &ITA 1747/M/09 M/S EVEREST KANTO INVESTMENT & FINANCE LTD. DATE INITIALS 1 DRAFT DICTATED ON 18.1.11 20.1.11 25.1.11 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 21.1.11 25.1.11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER