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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO, HON’BLE & SHRI D.S. SUNDER SINGH, HON’BLE
IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM (Through web-based video conferencing platform) BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 667/VIZ/2019 (Asst. Year : 2015-16) ACIT, Circle-1(1), vs. M/s. A.S. Raja Sons Visakhapatnam. Enterprises Pvt. Ltd., D.No. 10-5-11/5, Care Hospital, Waltair Main Road, Visakhapatnam. PAN No. AABCA 4796 M (Appellant) (Respondent) C.O.No.27/VIZ/2020 (Arising out of I.T.A. No. 667/VIZ/2019) (Asst. Year : 2015-16) M/s. A.S. Raja Sons vs. ACIT, Circle-1(1), Enterprises Pvt. Ltd., Visakhapatnam. D.No. 10-5-11/5, Care Hospital, Waltair Main Road, Visakhapatnam. PAN No. AABCA 4796 M (Appellant) (Respondent)
Assessee by : Shri Suseel Kumar Agarwal, FCA. Department By : Shri D.K. Sonawal, CIT-DR Date of hearing : 23/11/2020. Date of pronouncement : 26/11/2020. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER This appeal by the Department and the cross objection by the assessee are directed against the order of Commissioner of
2 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) Income Tax (Appeals)-1, Visakhapatnam, dated 24/09/2019 for the Assessment Year 2015-16. 2. The Revenue has raised the following grounds of appeal:- “1) The order of the ld. CIT(A)-1, Visakhapatnam is erroneous both on facts and in law. 2) The ld. CIT(A) has failed to appreciate the provisions of sec. 23(1)(a) of the Act which is a deeming provision and the Annual Lettable Value shall be taken to be higher of the Municipal Value and the Fair Rent value, subject to any ceiling set in the Rent Control Act. The AR has not produced any Standard Rent that is fixed by a controller of Rent under an applicable Rent Control Act in force. 3) The ld. CIT(A) ought to have upheld the order of AO in the absence of submission of standard rental value as per Rent Control Act. For these and other grounds that may be urged at the time of appeal hearing it is prayed that addition made by the AO be restored.” 3. Facts of the case in brief are that assessee is the owner of a building named as A.S. Raja Complex situated at 10-50-11/5, Waltair Main Road, Visakhapatnam. The assessee entered into lease agreements with three parties to rent out portions of this building compound to each of the party. For the F.Y. 2014-15 relevant to the A.Y. 2015-16 the details of the tenants, area of property let out and lease rates are as follows:- S.No. Name of tenant Area Let Monthly Let Out unit rate Out (in Rent (in (Rs./sqft/month) sq.ft.) Rs.) 1 M/s. Visakha Hospitals & 78,751 8,45,625 10.73 Diagnostics Ltd., 2 M/s. IndusInd Bank Ltd., 2,000 1,18,508 59.25 3 M/s. A.S. Raja Trust 2,000 30,729 15.36
3 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) In the assessment order, the AO has noted that assessee letting out different sections of the same complex to three different parties and he has received rental income from these parties, therefore the AO has asked the assessee to explain why the deemed rent receivable by the property u/sec. 23(1)(a) should not be estimated and used for the purpose of computation of income from house property of the assessee. In response to that, the assessee has explained as under:- “....your selves have observed that the present rate per square feet of the property given to Care Hospital situated at Waltair, Main Road, Ramnagar, Visakhapatnam, owned by the assessee was more per sft and wanted to apply these rates as against the actual rate per sft being declared by the assessee in the return of income filed for 1h Ast. Year 2015-16. In this connection it is submitted that as per the agreement entered by the assessee long back i.e., more than 10 years back and the said rental income per sft is being accepted by the Income tax Department in the earlier assessment year(s), where assessments were completed under sec. 143(3) of the Act. As the income earned in the form of rents was through agreement only, we request your selves to kindly drop your propose action in this regard. Further, it is submitted that, the rate informed by yourselves may be present rates but, as the assessee company entered into the agreement long back for longer period, the present rents cannot be the basis and compared with the agreement entered into by the assessee long back. As explained earlier, the Building is not a general building and it is a massive construction useful for Hospitals only. It means that, the prospective tenants are very few only and its area is also very huge. In view of the above said reasons also, the assessee was compelled to enter into long period agreement with the tenant. In fact, that point of time, there were no proper tenants to occupy such area in the building owned by the company. Considering the above and earlier submissions, the assessee company requests the learned Assessing authority to
4 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) kindly accept the above and drop your proposed action in this regard to adopting the present market rate per square fee as against the actual income being derived/earned by the assessee."
The AO has considered the explanation and observed that there is no marked difference in the area of the three properties let out for rent. The area let out to M/s. Care Hospitals is the most prominent part of the complex and has a big approach road and large parking facility. However, the lease rent for this hospital is the lowest among all the three properties. He further noted that the lease rent offered by the assessee is much lower than the expected rent receivable as per the prevailing rates in the area. Accordingly, he invoked section 23(1)(a) and deemed rent has been calculated and assessment was completed. The case of the assessee before the AO is that as per agreement he has received the rent but the AO is not able to establish that the assessee has received more than what is written in the agreement and therefore once there is an agreement and then amount is received. Accordingly, section 23(1)(a) has no application. However, the AO rejected the argument of the assessee and assessment was completed. 5. On appeal, ld. CIT(A) deleted the addition made by the AO by following the decision of the ITAT, Kolkata Bench in the case of
5 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) Oberoi Hotels Pvt. Ltd. Vs. DCIT in ITA No. 230/Kol/2012, dated 15/10/2015. 6. Ld.DR strongly supported the order passed by the AO, whereas ld.AR relied on the order of the ld. CIT(A) and also the decision in the case of Oberoi Hotels Pvt. Ltd., (supra). 7. We have heard both the sides, perused the material available on record and orders of the authorities below. 8. The assessee is having a commercial complex and same is let out to 03 different parties i.e. M/s. Visakha Hospitals & Diagnostics Ltd., M/s. IndusInd Bank Ltd. and M/s. A.S. Raja Trust and receiving rental income as per the agreement entered with the tenants. The case of the AO is that the rent received by the assessee is very low and he should have been received more than what is received. The case of the assessee is that he is receiving the rental income as per the terms and conditions stipulated in the agreement. It is not the case of the AO that the amount received is more than what is stated in the agreement. It is also the case of the assessee that the property is old property and leased out for a long period and continuous occupation of the tenants, therefore no deemed rent can be invoked as per section 23(1)(a) of the Act. However, the AO not agreed with the explanation of the assessee and invoked section 23(1)(a) of the Act and
6 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) estimated the deemed rental income. On appeal, ld. CIT(A) by following the decision of ITAT, Kolkata Bench in the case of Oberoi Hotels Pvt. Ltd. (supra) directed the AO to delete the addition. For the sake of convenience, the relevant portion of the ld. CIT(A)’s order is extracted as under:- “4.4 I have carefully considered the facts of the case, written submissions of appellant and the decision of Assessing Officer. It is an undisputed fact that the appellant had admitted rental receipts based on the Lease Agreement. It is also an undisputed fact that the property is not a vacant premises The Assessing Officer has not brought any material contravening the actual rental received by appellant. In other words, there is no proof that the appellant is in receipt of additional income other than the admitted rental income nor any suppression of rental receipts. The Assessing Officer's power on determining ALV u/s 23(l)(a) is not absolute It is only limited to the issue where the property is vacant and no rentals are shown or admitted by appellant. There is no such scenario in this case The notional income in place of real income is not to be considered for tax purpose. The real income that is to be taxed is the admitted rental income as per lease deeds in this case. The expected rental income loses its relevance once the property is let out for certain rent and such rent is shown in return. It is not possible to determine expected rent again and again on actual rent admitted. The Hon'ble ITAT (Cal) in the case of M/s. Oberoi Hotels (230, 233, 1030 & 1041/Kol/2012) held on the similar issue as under: "Deeming provision of Section 23 (])(a), in the case of let out property, only the actual rent received was required to be considered as annual value of properly. The 40 failed to appreciate such estimation of annual letable value as per provision of Section 23(l)(a) was, called for only in case of vacant property and not where the properly was actually let out since in the case of let out property, the assessee was not entitled to anything over and above the agreed rent. The said action of the AO has resulted in taxing notional income in the hands of the assessee, which never accrued and hence cannot be brought to tax. Respectfully following the decision of Hon'ble ITAT and in the
7 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) light of facts the case the addition made by Assessing Officer is deleted.” 9. Ld.DR has not brought any case law contrary to the ITAT decision as cited by the ld.AR and no material has been placed that the order passed by the ITAT, Kolkata Bench is reversed or modified by the higher courts. Therefore, respectfully following the decision of the ITAT, Kolkata Bench in the case of Oberoi Hotels Pvt. Ltd. (supra) we find no infirmity in the order passed by the ld. CIT(A). Thus, this appeal filed by the Revenue is dismissed. 10. So far as cross objection is concerned, there is a delay of 311 days. The delay is not properly explained, therefore same is dismissed. 11. In the result, appeal filed by the Revenue and the cross objection filed by the assessee are dismissed. Order Pronounced in open Court on this 26th day of Nov., 2020.
Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated:26th November, 2020. vr/-
8 ITA No. 667/VIZ/2019 C.O.No.27/VIZ/2020 (M/s. A.S. Raja Sons Enterprises Pvt. Ltd.) Copy to: 1. The Assessee - M/s. A.S. Raja Sons Enterprises Pvt. Ltd., D.No. 10-5-11/5, Care Hospital, Waltair Main Road, Visakhapatnam. 2. The Revenue – ACIT, Circle-1(1), Visakhapatnam. 3. The Pr.CIT-1, Visakhapatnam. 4. The CIT(A)-1, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order
(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.