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Facts
The assessee, owner of a property vacant since 2004-05, claimed vacancy allowance under Section 23(1)(c) and did not offer income from house property. The Assessing Officer (AO) computed Annual Lettable Value (ALV) on a notional basis, disregarding the Municipal Ratable Value (MRV) and the Tribunal's previous directions to follow the guidelines from CIT vs. Tip Top Typography. Additionally, the assessee contested disallowances made under Section 14A read with Rule 8D.
Held
The Tribunal remanded the issue of ALV determination back to the AO, directing strict adherence to the guidelines laid down by the Bombay High Court in CIT vs. Tip Top Typography for computing ALV based on Municipal Ratable Value. For the disallowance under Section 14A read with Rule 8D, the Tribunal directed the AO to restrict it only to investments that yielded exempt income during the year.
Key Issues
1. Whether Annual Lettable Value (ALV) for a vacant property should be determined based on Municipal Ratable Value (MRV) as per CIT vs. Tip Top Typography. 2. The extent of disallowance under Section 14A read with Rule 8D for expenses related to exempt income.
Sections Cited
22, 23, 23(1)(a), 23(1)(c), 14A, Rule 8D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, VP & SHRI PRABHASH SHANKAR, AM
O R D E R Per Saktijit Dey, VP:
The captioned appeals by the assessee, arise out of separate orders passed by National Faceless Appeal Centre (NFAC), Delhi, pertaining to assessment years (A.Y.)
2012-13, 2014-15, 2017-18 and 2018-19.
& 5445/Mum/2024 (A.Ys. 2014-15 & 2012-13)
The only common ground raised in both these appeals reads as under :
Income from house property: The learned Assessing Officer and the learned CIT(Appeals) failed to appreciate that the provisions of Section 22 and 23 were clearly not applicable on the facts and in the circumstnaces of the case and in law. It is submitted that even if the contentions of the learned Assessing Officer and CIT(Appeals) are accepted, the appellant is entitled to deduction for vacancy allowance under section 23(1)(c) of the Act as the said property remained vacant throughout the year. Without prejudice to the above, t is submitted that the income from house property is to be computed on the basis of municipal ratable value and it cannot exceed the same. It is submitted that the computation of income from house property under section 23(1)(a) of the Act is erroneous and contrary to the provisions of the law. Total Tax Effect – Rs.4,42,101/- primary issue is claim of deduction of vacancy allowance u/s. 23(1)(c) of the Income Tax Act, 1961 (‘the Act’). Without prejudice, the assessee has made a claim that the Annual Lettable Value (‘ALV’) of the house property has to be computed on the basis of Municipal Ratable Value (‘MRV’).
Briefly, the facts are, the assessee a resident corporate entity, is the owner of an immovable property admeasuring 966 sq. ft. at 226 Bajaj Bhavan, Nariman Point, Mumbai.
The premise was leased out to IDBI Principal Asset Management Company Ltd. in past years. However, the lease agreement expired on 23.04.2004. At the time of expiry of lease, the assessee received an amount of Rs.1,54,843/- as rent for a period of 23 days on pro- rata basis in the Financial Year 2004-05. Thereafter, the premise remained vacant and no real income by way of rent was earned therefrom. In the return of income, the assessee did not offer any income on account of ALV of the said premises on the reasoning that it is entitled to claim deduction of vacancy allowance u/s. 23(1)(c) of the Act.
However, in course of assessment proceeding, the Assessing Officer (AO) did not accept assessee’s claim and proceeded to compute the ALV of the property on notional basis and added it under the head ‘income from house property’. The assessee contested the addition by filing appeals before the First Appellate Authority and being unsuccessful thereafter before the Tribunal. While deciding the appeals, the Tribunal did not accept assessee’s claim of deduction of vacancy allowance u/s. 23(1)(c) of the Act relying upon the orders passed by the Tribunal in assessee’s case in earlier assessment years. However, accepting the without prejudice contentions of the assessee that the ALV has to be determined based on Municipal Ratable Value, the Tribunal restored the issue to the A.O.
High Court in the case of CIT vs. Tip Top Typography [2014] 368 ITR 330 (Bom). While giving effect to the directions of the Tribunal, the A.O. framed fresh assessment vide order dated 21.09.2021, wherein, relying upon the rent fixed in earlier expired lease deed, he determined the ALV. While doing so, he rejected assessee’s computation of ALV in terms with the new lease deed executed with RMB Event Management Pvt. Ltd. for a period of 60 months beginning from 01.01.2019 to 31.12.2023. The reasoning of the A.O. was that the working of the assessee based on reverse calculation of lease rent as per the fresh lease deed, is unacceptable.
Be that as it may, against the assessment order so framed, the assessee preferred an appeal before learned first appellate authority and being unsuccessful, has approached this forum.
7. At the time of hearing, ld. Counsel appearing for the assessee fairly submitted that insofar as the claim of vacancy allowance u/s. 23(1)(c) of the Act is concerned, the issue has been decided against the assessee in past assessment years and while entertaining the appeal filed by the assessee, the Hon'ble High Court has framed substantial question of law, which is pending for adjudication. However, she submitted, while implementing the direction given by the Tribunal on without prejudice contentions raised by the assessee qua determination of ALV as per Municipal Ratable Value, the A.O. has not followed it. Thus, she submitted that the matter may be restored back to the A.O. with a direction to determine the ALV by strictly following the guidelines laid down by the Hon'ble Bombay High Court in case of Tip Top Typography (supra). observations of the A.O.
We have considered rival submissions and perused the materials on record. While deciding assessee’s appeal in the first round, the co-ordinate bench, in order dated and 2210/Mum/2018, has held as under:
We have heard both the counsel and perused the records, Senior counsel on behalf of the assessee Shri J.D. Mistry contended that premee has not at all be let out during the concerned assessment year He submitted in several case jaws, it has been held by the Tribunal that if the house property could not be let out the assensee was very much entitled to vacancy allowance and hence, no notional rent should be attributable. In this regard he referred to catena of decision of ITAT in this regard as under: • Premsudha Exports Pad v. A CIT (2006) 110 (70 158 • Informed Technologies India Ltd. V. Dy CTT (2017) 162 (70) 153(Mum) • Vikas Keshar Garud IT) (2016) 160 ITD 7 (Pune) • ITO vs. Metasxie (P) Lad, 170 TD 233 (M • Bachan R. Tendulkar Dy. CIT 2018 15 DTR (Mumbai) (Trib) 169 • Asst CTT v. Dr. Prabhs Sangh (2012) 1:39 ITD 504 (Del) • Kamal Mishra VITO (2008) 19 SOT 251 (Delhi) 8. However, learned Counsel of the assesses fairly agreed that on identical issue in assesse's own case Hon’ble Bombay High Court has admitted the question of law for A.Y. 2006-07. However, learned counsel also pointed out that the Tribunal in assensee's own case has not been able to consider the Judgement of Hon'ble Jurisdictional High Court in the case of CIT Vs Tip Top Typography (368 ITR 3:30) Learned counsel submitted that in the said case Hon'ble Jurisdictional High Court has expounded that the municipal ratable value cannot be brushed aside unless the Assessing Officer is shie to show that there was effort on the part of the assessee to show lesser rent. In this regard we note that Hon'ble Jurisdictional High Court decision is binding upon the Tribunal As held by Hon'ble Supreme Court in the case of Saurashtra Kutch Stock Exchange Ltd. (225 ITR 234) consideration of Hon'ble Jurisdictional High Court decision will render the decision of the ITAT suffering from mistake apparent from record. Accordingly, in our considered opinion the issue in this regard needs to be examined on the touchstone of Hon'ble Jurisdictional High Court decision in the case of Tip Top Typography (supra) In the case of Tip Top Typography (supra), Hon'ble Jurisdictional High Court has held as under: "(i) We are not in agreement with the department that the municipal rateable value cannot be accepted as a bonafide rental value of the property and it must be discarded straightway in all cases. There cannot be a blanket rejection of the same. If that is taken to be a safe guide, then, to discard it there must be cogent and reliable material, (ii) The market rate in the locality is an approved method for determining the fair rental value but it is only when the AO is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. The municipal rateable value may not be binding on the AO but that is only in cases of afore referred nature. It is definitely a safe guide." 9. Accordingly, we remit this issue to the file of the Assessing Officer. If the decision of Hon'ble Jurisdictional High Court in assessce's own case is available the same has to be followed. Otherwise the Assessing Officer is directed to examine the issue in light of Hon'ble Jurisdictional High Court in the case of Tip Top Typography (supra). Needless to add the assessee should be granted adequate opportunity of being heard.
direction was given to the A.O. to examine the issue in light of the decision of the Hon'ble Jurisdictional High Court in case of Tip Top Typography (supra). In the said decision, the Hon'ble Jurisdictional High Court has very clearly observed that unless there are compelling reasons, municipal ratable value cannot be rejected. On a careful scrutiny of the assessment order, we have not found any material which could indicate that the A.O. had made any enquiry to ascertain the municipal ratable value of the property during the relevant assessment years. The A.O. has determined the ALV simply relying upon the earlier expired leased deed. Thus, we are of the firm view that the A.O. has not carried out the directions of the co-ordinate bench in letter and spirit.
In view of the aforesaid, we are inclined to set aside the impugned orders of learned first appellate authority and restore the issue to the A.O. for determining the ALV of the property strictly in terms with the guidelines framed by the Hon'ble Jurisdictional High Court in the case of Tip Top Typography (supra). Hence, the ground is allowed for statistical purpose.
In the result, the appeals filed by the assessee in & 5445/Mum/2024 for A.Ys. 2014-15 & 2012-13 are allowed for statistical purpose.
& 5443/Mum/2024 (A.Ys. 2018-19 & 2017-18)
The issues raised in ground no. 1 of these appeals are identical to issues raised in & 5445/Mum/2024 (A.Ys. 2014-15 & 2012-13) decided by us in the earlier part of the order.
(A.Ys. 2014-15 & 2012-13) would apply mutatis mutandis to these appeals as well.
In ground no. 2 of these appeals, the assessee has raised the common issue of disallowance made u/s. 14A read with Rule 8D. At the time of hearing, ld. Counsel appearing for the assessee submitted, though, the assessee has contested the entire disallowance on the ground that it was made without recording proper satisfaction, however, she submitted, to settle the dispute, the assessee would be happy if the disallowance u/s.14A read with Rule 8D is restricted to the investments which yielded exempt income during the year.
The learned Departmental Representative ('ld. DR' for short) relied upon the observations of the departmental authorities.
Having considered rival submissions, we find merit in the contentions of ld. Counsel appearing for the assessee. Now, it is fairly well settled that the disallowance u/s. 14A read with Rule 8D qua indirect expenses has to be made based on the investments which yielded exempt income during the year. In this context, we refer to the decision of the Hon’ble Delhi High Court in the case of Cargo Motors Pvt. Ltd. vs. DCIT [2023] 453 ITR 554 (Del). To avoid multiplicity of judicial precedent, we desist from referring to the other decisions expressing similar view.
Before us, ld. Counsel appearing for the assessee submitted that in course of proceedings before the First Appellate Authority, the assessee has furnished a working of disallowance considering investments which yielded exempt income during the year. The A.O. is directed to verify the working of the assessee and restrict the disallowance u/s. 14A during the year. This ground is decided accordingly.
Insofar as ground no. 3 of is concerned, ld. Counsel for the assessee submitted that due to smallness of the quantum of addition, she would not like to press the ground. Accordingly, the ground is dismissed as not pressed.
In the result, the appeals filed by the assessee in & 5443/Mum/2024 for A.Ys. 2018-19 & 2017-18 are partly allowed.
To sum up:
Year Result 5442/Mum/2024 2018-19 Partly allowed 5443/Mum/2024 2017-18 Partly allowed 5444/Mum/2024 2014-15 Allowed for statistical purpose 5445/Mum/2024 2012-13 Allowed for statistical purpose