Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI
Before: SHRI C.N. PRASAD & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
1. This is an appeal filed by the assessee. The relevant assessment year is 2010-11. The appeal is directed against the order of the Commissioner of Income Tax-33, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
2. The grounds of appeal
filed by the assessee read as under:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the annual letting value of flat at Bangalore at Rs.1,62,000/- and has further erred in not allowing other deductions claimed against the declared ALV of such property.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the annual letting value of flat at 3rd floor in Piroja Court, Juhu at Rs.6,46,986/- and has further erred in not allowing other deductions claimed against the declared ALV of such property.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the annual letting value of flat at Hrishikesh Society at Rs.14,52,744/- and has further erred in not allowing other deductions claimed against the declared ALV of such property.
In addition to above grounds of appeal
No. 1 to 3, since the aforesaid properties were vacant for whole or part of the year, the Assessing Officer has erred in not allowing vacancy allowance as per the provisions of Income Tax Act, 1961.
3. Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2010-11 on 27.09.2010 declaring total income of Rs.4,77,25,290/-. During the course of assessment proceedings, the Assessing Officer (AO) found that as per the balance sheet, under the head ‘assets’ (immovable property) the assessee has shown 10 house property, the details being as under:
Sl No. Particulars House Remarks property income
Badruddin House ¾ Share 20,928 Rented
Sadruddin House 7/12 14,336 Rented Share
Akbar House 1/3 Share 8,400 Deemed income
Rented for 01 4. Flat at Bangalore 9,263 Month
5. Flat at Nilkanth – Thane ---- Used for profession
Flat at Piroza Court with 925 Deemed let out garage 6T
7. Flat at Hrishikesh Society (1,180) Deemed let out
Flat at Goa 11,200 Deemed let out
Flat at Piroza Court (6th ---- Used for profession floor)
Flat at Vinayak Aangan ---- SOP/Professional use.
In response to a query raised by the AO during the course of assessment proceedings, the assessee filed a reply dated 01.06.2012 stating that in 6th floor Piroja Court and 1401, Neelkanth Height, the assessee has full-fledged studio and these were mainly used to carry out his business activity.
However, the AO was not convinced with the above explanation of the assessee for the reason that in respect of flat at Piroza Court (6th floor), the assessee never submitted any document in support of his claim. The assessee purchased the property at Rs.5,40,000/-. The assessee has another flat in the same building which costs Rs.76,11,600/-. The AO relied on the order of the ITAT in ITO v. Chem Mech Pvt. Ltd. 83 ITD 427 and estimated the annual letting value (ALV)
@ 8.5% of the investment. In view of the above facts, the AO estimated the value of property to Rs.60,00,000/- and estimated the annual letting value (ALV) at Rs.5,10,000/- (8.5% of Rs.60,00,000/-). In respect of the property at Piroja Court, Juhu, (3rd floor), the assessee had offered Rs.925/- as deemed rent. The AO rejected the working of the assessee on ratable value because of the circumstance that the said property is located in a posh locality in Mumbai. Therefore, the AO estimated the ALV @ 8.5% of Rs.76,11,600/- and it comes to Rs.6,46,986/-. In respect of flat at Nilkanth, Thane, the AO noted that the assessee never submitted any document in support of his claim. Also in this case, the AO estimated the ALV @ 8.5% of the investment of Rs.29,21,976/- and it comes to Rs.2,48,368/-. In respect of the flat at Hrishikesh Society, the assessee has offered loss of Rs.1180/- as deemed rent for this property. The purchase price of the flat is Rs.1,70,91,100/- taking into account of the fact that the above property is situated at Dadar, where fair market rent is very high, the AO rejected the ratable value worked out by the assessee and estimated the ALV @ 8.5% of Rs.1,70,91,100/- and it comes to Rs.14,52,744/-. In respect of the flat at Goa, the assessee submitted before the AO that the letting out the property is seasonal and not on continuous basis and therefore, the deemed income of Rs.16,000/- be considered. The AO noted that the rate offered by the assessee is as per the assessment order for AY 2001-02. The factor of deemed income during AY 2001-02 and conditions of real estate cannot be held constant over the years. Thus, the AO estimated the ALV at 8.5% of Rs.7,40,000/- and it comes to Rs.62,900/-. In respect of the property at Bangalore, the assessee claimed before the AO that it is a rented property having a rent of Rs.27,000/- and offered house property income of Rs.9,263/-. The AO observed that the property is rented for only one month in the concerned assessment year. Relying on the decision in Vivek Jain v. ACIT 202 Taxman 499 (AP), wherein it has been held that the period for which a let out property may remain vacant cannot exceed for which property has been let out. The AO treated an amount of Rs.1,62,000/- (Rs.27,000 x 6) as rent receivable.
4. In appeal, the Ld. CIT(A) confirmed the addition made by the AO for the Bangalore property, Piroja Court, 3rd floor Juhu, Hrishikesh Society. However, he deleted the ALV estimated for the flats at Nilkanth, Thane and Piroja Court, 6th floor, Juhu. In respect of the flat at Goa, the Ld. CIT(A) followed the following finding of the first appellate authority for AYs 2006-07, 2007-08 and 2008-09: “After considering the relevant facts, I find that Rs.16,000/- is a reasonable amount for the ALV of the property. As has been stated the property does not have any marketability and also could not be let out. Return of investment may be correct yardstick to determine the annual value. AO is directed to adopt Rs.16,000/- as ALV for this property.”
Accordingly, the Ld. CIT(A) directed the AO to take the ALV of the Goa property at Rs.16,000/- instead of Rs.62,900/-.
Before us, the Ld. counsel of the assessee submits that during the relevant period, the flat at Bangalore was let out partly and also was vacant for the remaining part of the year. As per section 23(1)(b) of the Act, in respect of property, which is let out partly and partly being vacant, bona fide letting value of such property will be taken to be the annual municipal ratable value or actual rent received, whichever is higher. It is stated that since in the given case, rent received was higher than the municipal ratable value, actual rent received i.e. Rs.27,000/- was considered to be annual value of the said property. Regarding the flat at Piroja Court, Juhu (3rd floor), it is stated that the said flat was vacant during the year under consideration. Deemed income in respect of the said flat is based on municipal ratable value. As per the certificate issued by the BMC and the society, the ratable value of the said flat is Rs.2,061/-. The assessee has considered the municipal valuation based on the ratable value for determining bona fide letting value of the said vacant flat. It is argued that the appellate Commissioner has accepted the contention of the assessee while passing the order for the AYs 2006-07, 2007-08 and 2008-09 and determined the annual value at Municipal ratable value respectively. Also it is stated that in AY 2009-10, the AO has also considered the annual value at municipal ratable value only. It is stated that the annual letting value as determined by the AO based on the estimated percentage of the market value of the said flat is absurd and has to be set aside.
Regarding the possession of flat at Hrishikesh, the Ld. counsel submits that the said flat was taken during the year under consideration and it was vacant throughout the year. The annual Municipal ratable value of the said flat as determined following the Municipal record is Rs.16,852/- and accordingly, the same has been considered as bona fide letting value of the said vacant flat. In this case also, it is stated that the ALV as determined by the AO based on the estimated percentage of the market value of the said flat is absurd and has to be set aside.
6. On the other hand, the Ld. DR supports the order of the Ld. CIT(A) confirming the addition made by the AO in respect of flat at Piroja Court, Juhu, (3rd floor), flat at Hrishikesh and flat at Bangalore.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In respect of the flat at Bangalore there is no dispute that all the facts were before the AO. This is evident from page 3-4 of the assessment order dated 22.03.2013. During the relevant year, the flat was let out partly and was also vacant for the remaining part. As per section 23(1)(b) of the Act, in respect of property which is let out partly and vacant partly, bona fide letting value of such property will be taken to be the annual municipal ratable value or actual rent received whichever is earlier. Since in the above case, the rent received by the assessee was higher than the municipal ratable value, the appellant has rightly taken the actual rent received of Rs.27,000/- as annual value of the said property. Therefore, we allow the 1st ground of appeal.
In respect of the flat at Piroja Court, Juhu (3rd floor), there is no dispute that all the facts were before the AO. This is evident from page 4 of the assessment order dated 22.03.2013. The said flat was vacant during the year under consideration. Deemed income in respect of the said flat is based on the Municipal ratable value. As per the certificate issued by BMC and the Society, the ratable value of the said flat is Rs.2061/-. There is no basis for adopting a uniform yardstick of 8.5% of the investment to arrive at the ALV as done by the AO in the present case. We find that the Municipal ratable value as adopted by the assessee for determining bona fide letting value of the said flat is a reasonable one. Therefore, the 2nd ground of appeal is allowed. In respect of the flat at Hrishikesh, there is no dispute that all the facts were before the AO. This is evident from page 4 of the assessment order dated 22.03.2013. The possession of the said flat was taken during the year under consideration and it was vacant throughout the year. The annual Municipal ratable value as per the Municipal record is Rs.16,852/-. There is no basis for adopting a uniform yardstick of 8.5% of the investment to arrive at the ALV as done by the AO in the present case. We find that the Municipal ratable value as adopted by the assessee for determining bona fide letting value of the said flat is a reasonable one. Therefore, the 3rd ground of appeal is allowed. In view of the above decision, we allow the 4th ground of appeal and direct the AO to allow the vacancy allowance to the assessee as per the provisions of the Act.