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Income Tax Appellate Tribunal, DELHI BENCH ‘A’, NEW DELHI
Before: Sh. Amit ShuklaDr. B. R. R. Kumar
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the revenue against the order of ld. CIT (A)-31, New Delhi dated 27.06.2017.
Following grounds have been raised by the revenue: “1. Whether the ld. CIT (A) was right in rendering addition made in the hands of the appellant infructuous on the basis of similar addition in the hands of Sh. Trilok Chaudhary at CIT(A) level, when the addition has not reached finality and should have been held protective of appeal.
Whether the ld. CIT (A) was right in allowing the standard deduction claims of the assessee when the assessee has not been able to substantiate his claims off lease for more than 12 years.”
2 ITA No. 6105/Del/2017 Ashok Kumar 3. A search and seizure operation was conducted u/s 132 of the Income Tax Act, 1961 in the AKN Group of cases during which the premises of the assessee was also covered. Accordingly, the proceedings u/s 153A was initiated and a notice u/s 153A off the Act was issued requiring the assessee to furnish true and correct returns of income. In response thereto, the return of income were filed u/s 153A. The assessee has filed the return of income on 17.03.2010 for the assessment year 2009-10 declaring an income of Rs.50,41,060/-.
The case was selected for scrutiny and statutory notices were issued and served. The assessment was completed u/s 153/143(3) vide order dated 30.03.2016 by the AO, at an income of Rs.3,94,12,138/- making the following additions/disallowances:
i. Unexplained expenditure Rs.3,30,00,000/- ii. Rental income Rs.13,57,351/-
Brief facts of this issue are that the marriage of Sh. Kamal, son of the assessee namely, Sh. Ashok Kumar Choudhary (AKC) was performed with Ms. Devika daughter of Sh. Trilok Chand Choudhary(TCC). A search u/s 132A was conducted at the residential premises of both Shri Ashok Kumar Choudhary, the assessee as well as that of TCC. During the course of search at the residence of AKC, a list of various valuable items was found and was seized as Annexure A5 by party AF-1. The valuation of various items contained in the said list was made by the AO of both Sh. Trilok Chand Choudhary
3 ITA No. 6105/Del/2017 Ashok Kumar and Sh. Ashok Kumar Choudhary i.e. ACIT, Central Circle - 26, New Delhi, as under:
S. No. Particulars Quantity/Value Valuation as Total Value on 21.11.2008 (in Rs.) Silver 300 Kg 16,000/- Kg 48,00,000/- 1. Gold 8 Kg 1275/gm 1,02,00,000/- 2. 3. Diamonds Rs. 3 Crores Rs. 3 Crores 3,00,00,000 Total 4,50,00,000/-
The total value of various items as above was taken at Rs. 4,50,00,000/- which contains value of only silver, gold and diamond. As per his statement recorded under section 132(4), TCC declared a sum of Rs.1,20,00,000/- as his income from undisclosed sources on account of gifts to his daughter. The balance amount of Rs. 3.30 crores was added to the income of the assessee by the AO, resorting to the provision of section 132(4A) r.w.s. 292C of the Act on substantive basis.
An addition of the equal amount was made to the total income of TCC on protective basis.
Before the ld. CIT (A), the assessee has challenged addition of Rs. 3.30 crores stating that no such gifts were given by the assessee to the daughter-in-law as alleged by the AO, at the time of the marriage of his son namely, Sh. Kamal with Ms. Devika.
The ld. CIT (A) vide order dated 07.06.2017 in the case of Sh. Trilok Chand Choudhary in appeal no. 157/16-17/112/16-17 for the assessment year 2009-10 confirmed this addition in the hands of TCC in substantive capacity.
4 ITA No. 6105/Del/2017 Ashok Kumar 10. The revenue having accepted the confirmation of the amount made in the hands of TCC in substantive capacity but filed appeal before us for deleting addition which is deemed to have been made on protective basis in the hands of the assessee, filing of which is fundamentally erroneous.
Since, this addition has been upheld in the case of Sh. Trilok Chand Choudhary, the addition made in the hands of the assessee is rendered infructuous and is accordingly, directed to be deleted.
Rental income:
While making the impugned addition of Rs. 13,57,351/- on the account of Rental income, the Assessing Officer observed as under:
"5. During the assessment proceedings on perusal of the computation of income for the concerned year it was seen that the assessee is showing rental income from property G-4, NDSE, Delhi. On detailed verification it was found that the assessee is not the owner of this property but has taken this property on rent form a person called Abdul Hameed and sub- letted this property to another tenant. The assessee has claimed standard deduction of 30% on income from house property u/s 24(a) of the I.T. Act. As per provisions of section 56 of the I.T. Act, income for sub-letting is considered to be income from other sources. Thus, the standard deduction of 30% on rental income claimed by the assessee is incorrect and unjustified. Hence, the standard deducting of Rs.13,57,351/- claimed by the assessee is being disallowed and added back to
5 ITA No. 6105/Del/2017 Ashok Kumar the total income of assessee. Since the assessee has concealed his income and furnished inaccurate particulars of his income resulting in escapement of Income, penalty proceedings u/s 271(1)(c) of the I. T. Act, 19612 is to be initiated separately."
During the appellate proceedings, the ld. AR filed the following written submission before the ld. CIT (A) as extracted from the order:
"A sum of Rs.13,57,351 has been added to the income to the assessee. Assessee has sub-letted the property at G-4, NDSE, Delhi and has earned rental income of Rs. 45,24,503/- declared in the return of income, where a standard deduction of 30% towards repairs and maintenance was claimed which was disallowed by Ld. AO on the ground that the asseseee has sub- letted the property and the assessee is not the owner of this property, therefore this income should be assessed under the head “Income from Other Sources”, hence standard deduction is not allowed. Your kind attention is drawn on Section 22 and 27 of the Act which are reproduced as under, where owner of the property is defined in Section 27(iii)(b) as:-
“a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or pad thereof, by virtue of any such (f) of section 269UA, shall be deemed to be the owner of that building or part thereof.”
As per Section 269UA(f), transfer is defined as:
(i) in relation to any immovable property referred to in sub- clause (i) of clause (d) means transfer of such property by way
6 ITA No. 6105/Del/2017 Ashok Kumar of sale or exchange or lease for a term of not less than twelve years, and for includes allowing the possession of such property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882).
Explanation.—For the purposes of this sub-clause, a lease which provides for the extension of the term thereof by a further term or terms shall be (deemed to be a lease for a term of not less than twelve years, if the aggregate of the term for which such lease is to be granted and the further term or terms for which it can be so extended is not less than twelve years;
(ii) The property in question is taken on lease by the lessee for more than 12 years, therefore he shall be treated as the owner of the property. This property was taken on lease by the assessee on 01.12.1989. Assessee is tenant in this property even today. To substantiate its claim following documents are being filed by the assessee:- (a) Affidavit of the assessee stating that this property is with the assessee on lease for more than 12 years.
(b) Copy of the agreement dated 01.12.1989 showing that the assessee is the lessee of the property for more than 12 years.
(iii) No show cause what so ever was given by the Ld. AO for the proposed addition and the assessee was not offered opportunity to submit above said evidences, therefore separate application under Rule 46A has been moved in this regard.
7 ITA No. 6105/Del/2017 Ashok Kumar We pray this application should be disposed off before deciding appeal.
(iv) The assessee is receiving rent from sub-tenant in his own capacity as the owner of the house.
(v) Since the assessee is a tenant older than 12 years in this property, assessee falls in the definition of the owner for the purpose of being assessed under the head “Income from House Property”, therefore disallowances made in this regard should be deleted and income should be treated as income under the head “income from House Property”.
(vi)Reliance is placed on the following Judicial Pronouncements:
a. Radio Components & Transformers Pvt. Ltd. Vs ITO (2012) 18 taxman.com 102/ 50 SOT 237 (Mum ITAT) (Please see page no 28 to 47 of appendix)
Where assessee was in possession of property with tenable rights and had been received rent from sub tenants in their own capacity being owner of the house, however authority rightly treated him as deemed owner."
During the appellate proceedings, the ld. AR filed additional evidences u/r 46A on 02.12.2016 submitting as under:
"6. A sum of Rs.13,57,069 has been disallowed being standard deduction of repairs u/s 24(a) of the Act, on the property sub- letted situated at G 4 NDSE, Delhi by the assessee.
8 ITA No. 6105/Del/2017 Ashok Kumar This property is owned by the assessee for more than 12 years and as per section 27(iiib) read with section 269UA, assessee will be treated as the deemed owner of property under income tax law for the purpose of assessment of income under the head income from house property. No show cause notice was given by the Ld. AO, for proposed disallowance during the course of assessment proceedings and the matter was concluded by making the addition. Since the addition was made without offering the opportunity of being heard, the case of the assessee falls in clause (d) of Rule 46(A) and assess wish to submit the following evidences as additional evidences:-
Affidavit of the assessee stating that this property is with the assessee on lease for more than 12 years.
Copy of the agreement dated 01.12.1989 showing that the assessee is the lessee of the property for more than 12 years."
The additional evidences filed u/r 46A along with the submissions were forwarded to the AO by the ld. CIT (A). The AO furnished the remand report dated 18.01.2017 which is as under:
"3. Issue of disallowance of Rs.13,57,069/- u/s 24(a) of the IT Act, 1961
3.1 ln this regard, the assessee has submitted that the said property is owned by the assessee for more than 12 years and as per section 27 (iib) read with section 269UA, assesssee will be treated as deemed owner of property under income tax law for the purpose of assessment of income under the head income
9 ITA No. 6105/Del/2017 Ashok Kumar from house property. Further, the assessee has submitted the self declaration affidavit stating that she said property is with the assessee on lease for more than 12 years.
3.2 The above submission of the assessee was considered but found not acceptable. The assessee has submitted the copy of lease deed dated 16.03.200, as per which the assessee has taken the said property on lease from 01.01.2000 up to 31.03.2008 i.e. for 8 years 3 months. However, as per said lease deed, the assessee have the option to further renew the said lease deed for further 72 months. But, the assessee had failed to provide the copy of further registered renewed lease deed. However, during the remand proceedings, the assessee had given a copy of unregistered mutual agreement dated 30.11.2006 made on Rs.50 Stamp Paper (copy enclosed) as per which the original owner of the property authorized to assessee to give the said property on rent to third party as sub-tenant upto 31.03.2014. However, the same was not registered.
3.3 Hence, from the above it is clear that the assessee had failed to submit the copy of registered lease deed extending the same for further period, i.e. upto 31.03.2014. 3.4 Further, it is noted that as per the above agreement, the assessee had given the said property to sub-tenant on monthly rent of Rs.3.40 lakhs, i.e. 40.80 lakhs per year but it is seen that in computation the rental income from said property shown of Rs.45.60 lakhs which is not verifiable from the said agreements. Further, it is also noted from the TDS details available on reocrd that the sub-tenant had deducted the tax of Rs. 7,47,780/-, i.e. @ 15% on total rental income of Rs.49.85
10 ITA No. 6105/Del/2017 Ashok Kumar lakhs. Hence, the same is also not verifiable from TDS details. In light of the above, the affidavit so filed by the assessee is not acceptable and is just afterthought.
3.5 From the said agreement, it is clear that the said property was taken by the assessee to earn the rent from sub-tenancy. Hence the deduction u/s 24(a) of the Act is not allowable to the assessee. Further, it is hereby mentioned that ton the same basis disallowances is also made in subsequent years again which assessee is not in appeal.
Keeping in view of above, it is clear that the submission/evidence made by the assessee is not maintainable. The same is therefore may be rejected."
A copy of the remand report was provided for rejoinder to the appellant, who submitted as under:
"1. The property in question on which rental income is received by assessee and offered to tax, it is submitted that property in question was taken on lease on 01.12.1989 whereas the registered agreement of tenancy was entered on 16.03.2000 (Kindly see page 13 of paper book), of registered tenancy agreement of clause 2 which states that property in question was taken on rent on 01.12.1989 and in continuation as tenancy arrangement, further by this agreement dated 16.03.2000, the tenancy is extended upto 31.03.2008 with further extension upto 31.03.2014 at the option of the tenant.
The property in question was taken on rent on 01.12.1989. During the A.Y. 2009- 10, the same was with assessee nearly
11 ITA No. 6105/Del/2017 Ashok Kumar for 20 years. Therefore, as per provision of section 27(iii)(b) read with clause (f) of section 269UA, assessee become deemed owner of the property for the purpose of taxing him as the owner of the property.
3.(i) With regard to mention of unregistered rental agreement dated 30.11.2006 referred at para 3.2 of the remand report, it is submitted that this document was submitted during the course of assessment proceedings which is extension and re- negotiation of rent between the parties for which earlier registered rent deed was registered on 30.11.2000.
(ii) The document dated 30.11.2006 is also registered agreement, it is not unregistered. (Copy attached)
(iii) This document is an extension of lease dated 01.12.1989 (registered on 16.03.2000) with change in rentals extended upto 31.03.2014. Therefore, it is an incorrect interpretation of the document and assessee is enjoying the tenancy from 1989 which is more than 20 years and expiring on 31.03.2014 taking agreement to 25 years. Therefore assessee is entitled for standard deduction u/s 24 of the act for which it is prayed that it may kindly be allowed to him."
Further, the Id. AR vide submission dated 26.06.2017 submitted as under:
"ISSUE OF DISALLOWANCE OF Rs. 13,57,069/- u/s 24(a) OF THE IT ACT, 1961
12 ITA No. 6105/Del/2017 Ashok Kumar 1. The property in question was taken on rent on 01.12.1989. During the Assessemnt Year 2009-10, the same was with assessee nearly for 20 years. Therefore, as per provision of section 27(iii)(b) read with clause(f) of section 269 UA, assessee become deemed owner of the property for the purpose of taxing him as the owner of the property.
The plain reading of law itself is very clear that if the property in question is taken on lease for more than 12 years the lessee shall be treated as deemed owner of the property and rental income earned by such lessee will be assessed in his hands under the head "income from house property."
The case of the assessee is also duly covered by the judgment of Hon'ble Supreme Court in the case of Raj Dadarkar vs ACIT [81 taxmann.com 193(SC)j pronounced on 9th May 2017 (copy enclosed) where it has been held where lease hold rights are acquired for more than 12 years, by assessee he shall be treated as deemed owner u/s 27(iii b) and income of such sub-letting shall be that assessed under the head income from house property. (Please refer para 10 of the order)"
The ld. CIT (A) has taken into consideration the additional evidences and the remand report filed by the AO for adjudicating the issue. The substantial observations of the ld. CIT (A) are as under:
“The property in question on which rental income is received by assessee and offered to tax, was taken on lease on 01.12.1989 whereas, the registered agreement of tenancy was entered on 16.03.2000. The clause 2 of the registered tenancy agreement states that the property in question was taken on rent on 01.12.1989 and in continuation as tenancy
13 ITA No. 6105/Del/2017 Ashok Kumar arrangement and further by the agreement dated 16.03.2000, the tenancy was extended upto 31.03.2008 with further extension upto 31.03.2014 at the option of the tenant. The property in question was taken on rent on 01.12.1989 and therefore, during the A.Y. 2009-10, the same was in position of the appellant nearly for 20 years. Therefore, as per the provisions of section 27(iii)(b) read with clause (f) of section 269UA, the appellant becomes a deemed owner of the property for the purpose of taxation. With regard to mention of unregistered rental agreement dated 30.11.2006 referred to at para 3.2 of the remand report, it was submitted that this document was furnished during the course of the assessment proceedings and the same is an extension and re-negotiation of rent between the parties for which earlier rent deed was registered on 30.11.2000. It was pointed out that the document dated 30.11.2006 is also a registered agreement and not unregistered as alleged by the AO. The Ld. AR contended that this document is an extension of lease dated 01.12.1989 (registered on 16.03.2000), which with change in the rentals was extended upto 31.03.2014. Therefore, it is an incorrect interpretation of the document and assessee is enjoying the tenancy from 1989, which is more than 20 years during the assessment year in question and has a validity upto 31.03.2014, taking the total duration of the agreement to 25 years. It is also seen that the case of the appellant is squarely covered by the ratio of Hon'ble Apex Court's decision in the case of Raj Dadarkar (81 taxman.com 193) relied upon by the appellant whereby, it has been held that where an assessee acquires leasehold rights in premises for more than 12 years, he shall be deemed owner u/s 27(iii)(b) of the Act and income from sub-licensing the premises shall be ordinarily treated as income from house property. Since the appellant took the property on rent on 01.12.1989 through registered lease deed and the said property is in his possession for more than 12 years, he becomes a deemed owner of the said property in terms of section 27(iii)(b) r.w.s 269UA. The appellant is, therefore, entitled for the standard deduction @ 30% on income from such house property. Accordingly, the disallowance is directed to deleted and the ground no. 6 is allowed.
14 ITA No. 6105/Del/2017 Ashok Kumar 19. We have gone through the record before us. The assessee is the deemed owner of the property and also offered the rent to tax. The revenue having assessed the rent under the head “income from house property” cannot deny the statutory deduction u/s 24(a) unless it has been proved on record that the original owner has also claimed the benefit. The AO is directed to verify the claim of income from house property in view of the decision of Hon’ble Supreme Court in the case of Raj Dadarkar 81 Taxman 193 and take decision in accordance with the law.
In the result, the appeal of the revenue is dismissed. Order Pronounced in the Open Court on 01/07/2021.
Sd/- Sd/- (Amit Shukla) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 01/07/2021 *Subodh* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR