DY. COMMISSIONER OF INCOME TAX- 13(1)(2), MUMBAI, MUMBAI vs. GOPAL LACHMANDAS RAHEJA (DECEASED), MUMBAI

The main grounds of appeal are as under:-

Brief facts of the case are the assessee(now deceased) filed return of income declaring total income of Rs. 21,87,130/-.His case was selected for scrutiny and notice u/s 143(2) dated 08.11.2017 was issued in name of Legal Heirs viz. Shri Sandeep Raheja, Smt. Sonali Arora and Smt. Sanita Narang. In this case, according to the AO there was dispute between Legal Heir/ Representative of the estate of late assessee. Notice u/s 142(1) was issued to all the three persons individually and considering the submissions, the assessment order u/s 143(3) of the Act was passed disallowing certain expenses, determining Income from House Property Rs.14,42,552/- and also making additions on account of Deemed rent u/s.23(4) of the Act of Rs.51,50,000/-,Deemed income from Investments Rs. 65,50,000/-and Deemed interest income from P a g e | 3 A.Y. 2015-16 Late Shri Gopal Lachmandas Raheja Loans and advances Rs. 1,17,56,000/- and assessing total income of Rs.2,34,03,130/-.

Ground no.1 relates to the addition on account of deemed rent. According to the ld.CIT(A),the first issue related to Deemed Rent under section 23(4) of the Act concerning three residential properties i.e. Raheja House, Lonawala Bunglow – Ryewood, and Flat at Asha Bhawan. Since the deceased could not exercise the self-occupied option and there was no evidence of any legal heir using the houses for self- residence, the AO deemed all three to be let out. In the absence of specifications for these properties, the annual value was estimated at Rs. 15,00,000/- for Raheja House (25% share), Rs. 6,00,000/- for Lonawala Bunglow, and Rs. 24,00,000/- for Flat at Asha Bhawan. After allowing a deduction under section 24(a) of the Act at 30% which resulted in an addition to the Income from House Property of 31,50,000/-.

Before him, the AR submitted that the assessee used to run his profession of architect from Raheja House and the same was considered and accepted by the Income tax department in all earlier assessment years and no such notional ALV was ever assessed. The AR argued that even after the death of the assessee, this property was still occupied for keeping all past records and as such this should continue to be treated as P a g e | 4 A.Y. 2015-16 Late Shri Gopal Lachmandas Raheja being used for his professional purposes until all his professional affairs of the deceased are wound up and no records were statutorily required to be preserved further and could be disposed of. The assessee further submitted the ALV estimated was approximately 58% of the costs of acquisition of Raheja House property which was exorbitant. As such, no notional ALV should be assessed.

1 As regard the residential bungalow at Lonavala, it was submitted that in view of disputes and litigations between the legal heirs of the deceased assessee with regard to the representation of his pending before Hon’ble Bombay High court, the Lonavala Bungalow could not be let out by any one of the legal heirs and consequently, no rent or any other income was received or could have been derived there from. The AR further argued that due to the circumstances beyond control and the matter being sub judice, it was not possible for any of the legal heirs to let the property on hire and therefore, no notional Income should be assessed. It was further submitted without prejudice, that the ALV estimated was approximately 34% of the costs of acquisition of Lonavala Bungalow which was exorbitant.

2 As regard the residential flat at Asha Bhawan, it was submitted in the course of the assessment proceedings, that the flat had P a g e | 5 A.Y. 2015-16 Late Shri Gopal Lachmandas Raheja been treated as self-occupied property by the assessee and as such no ALV should be assessed in this regard. No such notional addition had been made in this regard in any of the earlier years. They pleaded that this property should continue to be treated as a self-occupied property and no notional ALV should be assessed. Without prejudice, it was also submitted that the ALV estimated by the AO was approximately 38% of the costs of acquisition which was exorbitant, hence, in the circumstances no notional ALV should be assessed.

The ld.CIT(A) observed that the assessee used to operate his profession of architects from Raheja House from his portion of the property. This was a fact that even after the death of an architect, the heirs were obliged to keep and maintain past records, approvals from the local authorities, drawings, certificates etc. for number of years and therefore, the AO was not justified in estimating any notional ALV in respect of Raheja House property. The estimation of ALV and the resultant addition of Rs. 10,50,000/- in this regard was therefore deleted.

1 As regard, the Lonavala Bungalow, no concrete reason except of the dispute amongst the legal heirs had been submitted as per records. However, there was no rationale for the AO estimating ALV @

2 As regard, the ld.CIT(A) observed that as the residential house at Asha Bhawan which had always been considered as a self- occupied house property, there was no reason to assess any notional income even after the death of the assessee. Therefore, this residential house should continue to be assessed as self-occupied property and no notional ALV should be assessed. As such, the estimation of ALV of Rs. 24,00,000/- and resultant addition of Rs. 16,80,000/- in this regard was deleted.

The ld.DR has relied on the assessment order and the ground of appeal. He did not rebut the decision arrived at by the ld.CIT(A).

We have carefully considered the relevant aspects of the case and find that the appellate authority has exhaustively dealt with issue under consideration deleting two of the additions and partly reducing the addition in respect of Lonavala property. On the other hand, the AO made the addition without appreciating the peculiar facts and the circumstances and even the basis adopted for making the impugned additions lacked any cogent basis. Accordingly, finding no infirmity in the appellate order, the ground in this regard is dismissed.

Ground no.2 relates to the estimated addition made with reference to large Investments of Rs. 6.33 cr. which was found without any details. The AO estimated 10% of these investments, amounting to 63,30,000/-, as undisclosed income.

The AR submitted before the ld.CIT(A) that the assessee in the audited balance sheet as on 31/03/2011 had declared investments of Rs.7,11,59,330/-. Out of these, investments of Rs.6,33,29,858/- were continuously held by the assessee right from 31/03/2011 till 31/03/2015. From the details of the investments of Rs. 6.33 cr., the AR submitted that most of the investments of the assessee comprised of investments in group companies and other corporates and units of mutual funds. He submitted that the assessee could have received only Dividends from P a g e | 8 A.Y. 2015-16 Late Shri Gopal Lachmandas Raheja these investments and capital gains as and when these shares were sold. The AR further submitted that in this year no income had been realised from Dividends from these companies and as such no dividend income was included in total income. However, dividend income realised in past had been included in the return of income of the appellant. The AR pleaded that in case of investment in shares of companies and units of mutual funds, the shareholders could receive only Dividend and other corporate benefits but nothing else. In the circumstances, the AR submitted that the AO was not at all justified in estimating any undisclosed deemed investment income.

1 It was further contended that the assessment for this year also re-opened on this issue after an audit observation from the CAG Revenue audit that if the details and source of investment was not available, the AO must have made 100% addition and should not have restricted the addition to 10% of the costs of investments. Thereafter, the AO after considering the details of investments and past records passed the re-assessment order under S. 143(3) rws 147 on 31/05/2023 and had accepted the source of investment of Rs. 6,33,29,858/-. The AR pointed out from para 6 of the said order dated 31/05/2023, the finding of the AO which are reproduced as under:-

The ld.CIT(A) after taking into account the submissions observed that the shareholders could receive only dividend in respect of shares and units and some corporate benefits and nothing else. It is also not obligatory for corporates or mutual funds to declare dividends compulsorily. It is also a fact that the corporates and mutual funds are obliged to pay the dividends to its shareholders only through account payee cheques or transfer directly into the bank account of the assessee through electronic clearing services. There was no allegation or a finding that any such dividend income or any other income derived from these investments were received in their in the return of income filed by her. Also, the facts suggested that there were no new investments in this financial year and all investments continued from last many years and had been properly disclosed in the last audited balance sheet as at 31/03/2011 and returns of income filed. In the circumstances, the notional estimation of undisclosed income could not be upheld. Therefore, the AO was directed to delete the said addition.

The ld.DR has relied on the assessment order and the ground of appeal. He did not rebut the decision arrived at by the ld.CIT(A).

We have carefully considered the relevant aspects of the case and find that the AO made the addition without appreciating the peculiar facts and the circumstances and even the basis adopted for making the impugned additions lacked any cogent reason. Moreover, in view of the findings of the AO himself in the assessment order passed consequent to the audit objection admitting no fresh investment made by the assessee, no addition could be justified in any case and that too on mere hypothetical manner. Accordingly, finding no infirmity in the appellate order, the ground in this regard is dismissed.

Ground No. 3 pertains to the assessment of deemed interest income of Rs. 1,17,36,000/- by estimating deemed interest income @ 12% of the amount of Loans & Advances of Rs 9,78,60,622/- standing in the balance sheet (YE 31/03/2015) of the assessee(deceased). The AO in para 10.1 of the assessment order observed that the assessee had shown Loans and Advances of Rs. 9,78,60,622/- in the Balance sheet, however there was no corresponding income reflected in the computation of income. The AO without calling for any explanation in this regard, proceeded to complete the assessment by estimating deemed interest

In the course of the hearing before the appellate authority, submitted that the AO failed to appreciate that the assessment was being completed as per the provision of S. 168 on an Executor of the estate of a deceased person and not on a live individual. The ARs submitted that the AO should, therefore, have taken into consideration what had been received in bank account and what had been paid from the bank account till final distribution of the estate. No addition in respect of any notional income could be made when the assessment is made as per the provisions of S. 168 of the Act.

1 It was further pointed out that out of Loans & Advances of Rs. 9,78,60,622/-, loan and advances in the nature of loans stood at only Rs. 1,76,25,218/-which included Sundry Debtors of Rs. 293,85,461/- in respect of his unrealized professional receipts, Rs. 1,75,786/-, in respect of unrealized rent income, and Rs. 384,97,861 in respect of the amount paid to the legal heir Mrs. Sonali Nimish Arora and Rs. 2,42,68,834 to company in respect of a property transaction. Accordingly, the total Loans and Advances stood at Rs. 11,01,49,736/- and after deducting the liabilities of Rs. 1,22,89,114/- payable, the assessee had disclosed net

The ld.CIT(A) observed that from the detail of Loans & advances that only Rs. 1,76,25,218/- (Rs. 1.76 cr.) were recoverable from people who were stated to staff of the assessee as well as the staff of the group companies where the deceased assessee was a director and have personal relationship are grouped under the heading ‘Loans and Advances’. Though other receivables like sundry debtors, rent receivable, property advance to Unique Estate Developers Pvt Ltd and the amount withdrawn by one of the legal heir Mrs. Sonali Nimish Arora had been grouped under the heading ‘Loans & Advances’ but were without stipulation of any payment and receipt of interest. Also, as per the trade usage, there was no interest recoverable from such advances unless so specifically stipulated. In the circumstances, there was P a g e | 14 A.Y. 2015-16 Late Shri Gopal Lachmandas Raheja credence in the statement of the AR that after the death of the assessee there was no reasonable certainty of recovery of these amounts and these amounts might not at all be recovered. Further the fact that the appellant had no borrowings and had not claimed any deduction in respect of any interest payment also did not justify any such assessment of notional deemed interest income. Accordingly, he held that the AO was not justified in making the addition of Rs. 1,17,36,000/- which was directed to be deleted.

The ld.DR has relied on the assessment order and the ground of appeal. He did not rebut the decision arrived at by the ld.CIT(A).

We have carefully considered the relevant aspects of the case and find that the AO made the addition without appreciating the peculiar facts and the circumstances and even the basis adopted for making the impugned additions lacked any cogent reason. The addition has been made purely on assumptions and premises and lacks any cogent basis. The AR has duly explained the entire matter before the ld.CIT(A) who has correctly concluded that on the facts and the circumstances of the case, no such addition was justified. We find no infirmity in such conclusion and upheld the appellate order dismissing the ground in this regard.

In the result, the appeal of the Revenue stands dismissed.