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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR&
PER Ms. MADHUMITA ROY - JM:
These two cross appeals filed by the assessee and revenue are against the same order dated 10.09.2014 passed by the Commissioner of Income Tax (Appeals)-XI, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “The Act”) arising out of the order dated 20.02.2014 passed by the ITO, Ward – 5(2), Ahmedabad for the Assessment Year 2011-12.
- 2 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 ITA No. 3212/Ahd/2014 for A.Y. 2011-12:
The assessee engaged in the business of manufacturing of different types of castings filed its return of income on 30.09.2011 for A.Y. 2011-12 declaring total income of Rs.14,34,270/- which was processed u/s 143(1) on 10.01.2012. Upon scrutiny notice u/s 143(2) dated 27.09.2012 followed by a detailed questionnaire dated 10.09.2013 was served upon the assessee. It appears from the books of account, return of income and other details that the assessee is owning immovable properties “A” and “B” for commercial utilization by and under an agreement to M/s. Patel Alloy Steel Pvt. Ltd., a sister concern of the assessee company. Such properties consist of Industrial Shed, Office and open land which were given to its sister concern by and under the agreement dated 26.12.2003 and 09.09.2004 respectively. During the year the assessee has shown rental income of Rs.14,03,700/-. It was the case of the assessee that he didn’t charge any rent because it had received interest free deposit from said sister concern and therefore no amount of any notional income can be taxed as the true effect of the agreement. Neither any income was booked in respect thereof till A.Y. 2010-11. However, in A.Y. 2011-12 and thereafter the assessee has, by way of abundant caution, started booking rental income provisionally sequel to the decision of the Hon’ble Tribunal dated 31.03.2011 for A.Y. 2005-06 in assessee’s own case on the issue of the determination of the ALV. For A.Y. 2011-12, the provisional rental income booked is Rs.14,03,700/- on which the payer had deducted and deposited tax at source. In fact, in this particular case, the Learned AO calculated the ALV @ Rs.36/- per Sq.mts. per month. In appeal, the ALV has been recomputed taking at Rs.20.90/- Sq.mts. Hence, the instant appeal before us.
At the time of hearing of the instant appeal, the Learned Advocate appearing for the assessee submitted before us that the ALV determined by the AO for A.Y. 2011-12 was ultimately travelled to the Hon’ble Tribunal wherein the issue was set aside to the file of the Learned AO with a direction to determine the ALV in terms of the observation
- 3 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 made in the case of Sakarlal Balabhai-vs-ITO reported in 100 ITR 97 i.e. by applying reasonable rate of interest on the cost of immovable properties. Ultimately, the Hon’ble Tribunal in ITA No.2639/Ahd/2013 for A.Y. 2005-06 upheld in adopting 8.5% to be the rate of interest as directed by the Learned CIT(A). In fact, subsequently in A.Y. 2010-11 the Co-ordinate Bench relying upon the said order dated 17.04.2015 passed by the Hon’ble Tribunal directed the Assessing Officer to pass orders adopting 8.5% as the rate of return qua the two properties in question. He, therefore, on the identical issue prays for same relief before us. On the contrary, the Learned DR relied upon the order passed by the authorities below.
We have heard the respective parties, perused the relevant materials available on records. We find from records that the Learned AO while determining the ALV observed that the ALV for A.Y. 2005-06 determined in terms of the specific direction of the Hon’ble ITAT is not binding upon him and the department has also filed an appeal before the Learned Tribunal against the order passed by the Learned CIT(A) for A.Y. 2010-11. He, therefore, calculated the ALV @ Rs.36/- Sqr.Mts per month. In appeal, the Learned CIT(A) observed as follows while adopting the rate @ 20.90/- Sqr.mts in determining ALV: “I have carefully considered the rival contentions. I am of the opinion that the stand of A.O. this year in adopting the ALV is reasonable. The directions given by Hon'ble ITAT were in context of particular year i.e. A.Y. 05-06. In such a scenario the reasonable rate of ALV is again to be seen in the light of my predecessor in A.Y.08-09. In my opinion the rate of ALV @Rs.35/- per mtr was to be adopted in A.Y. 2005-06, whereas in A.Y.2011-12 the rate of ALV taken @ 36 per sq.mtr cannot be brushed aside treating it as very high as there is a sufficient time gap after A.Y.2005-0£. However, in the interest of justice I hold that rate of @ Rs. 29.90 as adopted by my predecessor in A.Y. 2008-09 is reasonable to adopt the rate of ALV as held by him. "A.O. got inquiries conducted from the market and reached to a conclusion that market rent of these properties was around Rs.35/- per sq.yd. per month. The A.O. has further taken into consideration mandate of section 23(1) and reached to a reasonable rent of Rs.25/-per sq.yd. This way, A.O. has given sufficient benefits to the appellant for any other estimation of rental
- 4 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 income. If monthly rent of Rs.257-per sq.yd. per month is converted per sq.mtr. It will be Rs.29.90 per sq.mtr. per month."
I have also observed that the A.O. granted sufficient opportunity before making the addition adopting the ALV @Rs. 36 per sq. Mtr. Hence there is no force in the argument of appellant that reasonable opportunity was not granted to him. In view of above facts the ALV is to be recomputed wrt to the properties taking @ 20.90 per sq.mtr.
Property detail Total area of Area of ALV area×29.90×12 (in Rs.) (as per property given possession submission for use under during FY dt.14.03.2012) agreement 2010-11 has originally claimed by the assessee Property 'A' 7947 sq mts 2387 sq mts 7947×29.90×12=28,51,383/- agreement dated 26/12/2003 Property 'B' 20123 sq. mts. 13000 sq. 20123×29.90×12=72201327 Agreement .mts. dated 9/9/2004 Rs.1,00,71,515
ALV as calculated above : Rs. 1,00,71,515 Less: 30% Standard Deduction u/s 24 : Rs. 30,21,454 Income from House Property : Rs. 70,50,061/- Accordingly the income from house property is worked out at Rs.70,50,061/- the appellant will get a relief of Rs. 14,38,307/-. The 4th, 5th and 7th grounds of appeal are general in nature which does not 3. require adjudication. For statistical purpose the same are treated as dismissed.
Vide sixth ground of appeal, the appellant has contested charging of interest u/s. 234A, 234B & 234C_'of the Act. Charging of interest u/s. 234A, 234B & 234C of the Act is mandatory in nature. Accordingly, no interference is called for in the charging of interest. This ground of appeal is dismissed.”
- 5 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 However, it is on record that the appeal preferred by the Revenue against the order passed by the Learned CIT(A) for A.Y. 2010-11 has been dismissed by the Co-ordinate Bench. While doing so, the Co-ordinate Bench was pleased to direct the Learned AO to adopt 8.5% as the rate of return in view of the judgments and orders passed by the Co- ordinate Bench on identical issue for A.Y. 2005-06 to 2007-08 & 2009-10. The relevant portion whereof is as follows: 5. We have heard rival submissions in tune with above narrated pleadings. We sought to know about status of identical proceedings in preceding assessment years qua the instant issue. Case file indicates that this tribunal in a batch of cases ITA Nos. 2639/Ahd/2013 and four other appeals in assessment years 2005- 06 , 2007-08 to 2009-10 decided on 17.04.2015 has already dealt with all these arguments in arriving at interest rate of 8.5% to form reasonable basis as under: “4. The facts of the case are that the assessee has given the immovable property which was the industrial shed to the sister concern without charging any rent. The Assessing Officer, in his order u/s 143(3) dated 31.12.2007, estimated the Annual Letting Value (ALV for short) of the property and assessed the same as income from house property. On appeal, the CIT(A) confirmed the addition made by the Assessing Officer. The assessee preferred an appeal before the ITAT which by order dated 31.03.2011 in ITA No.1165/Ahd/2009 set aside the matter back to the file of the Assessing Officer, with the following findings:- "5. We have heard both the parties and perused the material placed before us. In the case of Sakarlal Balabhai (supra), the Hon'ble jurisdictional High Court held as under:-
"... In the absence of better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of property more particularly when the property is occupied by the owner. The capital value of the property has relevance in determining its annual letting value."
In this case, the AO estimated the "ALV" on the basis of some information said to have been collected by him behind back of the assessee. Admittedly, those details were not confronted to the assessee. Neither the same is produced before us. Therefore, the
- 6 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 same cannot be relied on for estimating the "ALV". In the above circumstances, we deem it proper to set aside the order of the authorities below on this point and restore the matter back to the file of the AO. We direct him to determine the "ALV" as per the observations of the Hon'ble jurisdictional High Court i.e. by applying the reasonable rate of interest on the cost of immovable property. Needless to mention, he will allow adequate opportunity of being heard to the assessee while adjudicating the matter. 5. The Assessing Officer gave effect to the order of ITAT vide his order dated 03.12.2012 passed u/s 143(3) r.w.s. 254 of the Act, wherein the Assessing Officer estimated income at the rate of 17.25% of the investment in the property by the assessee. On appeal, the CIT(A) vide his order dated 11.09.2013 computed the income at 8.5% of the cost of the property and allowed part relief to the assessee. The relevant portion in the order of the CIT(A) reads as under:- "2.2 I have carefully considered the rival contentions. I am of the opinion that the stand of A.O. in adopting the interest as if the appellant is borrowing funds equivalent to the investment is not reasonable. The appellant had already invested in the property and what is to be worked out is a reasonable rate of return from such investment, in accordance with the directions given by Hon'ble ITAT. In such a scenario the reasonable rate of return can be equated with the prevailing interest rate on the long term fixed deposit kept with the banks/NBFCs. The appellant has contended that the rate of interest which could have been earned in respect of the bank deposit would be 5.5 to 7.75%. In this regard the decision of Hon'ble Bombay ITAT in the case of Smt. Indira S. Jain reported in 52 SOT 270 is relevant wherein the Hon'ble Bench has adopted and confirmed the rate of return at 8.5% on the cost of the property.
I therefore deem it fit to adopt the rate of return on investment in the property at 8.5% which is at par with the prevailing interest rate on the long term fixed deposit during the relevant period. The ALV of the property is worked out as under:-
Property Cost of Property (In ALV calculated detail (as per Rs.) assuming rate of submission dt. interest at 8.5% (in
- 7 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 14.03.2012 Rs.) Property 'A' 74,22,612/- 6,30,922/- Property 'B' 1,26,29,388/- 10,73,498/- Total 17,04,420/-
ALV as calculated above : Rs. 17,04,420/-
Less : 30% Standard Deduction u/s 24 : Rs. 5,11,326/- Income from House Property : Rs.11,93,094/-
Accordingly the income from house property is worked out at Rs.11,93,094/- the appellant will get a relief of Rs.12,28,185/-. This ground of appeal is partly allowed." 6. Both the parties, aggrieved with the order of the ld. CIT(A), are in appeal before us. 7. We have heard both the sides and perused the material placed before us. At the time of hearing before us, the ld. Counsel for the assessee stated that the Assessing Officer has estimated the interest which the assessee would have been required to pay had he borrowed the money for the purpose of investment in the property. He submitted that in the case of the assessee, income from the property is to be estimated and not interest expenditure on acquisition of such property had borrowed money been utilized. Therefore, proper yardstick is to estimate the proper rate of return on the investment of similar amount in any other secured investment. He gave before us various bank certificates for investment in FDRs and pointed out that interest on the FDRs was varying from 5.5% to 7.5%. He, therefore, submitted that the average rate of interest on the FDRs was around 6.5% and therefore, income should be estimated at the rate of 6.5% on the cost of the property let out by assessee to sister concern. 8. The ld. Departmental Representative, on the other hand, relied upon the order of the Assessing Officer and he stated that the Assessing Officer was fully justified in estimating the interest at the rate of 17.25% on the basis of interest which would have been required to be paid by the assessee had borrowed money being utilized. He alternatively submitted that if the assessee's contention with regard to rate of return on investment is accepted, then the examples in the investment in FDRs by the assessee should not be accepted because those investments are for a short period; while the investment in the property is for the long period. He also
- 8 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 submitted that the rate of return should be considered on the basis of market value of the property in each year and not simply on the basis of cost of the property. 9. We have carefully considered the arguments of both the sides and perused the material placed before us. We find that this issue is squarely covered by the decision of the Hon'ble Jurisdictional High Court in the case of Sakarlal Balabhai vs Income-Tax Officer, reported in 100 ITR 97. In the first round of appeal also, the ITAT has set aside the matter back to the file of the Assessing Officer for determining the ALV as per the above decision of Hon'ble Jurisdictional High Court. In the above mentioned case, their Lordships of the Hon'ble Jurisdictional High Court have considered various decisions from other courts and also from book Ryde on Rating and thereafter, concluded as under at page No.107:- "17. Though the above passages are more or less in the context of ascertaining rateable value of property, they none-the-less assure us that in the absence of any better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of property, and more particularly, as observed in Ryde on Rating, when the property is occupied by the owner. In our opinion, therefore, the contention of the learned Advocate-General that capital value of property may not have a bearing or relevance on the question of annual letting value, should be rejected, and more particularly, when, as in the instant case, the annual letting value of a self-occupied property is to be ascertained...." From the above, it is evident that their Lordships of Hon'ble Jurisdictional High Court have come to the conclusion that rate of interest on cost of the building and land would provide a reasonable basis for determining the Annual Letting Value of property. Therefore, the contention of the ld. DR that instead of cost, market value of the property in each year should be adopted cannot be accepted. 10. Now, we come to the question whether rate of interest to be adopted for determining the ALV should be interest which would have been payable by the assessee had the assessee borrowed the money for investment in the property or it should be interest receivable by the assessee had the similar money is invested somewhere else. In our opinion, for determining the income from the property, it should be rate of return on the investment of similar amount in another asset. Therefore, in our opinion, the CIT(A) was
- 9 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 fully justified in estimating the ALV on the basis of interest which assessee would have earned on the investment of the similar amount. The ld. Counsel for the assessee had argued that the rate of interest applied by the CIT(A) at 8.5% is excessive. In support of which, he gave various examples of investment in FDRs which faced the interest ranging from 5.52% to 7.5%. Copies of those certificates from the bank are placed at page No. 29 onwards of the assessee's paper-book. However, we find that those investments were for a very short period. In first case where interest rate was 5.5%, the investment was only for 46 days. In another case where the interest was 5.6%, it was only for 31 days. In another case, where the rate of interest was 6%, it was for 91 days and in another case where the period of deposit was 366 days, the rate of interest was 7.75%. The ld. DR was fully justified that if the rate of return on the investment is considered, then it should be a long term investment because in any property nobody would make investment just for few days. Considering all these facts, in our opinion, the CIT(A) has rightly applied the rate of interest of 8.5%. We, therefore, do not find any justification to interfere with the order of the CIT(A), the same is sustained; and on this point, the ground appeal of Revenue as well as assessee are rejected.” Both parties fail to indicate any distinction in the two sets of facts involved in said earlier and in the impugned assessment year. We therefore uphold CIT(A)’s findings except to the extent that he has arrived at interest rate @10% than that @8.5% in earlier assessment years. We therefore direct the Assessing Officer to pass consequential order accordingly adopting 8.5% as the rate of return in view of learned co-ordinate bench detailed discussion extracted hereinabove. Rest all other substantive grounds stand rejected in both these cross appeals.
The assessee’s appeal ITA No.2942/Ahd/2013 is partly allowed whereas Revenue’s appeal ITA No.248/Ahd/2014 is dismissed.”
Respectfully following the same, we find it fit and proper to set aside the issue to the file of the Learned Assessing Officer to pass appropriate orders adopting 8.5% at the rate of return in the light of the judgment passed by the Co-ordinate Bench for A.Y. 2010-11 as discussed above. Hence, assessee’s appeal is allowed for statistical purposes.
- 10 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 ITA No.3460/Ahd/2014 for A.Y. 2011-12:
At the time of the hearing, we observe that the tax effect in the appeal filed by the Revenue is less than Rs. 20 lacs. As per the Circular No. 3 of 2018 dated 11/07/2018 issued by CBDT recently all pending appeals filed by Revenue are liable to be dismissed/ withdrawn/ not pressed to reduce the litigation where the tax effect does not exceed the prescribed monetary limit, i.e., Rs.20 Lacs. The relevant extract of the circular is reproduced below: “2. In supersession of the above Circular, it has been decided by the Board that departmental appeals may be filed on merits before Income Tax Appellate Tribunal and High Courts and SLPs/ appeals before Supreme Court keeping in view the monetary limits and conditions specified below. 3. Henceforth, appeals/ SLPs shall not be filed in cases where the tax effect does not exceed the monetary limits given hereunder:
S. Appeals/ SLPs in Income-tax matters Monetary Limit No. (Rs.) 1. Before Appellate Tribunal 20,00,000 2. Before High Court 50,00,000 3. Before Supreme Court 1,00,00,000
The monetary limit for filing the appeals by the Revenue before the Tribunal has been increased to Rs. 20 Lacs. It is also clarified in the said Circular that the said monetary limit is applicable retrospectively even to the appeals pending before the Tribunal. The CBDT has also instructed that such pending appeals below this specified tax limit of Rs.20 lacs may be withdrawn / not pressed.
In the case on hand, it was noticed that the tax effect on the disputed issue raised by the Revenue is claimed to be less Rs.20 Lacs. Therefore appeal of the Revenue is required to be dismissed in limine in terms of the above circular.
- 11 - ITA Nos.3212 & 3460/Ahd/2014 PASL Windtech pvt. Ltd. vs ITO Asst.Year – 2011-12 6. The Ld. DR for the Revenue fairly agreed on the applicability of the CBDT Circular No. 3 of 2018. Accordingly, the appeal of the Revenue is dismissed as not maintainable. However, the Revenue is on the liberty to move the miscellaneous application to recall the order if the tax effect exceeds the threshold limit or the case of the Revenue falls in any of the exception provided in the aforesaid CBDT Circular in any manner. The MA shall be filed within the prescribed time. Hence the appeal of the Revenue is dismissed.
In the result, appeal filed by the assessee is allowed for statistical purposes and filed by the department is dismissed. This Order pronounced in Open Court on 04/04/2019
Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 04/04/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-XI, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad