PANKAJ ENTERPRISES,MUMBAI vs. DY. / ASST. COMMISSIONER OF INCOME TAX, CIRCLE 41(1)(1), MUMBAI, MUMBAI

In this appeal, the assessee has raised the following grounds:

The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a partnership firm engaged in the business of providing call centre facilities and leasing out premises. For the year under consideration, the assessee filed its return of income on 17/09/2014, declaring a loss of INR 20,94,333. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. During the year under consideration, the assessee entered into a Leave and License agreement dated 01/02/2013 with M/S Aditya Birla Minacs Worldwide Ltd. in respect of Unit nos. 801, 802, 901, 902, 1001, and 1002 in Symphony IT Park and claimed the income received therefrom as “Income from House Property”. Furthermore, the assessee entered into a separate agreement for the facility dated 01/03/2013 with M/S Aditya Birla Minacs Worldwide Ltd to provide functional infrastructure and other facilities at Unit nos. 801, 802, 901, 902, 1001, and 1002 in Symphony IT Park. The assessee declared income from this agreement of INR 1,21,48,483 along with the receipt of the Common Facility of INR 30,53,665 under the head “Income from Business”. Accordingly, the assessee declared a total income of INR 1,52,02,148, against which various expenses amounting to INR 1,63,80,770 were claimed, resulting in a net loss of INR 11,78,620 under the head “Income from Business”. During the assessment proceedings, the assessee was asked to show cause and explain why the receipts on account of the agreement for facilities should not be assessed as “Income from House Property”.

After considering the submissions of the assessee, the Assessing Officer (“AO”) vide order dated 30/12/2016 passed under section 143(3) of the Act held that the parties agreed to register the agreement for the facility and only an agreement in connection with immovable property is required to be registered with the Stamp Duty Authority. Furthermore, the AO noted that under the agreement, the tenant had insisted that each package be carried out by a specific vendor with a fixed value of the contract. The AO also noted that the agreement indicates that the tenant has taken on lease the finished premises and not the bare property. Thus, the AO held that the licensee has agreed to rent the premises with the specified conditions as mentioned in Annexure-1 to the agreement. Therefore, the assessee has provided the premises and the condition as required by the licensee, only in order to earn rental income. Accordingly, the AO held that the assessee’s claim of treating the receipts under the agreement for facility amounting to INR 1,21,40,483 under the head “Income from Business” is not acceptable, and the said receipt was taxed under the head “Income from House Property”. The expenses claimed by the assessee were also disallowed by the AO. However, the standard deduction of 30% was allowed to the assessee.

The learned CIT(A), vide impugned order, rejected the submissions of the assessee and held that the AO has correctly observed that the agreement for facilities, despite being separate, appears to be an arrangement for leasing the property with facilities. The learned CIT(A) further noted that the facilities provided, such as civil and joinery work, electrical work, and HVAC, are in the nature of finishing the bare property to make it usable as a call centre. (A.Y. 2014-15) 5 Accordingly, the learned CIT(A) upheld the addition made by the AO under the head “Income from House Property”. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee is engaged in providing call centre facilities on its own premises and leasing them out to others. The income from leasing out premises was declared by the assessee under the head “Income from House Property”, while income earned from facilities provided by the assessee to the tenants was offered to tax under the head “Income from Business”. Accordingly, in the year under consideration, an amount of INR 2,42,90,467 was declared by the assessee as “Income from House Property” in respect of the Lease and License Agreement entered into with M/S Aditya Birla Minacs Worldwide Ltd. Further, the assessee declared an amount of INR 1,21,48,483 as income under the head “Income from Business” for providing functional infrastructure and other facilities to M/S Aditya Birla Minacs Worldwide Ltd in the premises given on rent to M/S Aditya Birla Minacs Worldwide Ltd. However, the lower authorities disagreeing with the submissions of the assessee held that income earned from providing facilities to M/S Aditya Birla Minacs Worldwide Ltd is also in the nature of income from house property, as these facilities are inextricably connected to giving the premises on lease, as the premises on rent were taken with specified conditions by M/S Aditya Birla Minacs Worldwide Ltd.

From the perusal of the Leave and License Agreement dated 01/02/2013 entered into between the assessee and M/S Aditya Birla Minacs (A.Y. 2014-15) 6 Worldwide Ltd, we find that Unit nos. 801, 802, 901, 902, 1001, and 1002 in Symphony IT Park were given on lease to M/S Aditya Birla Minacs Worldwide Ltd for a period of 60 months at a license fee of INR 21,33,480 per month plus applicable service tax, with clause for 15% escalation of license fee after 36 months. As per this agreement, the assessee agreed to deliver possession of the finished premises to the licensee. It was further agreed that the licence fee payable shall be exclusive of any maintenance charges that may be payable, and the licensee shall pay the same for the usage of the common areas of the building.

In addition to the above, the assessee and M/S Aditya Birla Minacs Worldwide Ltd also entered into an Agreement for Facility dated 01/03/2013. Upon perusal of the same, we find that the assessee agreed to provide M/S Aditya Birla Minacs Worldwide Ltd. with a fully functional infrastructure and other facilities. As a consideration, M/S Aditya Birla Minacs Worldwide Ltd agreed to pay the assessee a monthly compensation of INR 10,66,740. M/S Aditya Birla Minacs Worldwide Ltd also agreed to deposit an interest-free refundable deposit of INR 1,06,67,400. As per the agreement, the fee payable by M/S Aditya Birla Minacs Worldwide Ltd to the assessee shall be inclusive of infrastructural facilities, technical facilities, and all society charges, municipal charges, local body/authority charges or any other municipal tax or charges. The parties to the agreement agreed that M/S Aditya Birla Minacs Worldwide Ltd shall not demolish or remove any structure or fixture without the prior permission of the assessee. Under the agreement, the assessee agreed to provide the following facilities to M/s Aditya Birla Minacs Worldwide Ltd: –

As per the assessee, under the head “Income from House Property”, only income receivable from the use of land and building is assessable, and if any other facilities are provided, the income therefrom is taxable either under the head “Income from Business” or under the head “Income from Other (A.Y. 2014-15) 8 Sources”. In this regard, the assessee has placed reliance upon the provisions of the Act and various decisions of the Hon’ble Courts, wherein it has been held that income earned from rendering services which were in addition to letting the building is taxable under the head “Income from Business”.

On the contrary, as per the Revenue, the Agreement for Facilities, despite being separate, appears to be an arrangement for leasing the property with facilities.

Before proceeding further, it is relevant to note that under section 56(2)(iii) of the Act, where the assessee lets on hire machinery, plants or furniture and also building, and the letting of building is inseparable from the letting of said machinery, plants or furniture, the income from such letting, if it is not chargeable to income tax under the head “Income from Business”, be chargeable under the head “Income from Other Sources”. We find that the Hon’ble Supreme Court in Sultan Brothers (P.) Ltd. vs. CIT [1964] 51 ITR 353 (SC), while dealing with section 12(3) and section 12(4) of the Income Tax Act, 1922, which corresponds to section 56 of the Act, observed as follows: – “It seems to us that the inseparability referred to in sub-section (4) is an inseparability arising from the intention of the parties. That intention may be ascertained by framing the following questions : Was it the intention in making the lease—and it matters not whether there is one lease or two, that is, separate leases in respect of the furniture and the building—that the two should be enjoyed together? Was it the intention to make the letting of the two practically one letting? Would one have been let alone and a lease of it accepted without the other? If the answers to the first two questions are in the affirmative, and the last in the negative then, in our view, it has to be held that it was intended that the lettings would be inseparable. This view also provides a justification for taking the case of the income from the lease of a building out of section 9 and putting it under section 12 as a residuary head of income. It then becomes a new kind of income, not covered by section 9, that is, income not from the ownership of the building alone but an income which though arising from a building would not have arisen if the plant, machinery and furniture had not also been let along with it.”

However, in the present case, the Revenue, even though it submitted that the Leave and License Agreement and Agreement for Facility are inextricably linked, claimed that the revenue from both the agreements is taxable under the head “Income from House Property”.

From the combined perusal of the aforesaid agreements entered into between the assessee and M/S Aditya Birla Minacs Worldwide Ltd, we are of the considered view that providing facilities and letting out the premises are two separate transactions. It is further evident from the perusal of the Agreement for Facility that M/S Aditya Birla Minacs Worldwide Ltd was under no obligation to obtain the facilities from the assessee. The tenant could have placed his own facilities or hired facilities from a third party. In this regard, it is relevant to note the following facilities which were placed in the premises at the instance of the M/S Aditya Birla Minacs Worldwide Ltd, as noted on page 53 of the paper book: – Packages Vendor Description PO no. PO Invoice Invoice number amount Civil & Joinery NA 5 Cabin tables with Credenza UPS – 120KVA x Socomac 2 nos of UPS with 58 2908193 2 nos Batteries V K Building 3640250 PAC 13TR X 3 nos. Solution UPS-60KVA X 2 Emerson 2 nos with Batteries nos. NA Consul UPS 2 nos with Batteries NA UPS – 80KVA X 2 nos. Chairs NA From existing 250 chairs facility Modular NA From existing Linear WS : 4’ X 2’ : 250 nos Furniture facility (with pedestrials), 3’6” X 2’: 169 nos. Air conditioning From existing DX units 102 TR NA facility Fire and Safety V.K. Building FM 200, Water leakage, 1833446 Solutions Rodent repalent, 59617801 Total

Therefore, it is evident that the facilities as noted in the foregoing paragraphs were only the responsibility of the assessee, for which M/S Aditya Birla Minacs Worldwide Ltd paid compensation on a monthly basis to the assessee. However, in respect of certain facilities, M/S Aditya Birla Minacs Worldwide Ltd. itself made the arrangements in the premises for running its IT/ITeS business.

We find that the Hon’ble Gujarat High Court in Commissioner of Income- tax vs. Sarabhai (P.) Ltd., reported in [2003] 263 ITR 197 (Guj.), while deciding a similar issue in a case, wherein the assessee, apart from letting the premises on rent, was also providing various services, such as, (i) Housekeeping which includes watch and ward, sweepers, maintenance staff and liftman, (ii) Canteen facilities, (iii) Internal telephone exchange, (iv) Maintenance staff for central air-conditioning including air-conditioning units, electrical fittings, etc. (v) Providing water coolers, (vi) Recreation corner, (vii) Creation and Maintenance of facilities for locating central air-conditioning plant, (viii) Providing furniture and fixtures, (ix) Electrification, (x) Providing costly electrical installations, (x) Providing special facilities for external telephones and telex, held that the income received towards rent is taxable under the head “Income from House Property”, while income received towards rendering different services to the tenants is taxable under the head “Income from Business”. The relevant findings of the Hon’ble Gujarat High Court, in the aforesaid decision, are reproduced as follows: – “9.2 It cannot be disputed that the assessee was not only receiving the amount of rent from the tenants but was also receiving amount in consideration of the services rendered to its tenants. For the said purpose the assessee had maintained certain staff and had also invested amount in several assets like (A.Y. 2014-15) 11 air-conditioners, air conditioning plants, telephones, water coolers, canteens, furniture and fixtures. The assessee had also recruited and maintained specialised persons so that proper services can be rendered to the tenants. 9.3 Looking to the abovereferred undisputed facts. We cannot deny that the assessee was in business of rendering such services to the tenants. 9.4 Looking to the facts of the case and the law laid down by the Supreme Court in the judgment referred to hereinabove, we are of the view that the Tribunal was in error while considering the income of the assessee as "income from other sources". The income was received by the assessee under two different heads. The assessee was getting rent from the tenants as the buildings had been let to the tenants. In addition to letting the buildings or parts thereof, the assessee was also rendering numerous services to the tenants. In fact, the assessee was in business of rendering such services and therefore the amount which the assessee had received for rendering such services should be taxed under the head "Profits and gains of business or profession". 9.5 In view of the abovereferred position, the natural consequences would be that the amount of rent received by the assessee should be taxed as income from house property and all permissible expenditure incurred by the assessee or the expenditure deemed to have been incurred by the assessee as allowable under the Act should be deducted from the income of rent. Looking to the said fact, the assessee cannot claim depreciation on the value of the buildings. Thus, the deductions, which are permissible can only be allowed in respect of the rent. 9.6 So far as income received by the assessee for rendering other services to the tenants are concerned, the said income should be treated as income from business. All expenditures which are permissible under the provisions of sections 32 to 38 of the Act should also be deducted from the income so received. Thus, the activity of rendering services to the tenants should be treated as a business and as such all expenditure incurred for the purpose of rendering such services should be allowed as deduction to the assessee. 9.7 We therefore opine that the income which the assessee has received towards rent from the recovery leased by it should be treated as "income from house property" whereas income received by the assessee towards different services rendered to the tenants should be treated as "Profits and gains of business or profession" and accordingly the allowable expenditure shall be deducted from the respective heads of the said income. The Tribunal shall look into the facts and give effect to the aforesaid direction for the purpose of assessing income of the assessee for the assessment years in question.”

Insofar as the receipt of INR 30,53,665 received by the assessee from providing Common Area Maintenance (“CAM”) Services, applying the aforesaid analogy, we are of the considered view that the same is taxable under the head “Income from Business”. We find that the coordinate bench of the Tribunal in DCIT vs. Arham IT Infrastructure (P.) Ltd., reported in [2021] 130 taxmann.com 172 (Delhi - Trib.), held that maintenance charges received by the assessee, owner of a property, from tenants for undertaking maintenance of common areas of the property were to be assessed as income from business and profession. The relevant findings of the coordinate bench, in the aforesaid decision, are as follows: – “13. We have given thoughtful consideration to the orders of the authorities below and have also considered the judicial decisions relied upon by both the parties. It is not in dispute that the appellant had agreement with the tenants and in such agreement, there was specific clause in respect of common area maintenance charges and in the agreement it has been specifically mentioned that maintenance charges shall be payable from rent commencement date. 14. In all the cases relied upon by the Assessing Officer/ld. DR, none of the cases had such agreement for maintenance of common area and providing other facilities. In none of the cases relied upon by the ld. DR, no separate expenses were incurred by any of the landlord and none of the cases had mixed income like income from house property and business and profession. 15. The Hon'ble High Court of Delhi in the case of Abhishek Govil v. CIT [IT Appeal No. 19 of 2016, dated 6-1-2016] and ITA 21/2016 has held that contractual receipt received by the assessee, being owner of house property, after deducting TDS pursuant to maintenance agreement cannot be treated as rental income in the hands of the assessee.

The Hon'ble High Court of Bombay in the case of CIT v. Runwal Developers (P.) Ltd. [2011] 15 taxmann.com 196/203 Taxman 3 (Mag.) has held that maintenance charges received were towards maintenance and promotion of common area and the amounts received towards maintenance charges were business receipts liable to be assessed under the head 'Income from business'.

Therefore, respectfully following the aforesaid decision, we direct the AO to compute the income of the assessee by treating the receipts from CAM Services as “Income from Business”. Accordingly, grounds no.1 and 2 raised in assessee’s appeal are allowed.

The issue arising in ground no.3, raised in assessee’s appeal, pertains to the disallowance of municipal taxes claimed against the rental income received by the assessee.

The brief facts of the case pertaining to this issue, as emanating from the record, are: During the year under consideration, against the rental income declared by the assessee, the assessee claimed a deduction of INR 56,85,570 on account of property tax. During the assessment proceedings, upon perusal of the balance sheet, it was observed that the assessee had (A.Y. 2014-15) 14 declared an amount of INR 45,57,132 as property tax payable. Accordingly, the assessee was asked to show cause why the claim of deduction of INR 56,85,570 made against the income from House Property should not be denied in light of the provisions of section 23 of the Act. In response, the assessee submitted that out of INR 45,57,132, being property tax payable by the assessee as on 31/03/2014, the sum of INR 43,54,463 was paid in April 2014 and claimed accordingly. The assessee further submitted that the levy of property tax in Mumbai was switched from the Ratable Value-Based System to a Capital Value-Based System, effective from 01/04/2020. The differential bills for all years, effective from 01/04/2010, were raised by the Municipal Corporation only in December 2012. The differential tax amount was paid during the financial year 2013-14 and claimed accordingly. Furthermore, the assessee submitted that the Capital Value-Based Property Tax was challenged before the Hon’ble High Court, and the writ petition was disposed of only on 24/02/2014. Accordingly, the entire property tax claimed should be allowed as expenditure under “Income from House Property”.

The AO, vide order passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that the possession of the property was received in January 2012 and January 2013. However, the property tax claimed is from the financial year 2010 to 2014. Accordingly, the AO held that the taxes pertain to the period prior to the acquisition of the property. Further, by referring to the first proviso to section 23 of the Act, the AO held that the taxes levied by any local authority in respect of the property shall be deducted in determining the annual value of the property of that (A.Y. 2014-15) 15 previous year in which such taxes were actually paid by the assessee. Accordingly, the AO disallowed the entire claim of INR 56,85,570 on account of property tax.

The learned CIT(A), vide impugned order, upheld the disallowance of INR 56,85,570. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. During the hearing, the learned Authorised Representative (“learned AR”), by referring to the Properties Tax Statement on page 100 of the paper book, submitted that the assessee during the financial year 2013-14 paid an amount of INR 14,89,989 of property tax pertaining to the financial year 2012-13. Further, the assessee paid property tax of INR 5,89,352 for the financial year 2013-14 in the year under consideration. As per the assessee, the property tax amounting to INR 43,54,463 pertaining to the financial year 2013-14 was paid by the assessee in the financial year 2014-15. In the present case, there is no dispute regarding the fact that, as per the provisions of the proviso to section 23 of the Act, while computing the annual value of the property, the taxes which are actually paid during the year are deductible. Therefore, we restore this issue to the file of the AO with a direction to allow the deduction as per the proviso to section 23 of the Act in respect of the taxes actually paid by the assessee during the year under consideration, after necessary verification of the details as may be submitted by the assessee. With the above directions, the impugned order on this issue is set aside, and ground no.3 raised in assessee’s appeal is allowed for statistical purposes.

The issue arising in ground no.4, raised in assessee’s appeal, pertains to the disallowance of interest claimed by the assessee against the “Income from House Property”.

The brief facts of the case pertaining to this issue are that during the assessment proceedings, the assessee was asked to show cause as to why the claim of interest of INR 2,86,21,439 under the head “Income from House Property” should not be disallowed. In response, the assessee submitted that during the year under consideration, the assessee paid interest on secured loans obtained for acquiring assets, which were being used to derive rental income. As per the assessee, all loans obtained were utilised for property/facilities to derive rental income. After considering the submissions of the assessee, the AO vide order passed under section 143(3) of the Act, held that as per the balance sheet as on 31/03/2014, the assessee has total interest-bearing funds of INR 26,71,54,839, out of the same, the assessee has only utilised INR 16.51 crores towards the acquisition of property/facilities. Accordingly, the AO computed that the proportionate interest expenditure of INR 1,76,82,210 as allowable, and the balance interest expenditure of INR 1,09,29,229 was disallowed. The learned CIT(A), vide the impugned order, upheld the disallowance of interest expenditure made by the AO on the basis that the assessee could not furnish the details of the interest- bearing fund flow used to acquire properties along with supporting documents. Being aggrieved, the assessee is in appeal before us.

We have considered the submissions of both sides and perused the material available on record. During the hearing, the learned AR, by referring to the details on page 75 of the paper book pertaining to the loan, interest paid, and loan utilisation, submitted that during the year under consideration, a loan amounting to INR 14,52,80,297 was used to acquire the property on which rental income was earned. Accordingly, the learned AR submitted that the interest qua such loan should be allowed while computing the income under the head “Income from House Property”. From the record, it is evident that the assessee before the lower authorities did not furnish any details regarding the interest-bearing fund flow utilised for acquiring properties with supporting documents. Accordingly, in the larger interest of justice, we deem it appropriate to grant one more opportunity to the assessee to furnish the details as regards the utilisation of interest-bearing funds. Therefore, this issue is restored to the file of the jurisdictional AO for de novo adjudication after considering the details as may be filed by the assessee. With the above directions, the impugned order on this issue is set aside, and ground no.4 raised in assessee’s appeal is allowed for statistical purposes.

The issue arising in ground no.5, raised in the assessee’s appeal, pertains to the disallowance of the insurance premium paid by the assessee on the insurance policy of one of the partners.

The brief facts of the case pertaining to this issue are that during the assessment proceedings, it was observed that an amount of INR 2 lakh was paid by the assessee as insurance premium in respect of an insurance policy of one of the partners. Accordingly, the assessee was asked as to why the said (A.Y. 2014-15) 18 expenditure is allowable. In response, the assessee submitted that financial companies have a practice of ensuring the borrower's life as part of the loan sanction condition. Accordingly, in respect of the loan taken by the assessee, the assessee also paid the insurance premium of one of its partners. The AO, vide order passed under section 143(3) of the Act, disagreed with the submissions of the assessee and held that, as per the provisions of the Act, the insurance premium paid for ensuring the life of the partner is not an allowable expenditure. Accordingly, the AO disallowed the expenditure of INR 2 lakh incurred by the assessee towards insurance premium. The learned CIT(A), vide impugned order, upheld the addition made by the AO on this issue. Accordingly, the assessee is in appeal before us.

Having considered the submissions of both sides and perused the material available on record, from the perusal of the offer letter of loan against property received by the assessee from Bajaj Finance Ltd, forming part of the paper book on Page 60, we find that in respect of the loan of INR 6.50 crore, the lender company provided an insurance for which, the assessee paid premium of INR 2 lakh. It cannot be disputed that the loan was utilised by the assessee for its business purpose. Thus, any expenditure incurred by the assessee for availing such a loan is an allowable business expenditure. Since, in the present case, the loan was granted to the assessee on the condition of obtaining an insurance policy, we are of the considered view that the insurance premium paid by the assessee is an allowable expenditure. Accordingly, the addition made on this issue is directed to be deleted. As a result, ground no.5 raised in assessee’s appeal is allowed.

The issue arising in ground no.6, raised in assessee’s appeal, pertains to the disallowance of interest of INR 4,09,800 on account of non-deduction of TDS.

The brief facts of the case pertaining to this issue are that during the assessment proceedings, it was observed that the assessee paid an amount of INR 4,09,800 towards pre-EMI interest. Accordingly, the assessee was asked to show cause as to why the said expenditure should not be disallowed in the absence of deduction of TDS. After considering the submissions of the assessee, the AO disallowed the pre-EMI interest of INR 4,09,800, as the assessee failed to furnish the details of tax deducted at source. The learned CIT(A), vide impugned order, even though noted the assessee’s submission that the payee has paid the taxes, held that the primary responsibility of TDS lies with the payer, and without evidence of TDS satisfying the conditions of the proviso to section 40(ia) of the Act, the disallowance is appropriate. Accordingly, the learned CIT(A) upheld the disallowance made by the AO on this issue. Being aggrieved, the assessee is in appeal before us.

Having considered the submissions of both sides and perused the material available on record, the learned AR reiterated the submissions made before the learned CIT(A) and submitted that the recipient has paid the due tax and therefore the pre-EMI interest paid by the assessee should be allowed. However, apart from making the aforesaid submission, the assessee could not place on record any documents fulfilling the requirement of the provision of the Act in this regard. Accordingly, in the larger interest of justice, we grant (A.Y. 2014-15) 20 one more opportunity to the assessee to make necessary compliance with the statutory requirements in respect of this issue. Therefore, this issue is restored to the file of the jurisdictional AO for de novo adjudication, after considering any documents that may be filed by the assessee. As a result, the impugned order on this issue is set aside, and ground no.6 raised in assessee’s appeal is allowed for statistical purposes.

The issue arising in ground No. 7, raised in assessee’s appeal, pertains to the addition to the annual letting value of the property let out to one of the partners of the assessee.

We have considered the submissions of both sides and perused the material available on record. The brief facts of the case pertaining to this issue are that during the assessment proceedings, on perusal of the details filed by the assessee, it was observed that the assessee has given on lease Unit nos. 203, 204, 205 and 206 in Pankaj B Wing, having a carpet area of 3981 ft² to M/S The Master Clock and Watch Works Private Limited, which is a partner in the assessee firm, at a monthly rent of INR 75,000 (INR 18.85 per square feet per month). It was observed that to other unrelated parties, the assessee has given on rent the premises at the rate of INR 44 per square feet per month. Accordingly, the assessee was asked to show cause as to why the rent charged from M/S The Master Clock and Watch Works Private Limited, being not at arm’s length, should not be adopted, and the annual let out value of the property be computed considering the rate of rent charged to other independent parties. In response, the assessee submitted that the premises let out to M/S The Master Clock and Watch Works Private Limited were only a (A.Y. 2014-15) 21 bare shell (raw unit without flooring, furnishing, plumbing, electrification, etc.), whereas the premises let out to other lessees have been provided fully furnished, and the comparison cannot be made. The assessee further submitted that M/S The Master Clock and Watch Works Private Limited, at their own cost/investment, furnish the area for the business of providing serviced room units/guesthouse facilities. The AO, vide order passed under section 143(3) of the Act, in the absence of a lease agreement entered into with M/S The Master Clock and Watch Works Private Limited, disagreed with the submission of the assessee that bare shell property was given on rent to the aforesaid entity. Accordingly, the AO made an addition of INR 12,01,943 as income under the head “Income from House Property” in respect of premises given on rent to M/S The Master Clock and Watch Works Private Limited. The learned CIT(A), vide impugned order, upheld the findings of the AO on this issue. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned AR, by referring to the details of premises let out in Wing A of the same building complex, submitted that the assessee charged rent amounting to INR 35.15 per square feet per month from Andromeda Marketing Private Ltd in respect of a bare shell property. Accordingly, the learned AR submitted that instead of considering INR 44 per square feet per month as an arm’s length rate for computing the annual value of the property given on rent to M/S The Master Clock and Watch Works Private Limited, the rate of INR 35.15 per square feet per month should be considered.

Having considered the aforesaid submissions, we find merit in the submission of the learned AR that only a bare shell property given on rent by the assessee can be compared with another bare shell property. However, at the same time, it is for the assessee to prove with necessary documentary evidence that both the properties given on rent by the assessee are of a similar nature, i.e., bare shell property. Therefore, for this limited examination, we restore this issue to the file of the jurisdictional AO for consideration afresh after examining the rent agreement and other details as may be filed by the assessee in respect of the impugned property, as well as the alleged comparable rental property. We further direct that if both properties are found to be of a similar nature, i.e., bare shell properties, then the rent charged in the comparable scenario should be considered for computing the annual let-out value of the property given on rent to M/S The Master Clock and Watch Works Private Limited. Needless to mention, no order shall be passed without affording reasonable opportunity of hearing to the assessee. Accordingly, the impugned order on this issue is set aside, and ground no.7 raised in the assessee’s appeal is allowed for statistical purposes.

In the result, the appeal by the assessee is allowed for statistical purposes. Order pronounced in the open Court on 02/09/2025