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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri P. M. Jagtap & Shri S.S. Viswanethra Ravi
For the Appellant : Shri Amit Saraj, FCA For the Respondent : Shri Nicolas Murmu, Addl. CIT, DR Date of hearing : 17.07.2019 Date of pronouncement : 01.10.2019 ORDER Shri S.S. Viswanethra Ravi, JM:
This appeal by the assessee against the order dated 01.06.2016 passed by the Commissioner of Income Tax (Appeals)-10, Kolkata [‘CIT(A)’] for Assessment Year 2011-12.
The only issue is to be decided as to whether the CIT(A) is justified in restricting the addition to an extent of Rs.2,13,216/- on account of notional rental value in the facts and circumstances of the case.
Brief facts emanating on the record relating to the issue on hand are that the assessee is an individual and derives income from salary non-speculative business and income from other sources. According to Assessing Officer the assessee has two flats, one in Mumbai, other in Kolkata. Flat in Mumbai was owned by the assessee himself and the other flat in Kolkata was owned jointly along with his wife. The assessee has shown the notional rental value of Rs.64,800/- basing on the valuation determined by the Kolkata Municipal Corporation. According to Assessing Officer the value determined by the Municipal authority way back in 1994 and did not accept the same. Thereby he conducted enquiries through web process i.e. www.19acre.com and OLX and also deputed one of his inspectors to enquire into the credible value of the property in Kolkata bearing no.Flat-2C, situated at 12/2A/2B/2C at Ballygunge Park Road, Kolkata – 19. Taking into consideration the information received from the above-said website and his inspector determined the annual rental value of the flat at Rs.7,20,000/- and added the said amount to the total income of the assessee and determined the total income at Rs.70,33,310/- as against the return of income of Rs.62,45,214/- passed u/s 143(3) of the Act.
As aggrieved by the order of Assessing Officer, the assessee preferred an appeal before the CIT(A). The CIT(A) did not accept the method of investigation done by the Assessing Officer and adopted the 10% appreciation for year on year on such property and determined the annual rental value at Rs.3,30,838/- for the year under consideration by deducting 30% standard deduction and restricted the addition to Rs.2,13,216/- as against the Rs.7,20,000/-. The relevant portion of which is reproduced hereinbelow:
“7. After detailed examination of the issues, I find that the ld. A.O has adopted a certain method of inquiry to arrive at the rent that the property would fetch were it to be let out. However, it appears that these findings based on enquiry were not confronted to the appellant-assessee. It means that the report of the Departmental Inspector was not given to the assessee-appellant, and an opportunity denied to rebut the findings of the Ld AO at the assessment stage, As regards, the reliance on the information available in the public domain namely the websites www.99acres.com and OLX, the Ld AO has not recorded in detail the dates of search and / or the available rental rates on these websites. Be that the case, it is to be seen whether the Ld AO is allowed to adopt any other rate when the assessee has been able to offer the Municipal value of the House Property. However, in this case, it is seen that the Municipal Value offered was for the point of purchase during 1994, almost sixteen years prior to the subject A.Y 2011-12. Neither the ld. A.O nor the Ld. AR have said anything in the matter, whether the Municipal Value had been revised since, a very possible requirement in determining the reasonable rent at the relevant point in time. Further, I am unable to agree with the argument of the Ld A.R that the appellant's issue is covered by the decision of the Hon'ble Calcutta High Court in case of CIT vs. Satya Co. Ltd reported in [1997] 140 CTR Cal 569, wherein it was held by the Hon'ble High Court that when municipal valuation of the premises in question was made available and such valuation was not disputed by the revenue, then the same should be adopted as the annual letting value of the property. Firstly, I find that the Municipal Value offered was for a very old point of time, and secondly I find that the matter was disputed by the Assessing Officer in clear terms and was not found to be reasonable. The essence of the matter is "reasonable" and the "fetchable" rent in the market, to determine the rental value, It the circumstances, there can be no dispute that an annual value of Rs,72,000/- ( or a monthly rent of Rs.6,000 ) as claimed by the appellant for a 2,000/- sq. feet flat in a post area such as Ballygunge, Park was a near utopian fancy in the subject A.T 2011-12.
8. Adhering to the Act and the relevant section, clause [a] to section 23[1], as pleaded by the appellant / Ld A.R, it is to be determined as to what would be the Annual Rental Value, even if the municipally method of Valuation is to be considered and adopted. The Ld A.R has not produced any documents about the current Municipality Value, which will be definitely higher that what it was during purchase about 16 years back, It would be very reasonable, in my considered view that the rental value would appreciate 10% year-on year for such prime property Kolkata in increment in rent for such properties, if only at a lower side. If the reasonable assumption is such, then what was fetching Rs.72,000 during 1994 could be expected, at a compounded rate, to fetch Rs.3,30,838/- in 2011, or a monthly rent of Rs.27,570/-. In my considered view that would be a more realistic method of calculating the Annual Rental Value of the property in question and would take care of all the factors at hand. The assessee would be entitled to the deduction of Municipal tax of Rs.26,244, arriving at a figure of Rs.3,04,594, which would be eligible for a 30% standard deduction, and the income from House Property would be arrived at Rs.2,13,216. In my considered view, therefore the addition made by the Ld AO is confirmed to this extent of Rs.2,13,216 and the balance stands deleted.”
5. Before us the ld. AR Shri Amit Saraf, FCA submits that the municipal value as determined by the Municipal authority is to be taken as annual rental value as there was no increase in value for the said property. The property tax bill involving the year under consideration is placed at Page 23 and supported the contentions that the Assessing Officer was wrong to ignore the same. The ld. AR placed reliance in the decisions of Hon’ble High Court of Calcutta in the case of CIT vs. Bhaskar Mitter reported in [1994] 73 taxman 437(Cal), CIT v. Hemraj Mahabir Prasad Ltd. reported in [2005] 148 taxman 623(Cal.), in the case of CIT vs. Satya Co. Ltd. reported in [1994] 75 taxman 193 (Cal.), in the case of Dr. Balkrishna R. Naik v. JCIT of Mumbai Bench of ITAT reported in [2005] 1 SOT 177 (Mum.), in the case of Dr. Balkrishna R. Naik v. ITO of Mumbai Bench of ITAT in in the case of CIT v. Smt. Prabhabati Bansali of High Court of Calcutta reported in [1982] 9 taxman 244 (Calcutta).
The ld. DR., Shri Nicolas Murmu, vehemently opposed the order of CIT(A) and relied on the order of Assessing Officer.
Heard both parties and persued the material available on record. We find that as rightly pointed out by the ld. A.O the value certificate was relied by the assessee has been determined by the Municipal authority w.e.f. 01.10.1994. The Assessing Officer having taking into consideration the area in which the property is located, did not accept the valuation determined by the Municipal Authority and determined the issue by taking information by relevant websites and deputing one of his inspectors. The Hon’ble High Court of Delhi in the case of CIT vs. Moni Kumar Subba reported in [2011] 10 taxmann.com 195 (Delhi) has clearly held that the valuation certificate issued by the municipal authority is a reasonable yardstick to determine annual market value but however it would be subject to the condition when the said value was determined and it should be proximity to the Assessment Year under consideration. In the present case, the value as determined by the Kolkata Municipal authority w.e.f 1994 and the Assessment Year under consideration is 2011-12 therefore the valuation determined by the Kolkata Municipal authority is not at all fair and reasonable yardstick to consider the same. Therefore the order passed by the CIT(A) in restricting the addition to an extent of Rs.2,13,216/- is not justified and the value determined by the Assessing Officer undergoing enquiries taking into consideration the relevant source is justified. We completely agree with the reasons given by the Assessing Officer in his order which is reproduced hereinbelow:
During the assessment proceeding, the assessee has asked to furnish details regarding flat, new flat as reflected in balance sheet. The assessee has furnished details of flats as under: Particulars Address Date of Possession Flat (fully L-32, Tarapore Towers, Oshiwara, 2002 owned) Andheri (West) Mumbai – 400 058, Maharashtra.
New Flat (in the Flat-2C, 12/2A/B/C, Ballygunge Park 2004 name of wife) Road, Kolkata – 700 019, West Bengal (50% ownership) On the basis of submission, the assessee was asked as per order sheet dated 09.12.2013, why the notional value of rental income is not treated as rental income for one flat as in terms of section 23(4) if there are more than one residential houses, which are in the occupation of the owner for this residential purpose then he may exercise an option to treat any one of the houses to be self occupied and the other house(s) will be deemed to be let out and the annual value of such house(s) will be determined as per section 23 of the I.T. Act, 1961. The section 23 of I.T. Act provides that the annual value of property is deemed to be expected reasonable rent or rent received / receivable. The assessee has taken Flat L – 32, Mumbai as self occupied property. The assessee has submitted a written submission on 06.03.2013 and furnished Kolkata Municipal Corporation tax bill where the annual valuation of the Flat 2C, situated at 12/2A/2B/2C at Ballygunge Park Road has declared Rs. 64,800/-. The assessee has mentioned in his reply that annual value as determined by Municipal Authority shall be yardstick. In favour of his reply he has quoted some case laws. The reply of the assessee is considered but not acceptable. The Municipal Corporation issued two types of valuation, one for owner and another for rental. Rental municipal valuation rate of that period may be taken for notional rental income. The assessee has submitted the ownership municipal value of Rs. 64,80/- (which is very less) shown as per property tax bill issued by Kolkata Municipal Corporation in which date of effect was 01.10.1994 which is not relevant to current assessment year. Also the tax bill submitted by the assessee is ownership valuation rate instead of rental valuation rate. As per purchase deed submitted by the assessee, it has been observed that the assessee has purchased the said Flat at Rs. 48,00,000/- (excluding stamp duty) in July, 2004. The Flat 2C of the assessee measuring 2021 sq. ft. Situation at Balygunge Park Road, Kolkata which is one of the posh locality of Kolkata. The annual municipal value of Rs. 64,800/- as submitted by the assessee is very less, which is not possible considering the locality. Therefore, for arriving the actual notional rental income, departmental inspector deputed to know the current market rental value of that flat or nearby locality. The departmental inspector visited the said flat and met to Secretary Mr. R. Banerjee, care taken Mr. Partha Kumar Pailan and security guards Mr. Kanak Mondal and Mr. Seniram Bhattacharya. They stated that all the flats at 12/2A Ballygunge were occupied by their respective owners. Further for knowing the market rental value of the flat, the departmental inspector met nearby property dealers and brokers and they told that rent of flat of 2,000/- sq. ft. At Ballygunge, Park Road would be at least Rs. 60,000/- per month for residential purpose. The inspector has given the figure of reasonable rent for residential purpose at Rs. 60,000/- per month is also based on the rates available at the websites www.99acres. Com and OLX. In my opinion the expected reasonable rent at Rs. 60,000/- per month for Flat 2C carefully considering that flats in Ballygunge Park Road, Kolkata are very costly meaning there while that the annual value of property Rs. 7,20,000/-. On examination of the financial statement of the assessee the investment in flat matches with the total consideration paid as per the deed of conveyance amounting to Rs. 48 lac (excluding stamp duty). Thus the assessee is enjoying complete beneficial ownership of having paid the entire consideration from his own sources. Therefore, the annual rental value of the flat is taken of Rs. 7,20,000/- in the hand of assessee. Penalty proceeding u/s 271(1)(c) are also initiated for concealment of income in respect of the addition as discussed above”
In the case of CIT vs. Moni Kumar Subba, Full Bench of Hon’ble High Court of Delhi reported in [2011] 10 taxmann.com 195(Delhi) held that the annual value fixed by the municipal authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if in the Assessment Year in question when assessment is to be made under Income Tax Act. In a given situation, the Hon’ble High Court of Delhi was pleased to hold that the Assessing Officer can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the fair rent in the market and there is sufficient material on record for taking a different valuation. The relevant portion of which is reproduced hereinbelow:
Since the provisions of fixation of annual rent under the Delhi Municipal Corporation Act are pari materia of Section 23 of the Act, we are inclined to accept the aforesaid view of the Calcutta High Court in Satya Co. Ltd. (supra) that in such circumstances, the annual value fixed by the Municipal Authorities can be a rationale yardstick. However, it would be subject to the condition that the annual value fixed bears a close proximity with the assessment year in question in respect of which the assessment is to be made under the Income Tax laws. If there is a change in circumstances because of passage of time, viz., the annual value was fixed by the Municipal Authorities much earlier in point of time on the basis of rent than received, this may not provide a safe yardstick if in the Assessment Year in question when assessment is to be made under Income Tax Act. The property is let-out at a much higher rent. Thus, the AO in a given case can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the „fair rent‟ in the market and there is sufficient material on record for taking a different valuation. We may profitably reproduce the following observations of the Supreme Court in the case of Corporation of Calcutta Vs. Smt. Padma Debi, AIR 1962 SC 151: "A bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other considerations may take it out of the bounds of reasonableness."
Thus the rateable value, if correctly determined, under the municipal laws can be taken as ALV under Section 23(1)(a) of the Act. To that extent we agree with the contention of the learned Counsel of the assessee. However, we make it clear that rateable value is not binding on the assessing officer. If the assessing officer can show that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/ evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810.”
In the aforementioned decision, the Full Bench of Hon’ble High Court of Delhi approved the ratio laid down by the Hon’ble High Court of Calcutta in the case of Satya Co. Ltd. (supra) and held the Assessing Officer can ignore the municipal valuation for determining annual letting value if he finds that the same is not based on relevant material for determining the fair rent in the market and there is sufficient material on record for taking a different valuation. In the present case as discussed above, the assessee relied on the valuation as determined by the Municipal authority way back in 1994 and in our opinion the said valuation is not at all relevant nor is a base to determine the valuation of the property relating to the assessment year under consideration i.e. F.Y 2010-11 (A.Y 2011-12). Accordingly the Assessing Officer did not accept such valuation and proceeded to elicit information from relevant websites and deputing his Inspector basing on which he determines the annual rental value for the said flat at Rs.7,20,000/-. In our opinion, the Assessing Officer rightly ignored the valuation determined by the municipal authority in the year 1994. Thus the ratio laid down by the Full Bench of Hon’ble High Court of Delhi is applicable in the facts and circumstances of the case. In view of the same, we set aside the order of the CIT(A) and restore the order of Assessing Officer. Ground Nos.1 & 2 raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 01.10.2019.
Sd/- Sd/- [P. M. Jagtap] [S.S. Viswanethra Ravi] Vice President Judicial Member Dated :01.10.2019 Place : Kolkata RS, Sr.PS Copy of the order forwarded to: 1. Appellant –Sri Sanjiv Dua, 8, Parsee Church Street, Kol-1. 2 Respondent – ACIT, Circle-36, Kolkata 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata