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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI VIKAS AWASTHYDr. B.A.Road, Dadar(E), Mumbai 400 014. : अपीलाथ/ Appellant
आदेश/ ORDER This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-5, Mumbai ( in short ‘the CIT(A)’) dated 13/06/2018 for the assessment year 2015-16.
Shri Phalgoon Desai, appearing on behalf of the assessee submitted that the assessee is a partnership firm engaged in the business of acquiring properties and leasing them. The assessee had one commercial property at Tamarind Lance, Fort, Mumbai. The assessee had purchased the said property in July 2010 vide registered deed of transfer. The said deed is at pages 6 to 22 of the Paper Book. The assessee had leased aforesaid premises to Canara Bank. During the lease period the lease
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rent was declared by the assessee as ‘Income from House Property’ in the return of income. Canara Bank vacated the premises in July 2012. Thereafter, despite best efforts the property could not be leased out and is still lying vacant. During the period relevant to assessment year under appeal the assessee paid municipal taxes amounting to Rs.3,00,000/- resulting in loss under the head ‘Income from House Property’ . The assessee claimed set- off of loss under the head ‘Income from House Property’ against ‘Income from Other Sources’. The return of the assessee was processed by CPC Bangalore under section 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 24/04/2016. Thereafter, CPC, Bangalore passed rectification order under section 154 of the Act rejecting assessee’s claim of set off of loss under the head ‘Income from House Property’. Aggrieved by the order dated 21/06/2016 passed under section 154 of the Act, the assessee filed appeal before the CIT(A). The CIT(A) vide impugned order rejected the contentions of assessee primarily on three grounds: (i) The Income from House Property has to be taxed on the basis of FRV in respect of the fact whether the property is actually let or not; (ii) the assessee has failed to prove that sincere efforts were made to lease the property, and (iii) municipal tax receipt bears the name of Dhanrajmal Gobindram & Co.Pvt. Ltd., the assessee cannot claim any deduction without paying expenses on its own.
2.1 The ld.Authorized Representative of the assessee submitted that the property in question is a commercial property hence, the provisions of section 23(1)(c) of the Act are attracted. Under section sub-section (i) to section 23, there is no requirement of determination of notional rent as is in the case of residential property. The fact that property in question is a commercial property, has not been disputed by the Revenue.
2.2 The ld.Authorized Representative of the assessee pointed that in assessment year 2014-15 identical issue had arisen, where the assessee had claimed loss under
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the head income from house property. The assessee claimed set off of said loss against income from other sources. In first appeal, the CIT(A) accepted the contentions of assessee and deleted the adjustment/disallowance made by the Assessing Officer. The ld.Authorized Representative of the assessee referred to order of CIT(A) dated 09/01/2019 at page 31 of the paper book. The Department did not file any appeal against the findings of CIT(A). The facts in the assessment year under appeal are identical.
2.3 As regards objection raised by the CIT(A) on payment of municipal taxes in the name of third party, the ld.Authorized Representative of the assessee submitted that the assessee had purchased property vide registered sale deed from M/s.Dhanrajmal Gobindram Foundation Trust in 2010. However, the property continues to be in the name of said Trust in the records of Municipal Corporation of Mumbai. The assessee paid Rs.3,00,000/- as municipal tax vide cheque No.515998 dated 26/02/2015. The ld.Authorized Representative of the assessee referred to the copy of bank pass book at page 28 to substantiate that the cheque amount was debited from the bank account of the assessee with Saraswat Co-operative Bank.
2.4 The ld.Authorized Representative of the assessee further contended that in any case disallowance and set off of loss are debatable issues hence, such disallowance could not have been made while processing the return under section 143(1) or in rectification proceedings under section 154 of the Act. The ld.Authorized Representative of the assessee in support of his contentions placed reliance on the following decisions:
(i) Presudha Export vs. ACIT, 295 ITR (AT) 341(Mum)
(ii) Informed Technologies India Ltd. vs. DCIT, 162 ITD 153 (Mum-Trib)
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Per contra, Shri Ajay Pratap Singh, representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of the assessee. The ld.Departmental Representative submitted that no material has been placed on record by the assessee to show steps taken for letting out property. The property in question is located in the prime area, therefore, it is not plausible that the assessee has not been able to get tenant for a property at such a prime location. The ld.Departmental Representative further submitted that the municipal tax receipt furnished by the assessee is not in the name of assessee, hence, the assessee cannot claim expenditure that has been incurred by third party.
Both sides heard, orders of authorities below examined. The solitary issue in the present appeal by the assessee is disallowance of loss Rs.3,00,000/- under the head ‘Income from House Property’ and disallowance of set off of said loss against ‘Income from Other Sources’. The assessee is owner of commercial property located at Tamarind Lance, Fort, Mumbai. The said property was leased to Canara Bank upto July 2012. After the bank vacated the premises, the assessee purportedly could not find suitable tenant/lessee for the said property. Consequently, during the period relevant to the assessment year under appeal, the property was vacant and the assessee has not earned any rental income from the said property. On the other hand, the assessee paid municipal tax amounting to Rs.3,00,000/- in respect of the said property. Thus, the assessee suffered a loss of Rs.3,00,000/- under the head ‘Income from House Property’. The assessee set off the loss from ‘Income from House Property’ against ‘Income from Other Sources’. The same was disallowed by Assessing Officer while processing assessee’s return under section 143(1) of the Act.
The contention of the assessee is that as per provisions, of section 23(1)(c) of the Act Annual Letting Value (in short ÁLV’) for the period under consideration is nil. The payment of municipal tax Rs.3,00,000/- paid in respect of the property has
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resulted in loss that has been set off against ‘Income from Other Sources’ in accordance with the provisions of section 71 of the Act. In any case the claim made by the assessee could not have been rejected under section 143(1) of the Act.
A bare perusal of section 143(1) of the Act would show that where return has been made under section 139 of the Act, the return of the assessee shall be processed after allowing following adjustments:
(i) Arithmetical error in the return. (ii) In correct claims apparent from any information in the return. (iii) Disallowance of expenditure negated in the audit report not taking into account while computing total income in the return. (iv) Disallowance of deduction claimed under section 10AA, 80IA, 80IAB, 80IB, 80IC, 80ID or section 80IE, if return is filed beyond the due date specified under section 139(1) of the Act. (v) Addition of income appeared in Form 26AS/16A/16 which has not been included in computing total income in the return.
The first proviso to sub-section(1) of section 143 of the Act clearly states that no adjustment shall be made unless an intimation is given to the assessee . The second proviso to sub-section(1) grants opportunity to the assessee to file response to the intimation before making adjustment. The Assessing Officer before making adjustment shall consider the response of the assessee if it is received within 30 days from the date of issue of such intimation before such adjustment is made. In the present case, assessee’s claim of set off of loss under section 71 of the Act has been rejected in violation mandate of section 143(1) of the Act. The rejection of assessee’s claim of set off of loss from ‘Income from House Property’ against ‘Income from Other Sources’ does not fall in any of the adjustments listed in clause(a) of section 143(1) of the Act. The assessee’s claim of ‘set off of loss’ canot be
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rejected in a mechanical manner without affording opportunity of hearing to the assessee. Even under the provisions of section 154 of the Act such claim cannot be rejected by Assessing Officer. The scope of section 154 is limited to rectification of mistake apparent from record. In any case, as per the provisions of section 154(3) the Assessing Officer was under obligation to allow the assessee a reasonable opportunity of hearing as the rectification has resulted in enhancing the tax liability of assessee . Thus, there is violation of provisions of the Act as well as principles of natural justice in passing of the order under section 154 of the Act. Hence, such order is not sustainable and is liable to be quashed on this score alone.
The assessee has computed loss under the head income from house property in accordance with the provisions of section 23(1)(c) of the Act. Before proceeding further it would be relevant to refer to the provisions of section 23(1) of the Act.
"23. Annual value how determined.—(1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable:” It is an undisputed fact that the property in question a commercial property. As per clause(a) to section 23(1) of the Act ALV shall be the sum for which the property might reasonably be expected to let from year to year. Clause (c) of section 23(1) of the Act deals with the situation where the property or part of property is vacant during the year. Where the property or any part of the property ‘let’ was vacant during the whole or part of the previous year and owing to such vacancy the actual rent received or receivable in respect of such property is less than the sum referred
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to clause(a), the amount so received or receivable shall be ALV of the property. In the instant case, since the property remained vacant throughout the previous year the ALV of the property has been rightly taken as nil by the assessee under the provisions of section 23(1)(c) of the Act. In fact the municipal tax paid in respect of the property in question during the relevant period resulted in loss to the assessee under the head ‘Income from House Property’. The assessee claimed set off of said loss from the income from other sources in accordance with provisions of section 71 of the Act. The claim of set off of loss against ‘Income from Other Sources’ has been rejected by processing the return under section 143(1) of the Act in an arbitrary manner. As has been pointed earlier the scope of adjustment while processing the return under section 143(1) is very limited. In any case on merit the assessee’s claim of set off of loss under the head ‘Income from House Property’ against ‘Income from Other Sources was fairly justified and is in accordance with the provisions of Act.
The Co-ordinate Bench of the Tribunal in the case of Premsudha Export P. Ltd.(supra) had explained the provisions of section 23(1)(c) of the Act and its application. The Tribunal while dealing with the issue, has threadbare examined the provisions of section 23(1)(c) and also the expression ‘Property is let’ used in clause(c) of section 23(1). The Tribunal held that where the property was vacant during the whole or any part of previous year, the provisions of clause (c) to section 23(1) would apply. The relevant extract of the observation of Tribunal reads as under:
“10. Section 23(1) was amended and substituted by a new provision with effect from April 1, 2002, by the Finance Act, 2001. The impugned assessment year is 2003-04 and therefore the amended section 23 is applicable to the present case and the amended section 23(1) contains three clauses dealing with different situations to compute the annual value .of any property. These three clauses are independent clauses and deals with three types of situations. Clauses (a) and (b) are almost similar to the old provisions with slight modifications and deal with two types of situations, i.e., (1) determination of annual value for which property might reasonably be expected to be let from year to year ; (2) determination of the annual value where the property is let and annual rent received or
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receivable is in excess of this sum referred to in clause (a). The old section 23(1) did not deal with that type of situation where the annual rent received or receivable is lower than the sum referred to in clause (a) on account of property remained vacant during the whole or an}' part of the year. In order to remove this anomaly, clause (c) was inserted in a new provision of section 23(1) and according to this clause (c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and in such case, the actual rent received or receivable by the owner in respect thereof, is less than the sum referred to in clause (a), the amount so received or receivable.
Having applied these three situations to the facts of the case, we are of the view that the assessee's case falls within the third situation and annual value of the property is to be computed as per clause (c) of the Act because the property remained vacant for the whole year.” 9. On the expression ‘Property is let’ used in clause (c), the Tribunal held as under:
“17…………..If the property- is held by the owner for letting out and efforts were made to let it out, that property' is covered by this clause and this requirement has to be satisfied in each year that the property' was being held to let out but remained vacant for whole or part of the year. We feel that the words "property' is let" are used in this clause to take out those properties from the ambit of the clause in which property are held by the owner for self- occupation i.e., self-occupied property (i.e./SOP) because even income on account of SOP, excluding one such SOP of which annual value is to be adopted at nil, is also to be computed under this head as per clause (a} of section 23(1) if we see the combined reading of sub- sections (2) and (4) of section 23. One thing is more important because we find that where the Legislatures have considered that actual letting out is required, they have used the words "house is actually let". This can be seen in sub-section (3) of the same section 23. But in clause (c) above, "actually let" words are not used and this also shows that meaning and interpretation of the words "property is let" cannot be "property actually let out". In our opinion, it talks of properties, which are held for letting out having intention to let out in the relevant year coupled with efforts made for letting it out. If these conditions are satisfied, it has to be held that the property- is let and the same will fall within the purview of this clause.”
The Tribunal in the case of Informed Technologies India Ltd. vs. DCIT (supra) while adjudicating somewhat similar issue placed reliance on the decision of Premsudha Export P. Ltd. vs. ACIT(supra) and held that where the property remain vacant during the whole of the year and was never under self occupation of the assessee, the ALV of the property was rightly determined at nil.
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The ld.Departmental Representative has raised another contention that the municipal tax has not been paid by the assessee as is evident from the receipt issued by BMC. The assessee has placed on record purchase deed of the property at pages 6 to 27 of the Paper Book. A perusal of the same shows that the assessee has purchased the property from M/s.Dhanrajmal Govindram Foundation Trust vide registered deed of transfer dated 28/07/2010. The assessee has paid municipal tax amounting to Rs.3,00,000/- vide Receipt No.6168257/58 dated 24/03/2015. The municipal taxes have been paid vide cheque No.515988. The assessee has also placed on record copy of the bank passbook indicating that the amount of Rs.3,00,000/- against aforesaid cheque has been deducted from assessee’s account No.011100111106248 with Saraswat Co-operative Bank. The amount, date of payment and cheque number corresponds to the amount debited from the bank account of the assessee. Thus, from the documents on record it is clear that the municipal taxes in respect of the property has been paid by the assessee. The objection raised by ld. Departmental Representative are, therefore, unsustainable and hence, rejected.
The assessee has placed on record copy of the order of CIT(A) -5, Mumbai dated 09/01/2019 for assessment year 2014-15 to show that assessee’s claim of set off of loss from income from house property was rejected by the Assessing Officer in assessment year 2014-15. In first appeal the CIT(A) deleted the disallowance by holding that disallowance made by Assessing Officer under section 143(1) is not sustainable. The ld. Authorized Representative for the assessee has pointed that Revenue has not filed any appeal against the said order of CIT(A), thus, the said order of CIT(A) has attained finality. The ld. Departmental Representative has not rebutted the contentions of the ld. Authorized Representative for the assessee. Thus, it is evident that the Revenue has accepted assessee’s claim of set off of loss from income from house property in the immediately preceding assessment year.
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The facts in the assessment year under appeal are identical, the manner and reason for loss under income from house property in the assessment year under appeal is identical to assessment year 2014-15.
For the various reasons stated above, I find merit in the appeal of the assessee. Accordingly, the impugned order is set aside and the appeal of assessee is allowed.
In the result, appeal by assessee is allowed.
Order pronounced in the open Court on Monday, the 11th day of January, 2021.
Sd/- (VIKAS AWASTHY) �या�यक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated: 11/01/2021 Vm, Sr. PS(O/S) ��त�ल�प अ�े�षतCopy of the Order forwarded to : 1. अपीलाथ�/The Appellant , 2. ��तवाद�/ The Respondent. 3. आयकर आयु�त(अ)/ The CIT(A)- 4. आयकर आयु�त CIT 5. �वभागीय ��त�न�ध, आय.अपी.अ�ध., मुबंई/DR, ITAT, Mumbai 6. गाड� फाइल/Guard file.
BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai