SUDEEP EXPORTS P. LTD, MUMBAI v. ITO 8(3)(2), MUMBAI

1 ITA NO.4028 &4029/MUM/2008 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 BEFORE SHRI R K PANDA BEFORE SHRI R K PANDA BEFORE SHRI R K PANDA A AA ACCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER CCOUNTANT MEMBER ITA NO. ITA NO. ITA NO. ITA NO. 4028 & 4029/MUM/2008 4028 & 4029/MUM/2008 4028 & 4029/MUM/2008 4028 & 4029/MUM/2008 (ASST YEAR (ASST YEAR (ASST YEAR (ASST YEAR 2000 2000 2000 2000- -- -01 & 2001 01 & 2001 01 & 2001 01 & 2001- -- -02 0202 02) )) ) SUNDEEP EXPORTS PVT LTD C-1 UDYOG SADAN NO.3 MAROL INDUL.AREA ANDHERI (W) MUMBAI 93 VS THE INCOME TAX OFFICER WARD 8(3)(2) MUMBAI ( (( (APPELLANT APPELLANT APPELLANT APPELLANT) )) ) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) PAN NO. PAN NO. PAN NO. PAN NO.AAACS8016M AAACS8016M AAACS8016M AAACS8016M ASSESSEE BY SHRI K SHIVARAM REVENUE BY SHRI SATBIR SINGH/DR PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM PER R K PANDA AM THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE D IRECTED AGAINST THE SEPARATE ORDERS DATED 2.5.2008 AND 11.4.2008 OF THE CIT(A)-XXIX MUMBAI RELATING TO ASSESSMENT YEARS 2000-01 AND 2001-02 RE SPECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO. 4028/MUM/2008 (AY 2001 ITA NO. 4028/MUM/2008 (AY 2001 ITA NO. 4028/MUM/2008 (AY 2001 ITA NO. 4028/MUM/2008 (AY 2001- -- -02) 02) 02) 02) 2 GROUNDS OF APPEAL NO.1 RELATES TO THE ORDER OF TH E CIT(A) IN CONFIRMING THE REOPENING OF THE ASSESSMENT U/S 147 OF THE I T ACT BY THE ASSESSING OFFICER. THE LD COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GRO UND FOR WHICH THE LD DR HAS NO OBJECTION. ACCORDINGLY THIS GROUND BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 3 GROUNDS OF APPEAL NOS 2 TO 4 READ AS UNDER: 2 THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN ASSESSING THE INCOME IN RESPECT OF A FLAT AT NCPA A T RS. 3 12 450/- AS AGAINST RS. 1 68 329/-AS DECLARED IN THE RETURN. 2 ITA NO.4028 &4029/MUM/2008 3 THE LD CITA) ERRED IN DIRECTING THE INCOME FROM N CPA PROPERTY TO BE ASSESSED U/S 23(1) (A) OF THE ACT AS AGAINST SECTIO N 23(1) (B) APPLIED BY THE ASSESSING OFFICER. 4 THE LD CIT(A) ERRED IN NOT ADOPTING THE MUNICIPA L RATEABLE VALUE OF RS.1 05 718/- AS PER BMC VALUATION AS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR U/S 23(1)(A) OF THE ACT. 3.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSES SEE COMPANY IS ONE OF THE CO-OWNERS OF THE FLAT AT NCPA COMPLEX MUMBAI. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS IN THE CASE OF SHRI J M TAND ON ONE OF THE CO-OWNER OF THE SAID FLAT IT WAS NOTICED BY THE ASSESSING OFF ICER THAT THE SAID FLAT WAS LET OUT FOR THE PERIOD FROM 1.8.1999 TO 30.9.2003 FOR A MONTHLY RENT OF RS. 40 000/- WITH INTEREST FREE DEPOSIT OF RS. 2 25 00 000/-. I T WAS FURTHER NOTICED THAT M/S GUJARAT AMBUJA CEMENTS LTD (GACL) OWNS A FLAT IN T HE SAME BUILDING AND THE SAME AREA AND HAD LET OUT THE FLAT FOR A MONTHLY R ENT OF RS. 2 75 000/-. HOWEVER GACL HAD NOT ACCEPTED ANY INTEREST FREE DEPOSIT. 3.2 IN VIEW OF THE ABOVE MENTIONED FACTS AND SINCE THE ASSESSEE HAS MINIMIZED THE RENTAL INCOME RECEIVED BY ACCEPTING THE HUGE SECURITY DEPOSITS THE ASSESSING OFFICER INITIATED PROCEEDINGS U/S 147 AND NOTICE U/S 148 WAS ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDING S THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE RENTAL INCOME SHOULD NOT BE COMPUTED TAKING INTO ACCOUNT THE HUGE DEPOSIT RECE IVED. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE THE ASSESSING O FFICER HELD THAT IT WOULD BE QUITE REASONABLE AND LOGICAL TO COMPUTE THE TAXABLE INCOME IN THE HANDS OF THE ASSESSEE ON THE BASIS OF RENT RECEIVED BY GACL. HE ACCORDINGLY DETERMINED THE ANNUAL RENT AT RS.6 60 000/- BEING THE AMOUNT ATTRI BUTABLE TO THE ASSESSEE. 3 ITA NO.4028 &4029/MUM/2008 4 IN APPEAL THE CIT(A) HELD THAT THE RATEABLE VAL UE DETERMINED BY THE BMC IS NOT THE STANDARD RENT. IN THE CASE OF THE ASSES SEES CONCESSIONAL RENT SHOWN WAS BECAUSE OF SECURITY DEPOSIT AND THERE WAS DIREC T QUID PRO QUO BETWEEN CONCESSIONAL RENT AND INTEREST FREE SECURITY DEPOSI T. HE ACCORDINGLY UPHELD THE ACTION OF THE ASSESSING OFFICER IN DETERMINING THE ALV AT RS. 6.60 LACS. HE FURTHER HELD THAT ALTHOUGH THE ASSESSING OFFICER HAS NOT M ENTIONED CLAUSE 23(1) UNDER WHICH HE HAD WORKED OUT THE FAIR RENT IT IS TO BE HELD THAT FAIR MARKET VALUE HAS BEEN WORKED OUT U/S 23(1)(A) OF THE ACT. 5 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL 6 THE LD COUNSEL FOR THE ASSESSEE AT THE OUTSET RE LIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS RECLAMATION REALIT Y INDIA PVT LTD AND OTHER GROUP CONCERNS VIDE ITA NO. 1411/MUM/2007 AND OTH ERS FOR AY 2004-05. REFERRING TO THE CONSOLIDATED ORDER OF THE TRIBUNA L DATED 26.11.2010 HE DREW THE ATTENTION OF THE BENCH TO PARA 25 OF THE ORDER AND SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT ANNUAL VALUE ADOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY SHOULD BE TH E DETERMINING FACTOR FOR APPLYING THE PROVISIONS OF SEC. 23(1)(A) OF THE I T ACT. NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT/RENT RECEIVED IN ADV ANCE SHOULD NOT BE ADDED TO THE SAME IN VIEW OF THE DECISION OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF J K INVESTORS (BOMBAY) LTD REPORTED IN 248 ITR 723. 4 ITA NO.4028 &4029/MUM/2008 6.1 REFERRING TO ANOTHER DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS VAISHNAV S PURI (HUF) VIDE ITA NOS. 7046/MM/2006 4 382/MUM/2007 AND 4747/MUM/2008 FOR AYS 2003-04 04-05 AND 05-06 ORDER DATED 12.1.2011 HE SUBMITTED THAT THE TRIBUNAL FOLLOWING THE DECISION IN THE CASE OF RECLAMATION REALITY INDIA PVT LTD (SUPRA) HELD THAT EVEN FOR T HE PURPOSE OF SEC. 23(1)(A) NOTIONAL INTEREST INCOME ON THE SECURITY DEPOSIT/AD VANCE RENT CANNOT BE INCLUDED IN THE INCOME FROM PROPERTY. 6.2 REFERRING TO THE DECISION OF THE BOMBAY HIGH CO URT IN THE CASE OF SMT SMITABEN N AMBANI VS CIT REPORTED IN 323 ITR 104 (B OM); DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS P RABHABATI BANSALI REPORTED IN 141 ITR 419 (CAL) AND THE DECISION OF THE TRIBUNAL IN THE CASE OF DCC VS SHRI SHRIPAL MORAKHAI REPORTED IN 7 SOT 609 HE SUBM ITTED THAT MUNICIPAL RATEABLE VALUE ONLY TO BE TAKEN AS ANNUAL LETTING VALUE OF T HE PROPERTY. 6.3 REFERRING TO THE ORDER OF THE CIT(A) IN THE CAS E OF J M TANDON COPY OF WHICH IS PACED AT PAGES 36 TO 42 OF THE PAPER BOOK WHICH IS THE BASIS FOR REOPENING OF THE ASSESSMENT IN THE CASE OF THE ASSE SSEE HE SUBMITTED THAT CIT (A) IN THE SAID DECISION HAS QUASHED THE REASSES SMENT PROCEEDINGS AND THE DEPARTMENT IS NOT IN APPEAL. HE ACCORDINGLY SUBM ITTED THAT THIS BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE THE ORDER OF THE CIT(A) SHOULD BE SET ASIDE AND THE AMOUNT DISCLOSED BY THE ASSESSEE SHO ULD BE ACCEPTED. 5 ITA NO.4028 &4029/MUM/2008 6.4 THE LD DR ON THE OTHER HAND WHILE RELYING ON THE ORDER OF THE CIT(A) FAIRLY CONCEDED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE TWO DECISIONS OF THE TRIBUNAL RELIED ON BY THE LD COUNS EL FOR THE ASSESSEE. 7 I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOT H 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 DECISI ONS CITED BEFORE ME. THERE IS NO DISPUTE TO THE FACT THAT THE FLAT IN WHICH THE A SSESSEE IS THE CO-OWNER HAS BEEN LET OUT FOR A MONTHLY RENT OF RS. 40 000/- WIT H INTEREST FREE DEPOSIT OF RS. 2.25 CRORES. THERE IS ALSO NO DISPUTE TO THE FA CT THAT THE FLAT IN THE SAME BUILDING AND THE SAME AREA HAD BEEN LET OUT FOR A M ONTHLY RENT OF RS. 2.75 LACS BY GACL; WHO HAD NOT ACCEPTED ANY INTEREST FREE DEP OSIT. ACCORDING TO THE ASSESSING OFFICER MONTHLY RENT OF THE SAID PROPERT Y SHOULD BE RS. 2.75 LACS WHICH HAS BEEN UPHELD BY THE CIT(A) WHO HAS ALSO H ELD THAT THE SAME HAS BEEN WORKED OUT BY THE ASSESSING OFFICER U/S 23(1)(A) O F THE ACT. 7.1 IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT INTEREST ON INTEREST FREE DEPOSIT CANNOT BE TAKEN INTO ACCOUNT FOR SEC. 23(1)(A) OF THE ACT AND MUNICIPAL RATEABLE VALUE HAS TO BE ADOPTED FOR THE PURPOSE OF ALV. I FIND THE TRIBUNAL IN THE CASE OF RECLAMATION REALITY INDIA P VT LTD (SUPRA) AT PARA 25 OF THE ORDER HAS HELD AS UNDER: 25. FOR THE REASONS GIVEN ABOVE WE HOLD THAT THE ANNUAL VALUE (ALSO REFERRED TO AS MUNICIPAL VALUATION/RATEABLE VALUE A DOPTED BY THE MUNICIPAL AUTHORITIES IN RESPECT OF THE PROPERTY AT RS. 27 50 835/- SHOULD E THE DETERMINING FACTOR FOR APPLYING THE PROVISIONS OF S EC. 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 F ROM YEAR TO YEAR THE 6 ITA NO.4028 &4029/MUM/2008 ACTUAL RENT RECEIVED SHOULD BE THE ANNUAL VALUE OF THE PROPERTY U/S 23(1)(B OF THE ACT. NOTIONAL INTEREST ON INTEREST FREE SECU RITY DEPOSIT/RENT RECEIVED IN ADVANCE SHOULD NOT E ADDED TO THE SAME IN VIEW O F THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF J K INVEST ORS (BOMBAY LTD (SUPRA). WE HOLD ACCORDINGLY. THE APPEAL OF THE REV ENUE IS DISMISSED. 7.2 I FIND THE TRIBUNAL IN THE CASE OF VAISHNAV S PURI (HUF) (SUPRA) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF RECLAMA TION REALITY INDIA PVT LTD (SUPRA) AT PARA 13 OF THE ORDER HAS HELD AS UNDER: 13.WE MAY NOW TAKE UP GROUND NO.3 BECAUSE IT IS CO NNECTED TO THE COMPUTATION OF PROPERTY INCOME. IN RESPECT OF THE OWNED PROPERTIES WE HAVE ALREADY NOTICED THAT THE ASSESSING OFFICER INCLUDED 10% OF THE SECURITY DEPOSIT AND ADVANCE RENT IN THE INCOME AND HIS ACTI ON WAS DISAPPROVED BY THE CIT(A). THE REVENUE IS IN APPEAL TO CONTEND ON THE BASIS OF THE ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF T IVOLI INVESTMENT & TRADING CO. (P) LTD. VS. ACIT (2004) 84 TTJ 198 (MU M) AND ITO VS. BAKER TECHNICAL SERVICES (P) LTD. (2009) 126 TTJ 455 (MUM ) (TM) AND THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF FIZZ DRINKS LTD. VS. DCIT (2005) 95 TTJ 429 (DEL) THAT THE NOTIONAL INCOME WAS RIGH TLY ADDED SINCE THE INCOME FROM THE PROPERTY IS COMPUTED UNDER SECTION 23(1)(A ) OF THE ACT. THIS ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT ORDER DATED 26.11.2010 PASSED BY THE MUMBAI BENCH D IN THE CASE OF DCIT VS. RECLAMATION REALTY INDIA PVT. LTD. (ITA NO: 1411/MUM/2007 AND CONNECTE D APPEALS) (ASSESSMENT YEAR: 2004-05) A COPY OF WHICH WAS FIL ED BEFORE US ON BEHALF OF THE ASSESSEE. IN THIS ORDER AFTER CONSIDERING THE ENTIRE LEGAL POSITION AND WITH PARTICULAR REFERENCE TO SECTION 23(1)(A) AND ALSO A FTER CONSIDERING THE THREE ORDERS CITED BEFORE US ON BEHALF OF THE DEPARTMENT THE TRIBUNAL CAME TO THE CONCLUSION THAT EVEN FOR THE PURPOSE OF SECTION 23( 1)(A) THE NOTIONAL INTEREST INCOME ON THE SECURITY DEPOSIT / ADVANCE RENT CANNO T BE INCLUDED IN THE INCOME FROM PROPERTY. RESPECTFULLY FOLLOWING THE S AID ORDER WE AFFIRM THE DECISION OF THE CIT(A) FOR ALL THE THREE YEARS. TH US GROUND NO.3 FOR THE ASSESSMENT YEAR 2003-04 AND GROUND NO.2 FOR THE ASS ESSMENT YEARS 2004- 05 AND 2005-06 ARE DISMISSED. 8 RESPECTFULLY FOLLOWING THE ABOVE TWO DECISIONS I AM OF THE CONSIDERED OPINION THAT ALV ADOPTED BY THE MUNICIPAL AUTHORIT IES SHOULD BE THE DETERMINING 7 ITA NO.4028 &4029/MUM/2008 FACTOR FOR APPLYING PROVISIONS OF SEC. 23(1)(A) OF THE ACT. NO NOTIONAL INCOME ON INTEREST FREE DEPOSIT/RENT RECEIVED IN ADVANCE SHOU LD BE CONSIDERED FOR DETERMINING THE MUNICIPAL VALUE OF THE PROPERTY. SI NCE THE RENT RECEIVED BY THE ASSESSEE IN THE INSTANCE CASE IS MORE THAN THE MUNI CIPAL RATEABLE VALUE; THEREFORE THE SAME HAS TO BE TAKEN AS ALV OF THE P ROPERTY. HOWEVER SINCE THE MUNICIPAL RATEABLE VALUE WAS NOT BEFORE THE ASSESSI NG OFFICER AND SINCE THE CIT(A) HAS NOT CONSIDERED THE SAME WHICH WAS GIVEN BEFORE HIM FOR THE FIRST TIME I DIRECT THE ASSESSING OFFICER TO VERIFY THE MUNICIPAL RATEABLE VALUE OF THE PROPERTY AND IF THE ACTUAL RENT RECEIVED BY THE ASS ESSEE AS DISCLOSED BY IT IS MORE THAN THE MUNICIPAL RATEABLE VALUE THEN TO ADOP T THE ACTUAL RENT AS THE ALV OF THE PROPERTY. I HOLD AND DIRECT ACCORDINGLY. THI S GROUND OF THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED ITA NO. ITA NO. ITA NO. ITA NO.4029/MUM/2008 4029/MUM/2008 4029/MUM/2008 4029/MUM/2008(AY 200 (AY 200 (AY 200 (AY 2001 11 1- -- -02) 02) 02) 02) 9 THE GROUNDS RAISED BY THE ASSESSEE IN THE IMPUGNE D APPEAL ARE AS UNDER: THE LD CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER IN ASSESSING THE INCOME IN RESPECT OF A FLAT AT NCPA A T RS. 4 77 450/- AS AGAINST RS. 54 449/--AS DECLARED IN THE RETURN. THE LD CITA) ERRED IN DIRECTING THE INCOME FROM NCP A PROPERTY TO BE ASSESSED U/S 23(1) (A) OF THE ACT AS AGAINST SECTIO N 23(1) (B) APPLIED BY THE ASSESSING OFFICER. THE LD CIT(A) ERRED IN NOT ADOPTING THE MUNICIPAL RATEABLE VALUE OF RS.1 05 718/- AS PER BMC VALUATION AS THE SUM FOR WHICH THE PROPERTY MIGHT REASONABLY BE EXPECTED TO LET FROM YEAR TO YE AR U/S 23(1)(A) OF THE ACT. 10 AFTER HEARING BOTH THE PARTIES I FIND THE ABOVE GROUNDS ARE IDENTICAL TO THE GROUNDS OF APPEAL NO.2 TO 4 IN ITA NO.4028/M/2008. I HAVE ALREADY CONSIDERED THE ISSUE AND THE GROUNDS HAVE BEEN DECIDED IN FAVO UR OF THE ASSESSEE. 8 ITA NO.4028 &4029/MUM/2008 FOLLOWING THE SAME RATIO THE GROUNDS RAISED IN THE IMPUGNED APPEAL ARE ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 11 IN THE RESULT THE APPEAL IN ITA NO.4028/MUM/2008 IS PARTLY ALLOWED WHEREAS THE APPEAL IN ITA NO.4029/MUM/2008 IS ALLOW ED. 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* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI