DISTRIBUTORS (BOMBAY ) P. LTD, MUMBAI v. ITO 5(10(3), MUMBAI

ITA 6466/MUM/2009 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 646619914 RSA 2009
Assessee PAN AAACD2603D
Bench Mumbai
Appeal Number ITA 6466/MUM/2009
Duration Of Justice 1 year(s) 7 month(s) 13 day(s)
Appellant DISTRIBUTORS (BOMBAY ) P. LTD, MUMBAI
Respondent ITO 5(10(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 29-07-2011
Date Of Final Hearing 23-06-2011
Next Hearing Date 23-06-2011
Assessment Year 2005-2006
Appeal Filed On 16-12-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: MUMBAI BEFORE SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR JUDICIAL MEMBER ITA NO.6466/MUM /2009 (ASSESSMENT YEAR: 2005-06) DISTRIBUTORS (BOMBAY) PVT. LTD. B-34/35 3RD FLOOR PARAGON CONDOMINIUM P.B. MARG WORLI MUMBAI-400 013 ....... APPELLANT VS INCOME TAX OFFICER 5(1)(3) ROOM NO.569 5TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI -400 020 ..... RESPONDENT PAN: AAACD 2603 D APPELLANT BY: MISS AARTI VISSANJI RESPONDENT BY: SHRI M.R. KUBAL O R D E R PER R.S. PADVEKAR JM IN THIS APPEAL THE ASSESSEE HAS CHALLENGED THE IMPU GNED ORDER OF THE LD. CIT (A)-9 MUMBAI DATED 09.11.2009 FOR TH E A.Y. 2005-06. THE FIRST ISSUE IS IN RESPECT OF THE DETERMINATION OF THE ANNUAL LETTING VALUE (ALV) OF THE PROPERTY. 2. BRIEFLY STATED FACTS ARE AS UNDER. THE ASSESSEE IS THE OWNER OF BUNGALOW KNOWN AS GHIA MANSION SITUATED AT CHARMI CHAEL ROAD MUMBAI. THE SAID PROPERTY HAS GROUND PLUS FOUR FLO ORS AND ASSESSEE HAS LET OUT THREE FLOORS ON RENT-BASIS. ONE FLOOR IS LET OUT TO M/S. BHUPATI INVESTMENTS & FINANCE LIMITED (IN SHORT REF ERRED TO AS BIFL) ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 2 FOR A YEARLY RENT OF ` 8 102/-. THE SAID BIFL HAS SU-BLET THE SAID PROPERTY TO M/S. AMERICAN EXPRESS BANK LIMITED ON T HE MONTHLY RENT OF ` 50 000/- WITH THE PERMISSION OF THE ASSESSEE-COMPA NY DATED 16.9.2003. AS PER THE ARRANGEMENT THE ASSESSEE RE CEIVED DEPOSIT FROM M/S. AMERICAN EXPRESS BANK LIMITED ` 3.5 CRORES BUT RENT IS RECEIVED BY M/S. BIFL. THE ASSESSEE-COMPANY CLAIMS THAT M/S. BIFL IS STATUTORY TENANT CONTROLLED UNDER THE BOMBAY TEN ANT ACT THEREFORE FAIR MARKET VALUE OF THIS PROPERTY CANNO T BE MORE THAN STANDARD RENT DETERMINED UNDER THE RENT CONTROL ACT . THE A.O. DETERMINED THE ALV OF THE SAID PROPERTY BY CONSIDER ING THE RENT RECEIVED BY M/S. BIFL. THE A.O. ALSO WAS OF THE OP INION THAT BY DETERMINING THE ALV OF THE PROPERTY THE NOTIONAL I NTEREST ON THE DEPOSIT RECEIVED FROM M/S. AMERICAN EXPRESS BANK LI MITED IS ALSO TO BE INCLUDED AS THE ASSESSEE IS BENEFITED TO THAT EX TENT. THE A.O. ACCORDINGLY WORKED OUT THE PROPERTY INCOME AT ` 16 37 110/- AS AGAINST ` 5 03 110/- DECLARED BY THE ASSESSEE. IT IS PERTIN ENT TO NOTE HERE THAT THE A.O. ONLY CONSIDERS THE NOTIONAL INTE REST FOR THE PERIOD OF THE THREE MONTHS AS THIS YEAR AMERICAN EXPRESS BANK LIMITED VACATED THE PREMISES AND THE SAID FLOOR WAS OCCUPIED BY M/S . BIFL AND THE DEPOSIT HAS BEEN REFUNDED TO THE BANK. THE A.O. HA S ALSO OBSERVED THAT THE TENANT/ LICENSEE SHOWN BY THE ASSESSEE ARE COMPANIES CONTROLLED BY THE ASSESSEE-COMPANY DIRECTLY OR INDI RECTLY AND HENCE THE RENT SHOWN BY THE ASSESSEE IS NOT AT ARMS LENGT H. WHEN THE ISSUE REACHED BEFORE THE ASSESSEE AS A RESULT OBJECTED TO THE PROPERTY INCOME DETERMINED BY THE A.O. THE ASSESSEE CONTEND ED THAT M/S. BIFL HAS A STATUTORY TENANT AND HENCE PROVISIONS OF THE MAHARASHTRA RENT CONTROL ACT IS APPLICABLE TO M/S. BIFL AND THE RECENT RECEIVED BY M/S. BIFL CANNOT BE TAXED IN THE HANDS OF THE ASSES SEE. IN RESPECT OF THE NOTIONAL INTEREST ON THE INTEREST-FREE DEPOSIT THE ASSESSEE RELIED ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. J.K. INVESTORS (BOM) LTD. 248 ITR 723 AND ALSO IN THE CA SE OF CIT VS. SATYA CO. LTD 72 TAXMAN 193. THE LD. CIT (A) WAS NOT IMP RESSED WITH THE SUBMISSIONS OF THE ASSESSEE. THE LD. CIT (A) HAS O BSERVED THAT THE ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 3 ASSESSEE AND M/S. BIFL ARE RELATED PARTIES AS THEY ARE COMMON DIRECTORS IN THE BOARD OF BOTH COMPANIES. MRS. V.D . GHIYA IS THE CHAIR PERSON OF THE ASSESSEE OF THE ASSESSEE-COMPAN Y AND IS ALSO A DIRECTOR OF THE M/S. BIFL THE LD. CIT (A) ALSO REFE RRED TO THE OTHER DIRECTORS OF M/S. BIFL WHO ARE ALSO COMMON DIRECTOR S IN THE ASSESSEE-COMPANY. THE LD. CIT (A) ALSO REFERRED TO THE SUBSIDIARIES OF M/S. BIFL AND ALSO THEIR SHAREHOLDINGS. IN SUM AND SUBSTANCES THE LD. CIT (A) IS OF OPINION THAT THE LANDLORD I.E. TH E ASSESSEE AND THE TENANT COMPANY VIZ. M/S. BIFL ARE CONTROLLED BY M/S . GHIYA FAMILY AND HENCE M/S. BIFL CANNOT BE TREATED AS A STATUTOR Y TENANT. THE LD. CIT (A) ALSO OBSERVED THAT THE ASSESSEE OBTAINED DE POSIT OF ` 3.5 CRORES FORM M/S. AMERICAN EXPRESS BANK LIMITED THROUGH M/S . BIFL. IN SUM AND SUBSTANCE THE LD. CIT (A) SUPPORTED THE A. O.S ACTION FOR BRING TO TAX THE ENTIRE RENT RECEIVED BY M/S. BIFL RECEIVED FROM M/S. AMERICAN EXPRESS BANK LIMITED AS INCOME OF THE ASSE SSEE. THE ASSESSEE ALSO RELIED ON THE ORDERS OF THE ITAT IN I TS OWN CASE IN THE PRECEDING YEAR BUT THE SAME WAS ALSO NOT ACCEPTED A ND IT IS CONCLUDED THAT IN THE PRECEDING YEAR M/S. BIFL WAS RELATED TO THE ASSESSEE- COMPANY WAS NOT BROUGHT TO THE NOTICE OF THE APPELL ATE AUTHORITY. THE LD. CIT (A) CONFIRMED THE A.O.S ACTION FOR BRINING TO TAX THE RENT RECEIVED FROM M/S. AMERICAN EXPRESS BANK LIMITED BY M/S. BIFL IN THE HANDS OF THE ASSESSEE. SO FAR AS THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST TOWARDS INTEREST-FREE DEPOSIT IS CONCERNED THE LD. CIT (A) GAVE RELIEF TO THE ASSESSEE BY HOLDING THAT NO ADJUSTMENT IS REQUIRED TO BE MADE TO THE ALV IN RESPECT OF THE IN TEREST-FREE DEPOSIT RECEIVED BY THE ASSESSEE. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND PERUSED THE RECORDS. AS PER COPIES OF THE ORDER OF THE TRI BUNAL FOR THE A.YS. 1995-96 1997-98 2001-02 AND 2002-03 WE FIND THAT THE ISSUE OF DETERMINATION OF THE ALV WAS IN DISPUTE MORE PARTI CULARLY ON THE ISSUE OF INTEREST-FREE DEPOSIT AS WELL AS THE DETER MINATION OF THE ALV. THIS YEAR THE A.O. HAS DISPUTED THE RENT DECLARED B Y THE ASSESSEE AS ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 4 AN INCOME FROM PROPERTY U/S.23(1)(B). THE ONLY LIM ITED CONTROVERSY BEFORE US IS CAN THE M/S. BIFL BE TREATED AS NON-ST ATUTORY TENANT AND HENCE THE PROVISIONS OF THE MAHARASHTRA RENT CONTR OL ACT ARE NOT APPLICABLE AND RENT RECEIVED BY SAID COMPANY IS TO BE TAXED AS INCOME IN HANDS OF THE ASSESSEE. IN OUR OPINION THE ASSE SSEE AND M/S. BIFL ARE TWO INDEPENDENT LEGAL ENTITIES. IN OPINION OF THE A.O. THE ASSESSEE HAS USED DEVISE OF M/S. BIFL IN AVOIDING THE TAX LI ABILITY BY PROMOTING M/S. BIFL TO SUBLET THE PREMISES TO M/S. AMERICAN E XPRESS BANK LTD. BUT THERE IS NO PROVISION UNDER THE INCOME-TAX ACT MORE PARTICULARLY WHILE DETERMINING THE ALV UNDER THE HEAD INCOME FO RM HOUSE PROPERTY TO TAX SAID INCOME IN THE HANDS OF THE AS SESSE. IN OUR OPINION M/S. BIFL IS A STATUTORY TENANT PROTECTED UNDER THE MAHARASHTRA RENT CONTROL ACT AND HENCE THE PROVISIO NS OF MAHARASHTRA RENT CONTROL ACT ARE APPLICABLE. 4. THE NEXT QUESTION IS CAN THE RENT RECEIVED BY M/ S. BIFL BE TAXED IN THE HANDS OF THE ASSESSEE-COMPANY. IN OUR OPINION THAT IS ALSO NOT PERMISSIBLE AS M/S. BIFL IS AN INDEPENDENT LEGAL ENTITY BUT THE A.O CAN DETERMINE THE ANNUAL LETTING VALUE (ALV ) OF THE SAID PREMISES U/S. 23(1)(A) AND CAN DETERMINE THE FAIR M ARKET RENT AS PER THE SETTLED LEGAL PRINCIPLES AS HELD IN THE CASE OF M/S. SHIELA KAUSHIK 131 ITR 384 (SC) THAT THE STANDARD RENT DETERMINED UNDER THE RENT CONTROL ACT IS A FAIR RENT AND THAT SHOULD BE CONSI DERED. 5. AS WE HAVE ALREADY OBSERVED THAT AS PER THE MAHA RASHTRA RENT CONTROL ACT 1991 COMMON CONTROL OF THE DIRECTORS I N TWO COMPANIES DOES NOT MAKE ANY DIFFERENCE. WE THEREFORE HOLD THAT RENT RECEIVED BY THE SUB-TENANT M/S. BIFL CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE BUT AT THE SAME TIME THE A.O. CAN GO IN TO THE DETERMINATION OF THE FAIR RENT U/S.23(1)(A) OF TH E ACT. IN THE RECENT DECISION IN THE CASE OF CIT VS. MONI KUMAR SUBBA 33 3 ITR 38 (DEL)(FB) THE HONBLE HIGH COURT OF DELHI (FULL BEN CH) AFTER CONSIDERING ALL THE RELEVANT DECISION ON THE ISSUE INCLUDING THE ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 5 DECISION IN THE CASE OF SHIELA KAUSHIK (SUPRA) HAS LAID DOWN CERTAIN GUIDELINES FOR DETERMINING THE ANNUAL VALUE OF THE PROPERTY LET OUT U/S.23(1)(A) WHICH ARE AS UNDER:- 18. ..(I) ALV WOULD BE THE SUM AT WHICH THE PROPER TY MAY BE REASONABLY LET OUT BY A WILLING LESSOR TO A WILL ING LESSEE UNINFLUENCED BY ANY EXTRA NEOUS CIRCUMSTANCES. (II) AN INFLATED OR DEFLATED RENT BASED ON EXTRANEO US CONSIDERATION MAY TAKE IT OUT OF THE BOUNDS OF REASONABLENESS. (III) ACTUAL RENT RECEIVED IN NORMAL CIRCUMSTANCES WOULD BE A RELIABLE EVIDENCE UNLESS THE RENT IS INFLATED / DEFLATED BY REASON OF EXTRANEOUS CONSIDERATION. (IV) SUCH ALV HOWEVER CANNOT EXCEED THE STANDARD RENT AS PER THE RENT CONTROL LEGISLATION APPLICABLE TO THE PROPERTY. (V) IF STANDARD RENT HAS NOT BEEN FIXED BY THE RENT CONTROLLER THEN IT IS THE DUTY OF THE ASSESSING OF FICER TO DETERMINE THE STANDARD RENT AS PER THE PROVISION S OF RENT CONTROL ENACTMENT. (VI) THE STANDARD RENT IS THE UPPER LIMIT IF THE F AIR RENT IS LESS THAN THE STANDARD RENT THEN IT IS THE FAIR RENT WHICH SHALL BE TAKEN AS ALV AND NOT THE STANDARD RENT. 6. WE ACCORDINGLY DEEM IT FIT TO RESTORE THIS ISS UE TO THE FILE OF THE A.O. FOR FRESH ADJUNCTION TO DECIDE THE FAIR RENT U /S.23(1)(A) AFTER ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 6 CONSIDERING THE GUIDELINES LAID DOWN IN THE CASE OF MONI KUMAR SUBBA (SUPRA). NEEDLESS TO SAY THE A.O. SHOULD GIVE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO.1 TO 3 IS ALLOWED FOR THE STATISTICAL PURPOSE. 7. GROUND NO.4 READS AS UNDER:- 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN ENHANCING THE INCOME OF YOUR APPELLANTS BY TAKING BUSINESS INCOME AS ` . NIL AGAINST ` 5 61 599/- TAKEN BY THE ASSESSING OFFICER. YOUR APPELLANTS SUBMIT THAT THER E IS NO CASE FOR ENHANCEMENT OF THE INCOME. YOUR APPELLANT S SUBMIT THAT THERE IS NO CASE FOR ENHANCEMENT OF THE INCOME. YOUR APPELLANTS SUBMIT THAT THE ENHANCEMENT ACTION IS BAD-IN-LAW AND BE QUASHED. 8. THE ASSESSEE HAS SHOWN THE BUSINESS LOSS OF ` 8 40 121/-. THE A.O. HAS NOTED THAT THE ASSESSEE HAS CLAIMED THE OT HER EXPENSES OF ` 13 08 589/- AND OUT OF THAT ALTHOUGH AFTER ALLOCATI NG ` 4 53 391/- TO THE PROPERTY INCOME BALANCE EXPENSES OF ` 8 55 198/- ARE CLAIMED AS THE BUSINESS EXPENDITURE. THE A.O. FURTHER MADE TH E DISALLOWANCE U/S.14A IN RESPECT OF THE EXPENSES CLAIMED BY THE A SSESSEE AND FINALLY DETERMINED NET BUSINESS LOSS AT ` 5 61 559/-. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A) BY TAKING THE GRIE VANCE THAT THERE WAS NO JUSTIFICATION. WHILE EXAMINING THE ISSUE THE L D. CIT (A) ALSO EXAMINED THE PROFIT AND LOSS ACCOUNT IN WHICH THE A SSESSEE HAS SHOWN THE BUSINESS LOSS. IT WAS NOTICED BY HIM THA T THE ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME BUT ONLY DIVIDEND INC OME AND LONG- TERM-CAPITAL-GAIN ARE SHOWN. THE LD. CIT (A) THER EFORE CONCLUDED THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS. THE ASSESSEE TRIED TO PROVE THAT IT WAS ENGAGED IN THE MONEY LENDING B USINESS AS THE SAID CLAIM OF THE ASSESSEE WAS ALSO REJECTED. THE LD. CIT (A) ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 7 THEREFORE DISALLOWED THE ENTIRE BUSINESS LOSS AND NOW THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE PERUSED THE REASONS GIVEN BY THE LD. CI T (A) AND WE CONCUR WITH THE SAME FOR THE FOLLOWING REASONS. AS PER THE COPIES OF THE PROFIT AND LOSS ACCOUNT FOR THE FINANCIAL YEAR 2000-01 2002-03 2003-04 2003-04 2004-05 WE FIND THAT THE ASSESSEE HAS NOT SHOWN ANY INCOME FROM THE BUSINESS BUT HAS CLAIMED THE EX PENDITURE. SO FAR AS THE PRESENT ASSESSMENT YEAR IS CONCERNED TH E ASSESSEE HAS SHOWN THE INCOME FROM THE INVESTMENT AND OTHER INCO ME PAGE NO.8 & 9 OF THE PAPER BOOK. IN THE OTHER INCOME THE ASSE SSEE HAS DECLARED THE RENT AND INTEREST ON THE TAX REFUND AND IN THE INCOME FROM INVESTMENT THE ASSESSEE HAS SHOWN A DIVIDEND ON IN VESTMENT INTEREST ON ICD AND PROFIT ON THE SALE OF BUSINESS. WE DO NOT FIND THAT THE ASSESSEE IS CARRIED. WE THEREFORE SEE NO REA SON TO INTERFERE WIT THE ORDER OF THE LD. CIT (A) AND GROUND NO.4 IS DIS MISSED. 10. GROUND NO.5 READS AS UNDER:- 5. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN CONFIRMING THE DISALLOWANCE U/S.14A AT ` 2 07 880/- OUT OF ` 2 78 562/- DISALLOWED BY THE ASSESSING OFFICER. Y OUR APPELLANTS SUBMIT THAT THEY HAVE NOT INCURRED ANY EXPENDITURE ON EXEMPT INCOME AND HENCE OUGHT NOT TO BE ANY DISALLOWANCE U/S.14A AT ALL AND THAT THE DISALL OWANCE OF ` 2 07 889/- BE DELETED. 11. WE HAVE HEARD THE PARTIES. NOW THIS ISSUE OF DISALLOWANCE U/S.14A HAS GO BACK TO THE A.O. IN THE LIGHT OF TH E DECISION LAID DOWN BY THE HONBLE HIGH COURT OF BOMBAY IN THE CASE GOD REJ AND BOYCEE MFG. CO. LTD. 328 ITR 81 (BOM) TO WHICH BOTH THE PA RTIES HAVE AGREED. WE ACCORDINGLY RESTORE THE ISSUE IN GROUND NO.5 TO THE FILE OF THE A.O. ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 8 TO DECIDE THE SAME AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY THE HONBLE HIGH COURT IN THE CASE OF GODREJ AND BOYCEE MFG. CO. LTD. (SUPRA). 12. IN THE RESULT THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 9TH JULY 2011. SD/- SD/- ( R.S. SYAL ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI DATE : 29TH JULY 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) 9 MUMBAI. 4) THE CIT-5 MUMBAI. 5) THE D.R. D BENCH MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T. MUMBAI *CHAVAN ITA 6466/MUM/2009 DISTRIBUTORS (BOMBAY) PVT. LTD. 9 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 18.07.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 25.07.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER