DEVBHUMI ESTATE (INDIA) P. LTD, MUMBAI v. ITO 2(1)(2), MUMBAI

ITA 584/MUM/2010 | 2006-2007
Pronouncement Date: 27-01-2011 | Result: Allowed

Appeal Details

RSA Number 58419914 RSA 2010
Bench Mumbai
Appeal Number ITA 584/MUM/2010
Duration Of Justice 1 year(s) 5 day(s)
Appellant DEVBHUMI ESTATE (INDIA) P. LTD, MUMBAI
Respondent ITO 2(1)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 27-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 27-01-2011
Date Of Final Hearing 19-01-2011
Next Hearing Date 19-01-2011
Assessment Year 2006-2007
Appeal Filed On 22-01-2010
Judgment Text
I.T.A NO.584/ MUM/2010 DEVBHUMI ESTATE (INDIA) P.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH MUMBAI. [ BEFORE SHRI PRAMOD KUMAR ACCOUNTANT MEMBER ] I.T.A NO.584/ MUM/2010 ASSESSMENT YEAR: 2006-07 DEVBHUMI ESTATE (INDIA) P.LTD. .. APPELLANT 43 4 TH FLOOR 240 AJAY DEEP BLDG PERIN NARIMAN STREET MUMBAI. PA NO.AABCD 1735 R VS INCOME TAX OFFICER WARD 2(1)(2) . RESPONDEN T AAYAKAR BHAVAN M.K. ROAD MUMBAI. APPEARANCES: VIPUL JOSHI FOR THE APPELLANT MALTHI R SRIDHARAN FOR THE RESPONDENT O R D E R 1. BY WAY OF THIS APPEAL THE ASSESSEE HAS CHALLENG ED CORRECTNESS OF CIT(A)S ORDER DATED 7 TH DECEMBER 2009 IN THE MATTER OF ASSESSMENT UNDER S ECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2006-07. 2. IN THE FIRST GROUND OF APPEAL THE ASSESSEE IS A GGRIEVED OF CIT(A)S CONFIRMING THE ESTIMATED ADDITION IN RESPECT OF RENT INCOME AT NOT IONAL RATE OF RS 62.50 PER SQ FT FOR 1909 SQ FT INSTEAD OF RENT ACTUALLY EARNED AT RS 50 PER SQ FT. 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE HAD PURCHASED CERTAIN TENANTED PROPERTY IN FORT MUMBAI AND THE PURCHA SE WAS SUBJECT TO TENANCY AND OCCUPATION OF PREMISES BY EXISTING TENANTS. CITY IC E SUPPLYING & COLD STORAGE CO AND INDIAN I.T.A NO.584/ MUM/2010 DEVBHUMI ESTATE (INDIA) P.LTD 2 BANK WERE THE TENANTS. A PART OF THE PREMISES SO AC QUIRED BY THE ASSESSEE WAS RENTED OUT TO INDIAN BANK FOR A CONSIDERATION OF RS 62.50 PER SQ FT ANOTHER PART OF THE BUILDING WAS SUB LET OUT BY CITY ICE SUPPLY TO CUMMINS DIESEL SALES SERVICES INDIA LTD FOR A CONSIDERATION OF RS 50 PER SQ FT. ON THESE FACTS THE ASSESSING OFFI CER WAS OF THE VIEW THAT THE FACT THAT ASSESSEE HAS ALLOWED CUMMINS DIESEL SALES SERVICES LTD TO CONTINUE AS A TENANT AT A CONSIDERATION OF RS 50 PER SQ FT WHICH IS A VERY U NUSUAL EXERCISE PARTICULARLY AS REAL ESTATE PRICES HAVE GONE UP SO MUCH. HE WAS OF THE VIEW THA T THERE IS NO REASON FOR THE ASSESSEE TO CHARGE LESS RENT. HE ACCORDINGLY ESTIMATED THE R ENTAL INCOME OF THE PREMISES GIVEN TO CUMMINS BY ADOPTING THE RATE OF RS 62.50 PER SQ FT . HE ALSO NOTED CERTAIN DISCREPANCIES IN THE TDS CERTIFICATES FILED BY THE ASSESSE WHICH A CCORDING TO THE ASSESSING OFFICER SHOW ULTERIOR MOTIVES OF THE ASSESSEE. THE RENTAL INCOME OFFERED TO TAX BY THE ASSESSEE WAS THUS REJECTED AND AN ESTIMATED INCOME @ RS 62.50 PER SQ FT ADOPTED. 4. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE STAND OF THE CIT(A) WAS THAT THE ASSES SEE DID HAVE AN OPTION TO INCREASE THE RENT BUT THE ASSESSEE DID NOT EXERCISE THIS OPTION . HE REFERRED TO SECTION 23(1)(A) AND HELD THAT ANNUAL VALUE OF THE PROPERTY HAS TO BE THE RAT E AT WHICH THE PROPERTY CAN BE REASONABLY EXPECTED TO BE LET OUT. THE VERY FACT THAT SIMILAR PROPERTY HAS BEEN RENTED OUT TO ANOTHER TENANT AT A HIGHER RATE ACCORDING TO THE CT(A) ES TABLISHED THE FACT THAT PROPERTY COULD BE REASONABLY EXPECTED TO FETCH THAT RENT. THE CIT(A) ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE ASSESSEE IS NOT SATISFIED BY THE ORDER OF THE CIT(A) AND IS IN FURTHER APPEAL BEFORE ME. 5. I HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE A PPLICABLE LEGAL POSITION. 6. I HAVE NOTED THAT THE ASSESSEE HAS PURCHASED THE PROPERTY SUBJECT TO TENANCIES AND THAT TENANCY TO CUMMINS DIESEL SALES WAS ONE SUCH T ENANCY TO WHICH THE PURCHASES WAS SUBJECTED TO. IN THESE CIRCUMSTANCES DISREGARDING THE ACTUAL RENT RECEIVED FROM THE SAID TENANT MERELY BECAUSE RENT FROM SIMILAR PROPERTY W AS MARGINALLY MORE IN MY CONSIDERED VIEW WAS NO WARRANTED. THERE IS NO OTHER MATERIAL EXCEPT THE RATE AT WHICH PREMISES IS GIVEN TO INDIAN BANK TO COME TO THE CONCLUSION THA T THE MARKET RATE IS HIGHER THAN THE RATE AT WHICH PROPERTY IS LET OUT TO CUMMINS DIESEL SALE S. I HAVE ALSO PERUSED THE CORRESPONDENCE BETWEEN THE ASSESSEE AND CUMMINS DIE SEL SALES WHICH SHOWS THAT THE I.T.A NO.584/ MUM/2010 DEVBHUMI ESTATE (INDIA) P.LTD 3 ASSESSEE MADE EFFORTS TO ENHANCE THE RENT BUT IN VI EW OF TENANCY BEING AN OLD TENANCY THE ENHANCEMENT DID NOT WORK OUT. IN VIEW OF ALL THESE FACTORS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE I DEEM IT FIT AND PROPER TO VACATE THE IMPUGNED ADDITIONS AND DIRECT THE ASSESSING OFFICER TO TAKE THE ACTUAL RENT RECEIVED BY THE ASSESSEE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. GROUND NO. 1 IS THUS ALLOWED. 8. IN GROUND NO. 2 THE ASSESSEE IS AGGRIEVED THAT THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS 42 559 ON ACCOUNT OF PAYMENT OF MUNICIPAL TAXES IN COMPUTATION OF INCOME FROM HOUSE PROPERTY. 9. THE CLAIM OF DEDUCTION IN RESPECT OF MUNICIPAL TAXES OF RS 42 559 WAS DISALLOWED BY THE ASSESSING OFFICER BUT NO REASONS WERE ASSIG NED FOR THE SAME. IN APPEAL CIT(A) UPHELD THE DISALLOWANCE BY OBSERVING THAT DEDUCTION @ 30% WAS GIVEN UNDER SECTION 24. THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFO RE US. 10. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD WE SEE MERITS IN PLEA OF THE ASSESSEE. IT IS ONLY ELEM ENTARY THAT DEDUCTION OF MUNICIPAL TAXES UNDER SECTION 23 IS INDEPENDENT OF 30% DEDUCTION UNDER SECTION 24(A). I THEREFORE DIRECT THE ASSESSING OFFICER TO ALLOW THE DEDUCTION FOR M UNICIPAL TAXES. 11. GROUND NO. 2 IS THUS ALLOWED. 12. IN GROUND NO. 3 THE ASSESSEE IS AGGRIEVED OF C IT(A) DISALLOWING THE DEDUCTION OF RS 1 83 713 AND THE RESULTANT BUSINESS LOSS IN RESP ECT OF NORMAL EXPENSES INCURRED BY THE ASSESSEE ON EXISTENCE OF ITS CORPORATE EXISTENCE AS AN ARTIFICIAL JURIDICAL PERSON. 13. WHILE THE ASSESSING OFFICER DISALLOWED THE EXPE NSES ON THE GROUND THAT THE ONLY BUSINESS CARRIED ON BY THE ASSESSEE WAS EARNING INC OME FROM HOUSE PROPERTY AND THESE EXPENSES COULD NOT BE ALLOWED AS DEDUCTION FROM SUC H INCOME THE CIT(A) ALSO HELD THAT ONLY DEDUCTION WHICH CAN BE GRANTED TO THE ASSESSEE ARE THE DEDUCTIONS ADMISSIBLE FROM INCOME UNDER HOUSE PROPERTY. THE ASSESSEE IS AGGRIE VED AND IS IN APPEAL BEFORE ME. I.T.A NO.584/ MUM/2010 DEVBHUMI ESTATE (INDIA) P.LTD 4 14. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING H EARD THE RIVAL CONTENTIONS I AM OF THE VIEW THAT WHETHER THE ASSESSEE HAS INCOME UNDER THE HEAD BUSINESS OR NOT THE ASSESSEE IS TO BE ALLOWED DEDUCTION FOR EXPENSES WHICH ARE I NCURRED TO MAINTAIN ITS CORPORATE EXISTENCE AS AN ARTIFICIAL JURIDICAL PERSON. IN HOL DING SO I FIND SUPPORT FROM THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS MOKUL FINANCE PVT LTD (110 TTJ 445) WHICH HAS OBSERVED AS FOLLOWS: 5. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RIVA L CONTENTIONS AND THE MATERIAL ON RECORD WE ARE INCLINED TO UPHOLD THE C ONCLUSIONS ARRIVED AT BY THE CIT(A). AS DR. GUPTA RIGHTLY CONTENDS THE ASSESSEE BEING AN ARTIFICIAL JURIDICAL PERSON IT NEEDS TO INCUR CERTAIN EXPENDITURE TO KE EP ITSELF AFLOAT AND HAVE ITS CONTINUED EXISTENCE. UNLIKE1 A NATURAL PERSON A CO MPANY CAN ONLY OPERATE THROUGH OTHER NATURAL PERSONSWHETHER EMPLOYEES OR OTHERS. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE EXPENDITURE OF THE ASSESSEE COMPANY ARE EXCESSIVE OR UNREASONABLE VIS-A-VIS ITS LEGITIMATE BUSINESS REQUIREMENTS. THE HONBLE HIGH COURTS HAVE CONSISTENTLY HELD THAT IN THE CASE OF THE CORPORATE ASSESSEES SUCH EXPENSES HAVE TO BE ALLOWED AS DEDUC TION IRRESPECTIVE OF WHETHER OR NOT THE ASSESSEE IS ENGAGED IN ACTIVE BU SINESS AND EVEN IF ASSESSEE HAS ONLY PASSIVE INCOMES. THE CIT(A) WAS THEREFORE JUSTIFIED IN HIS CONCLUSIONS . 15. IN THIS VIEW OF THE MATTER AND FOLLOWING THE V IEWS SO TAKEN BY THE DIVISION BENCH IN MOKUL FINANCES CASE (SUPRA) I UPHOLD THE GRIEVANC E OF THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE. THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME UNDER THE BUSINESS INCOME AND GIVE CONSEQUENTIAL RELIEF ON THAT BASIS. 16. GROUND NO. 3 IS ALLOWED. 17. IN GROUND NO. 4 THE ASSESSEE IS AGGRIEVED OF C IT(A)S NOT ALLOWING THE SET OFF OF BROUGHT FORWARD BUSINESS LOSS AND HOUSE PROPERTY LO SS. 18. WHILE THERE IS NO DISCUSSION ON THIS ISSUE IN T HE ASSESSMENT ORDER THE CIT(A) HAS SIMPLY BRUSHED ASIDE THE GRIEVANCE BY GIVING ASSESS ING OFFICER A DIRECTION TO ALLOW SET OFF OF BUSINESS LOSS IF DETERMINED IN FUTURE. THAT WAS N OT EVEN THE ISSUE BEFORE THE CIT(A). THE ASSESSEE IS AGGRIEVED OF THE STAND SO TAKEN BY THE CIT(A) AND IN APPEAL BEFORE ME. ALL THAT THE LEARNED COUNSEL PRAYS FOR IS THAT THE MATTER BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION ON MERITS AND AFTER GIVIN G AN ASSESSEE AN OPPORTUNITY OF HEARING ON THIS ISSUE. I.T.A NO.584/ MUM/2010 DEVBHUMI ESTATE (INDIA) P.LTD 5 19. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD I DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE F ILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION - IN ACCORDANCE WITH LAW BY WAY OF A SPEAKING ORDER AND AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. LET THE MAT TER BE EXAMINED AFRESH AS SUCH. 20. GROUND NO. 4 IS THUS ALLOWED FOR STATISTICAL PU RPOSES IN THE TERMS INDICATED ABOVE. 21. IN THE RESULT THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 27TH JANUARY 2011. SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI DATED 27 TH JANUARY 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS) MUMBAI 4. COMMISSIONER OF INCOME TAX MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH SMC MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI