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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri P. M. Jagtap & Shri S.S. Viswanethra Ravi
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA Before: Shri P. M. Jagtap, Vice President and Shri S.S. Viswanethra Ravi, Judicial Member I.T.A No.895/Kol/2014 (Assessment Year: 2009-10)
DCIT, Circle-6, Kolkata Appellant Vs M/s Avantha Realty Ltd. Respondent [PAN:AAACJ8030A] For the Appellant : Shri C. J. Singh, JCIT- Sr. DR For the Respondent : Shri Sanjay Bhattacharya, AR Date of hearing : 02.07.2019 Date of pronouncement : 30.09.2019 ORDER Shri S.S. Viswanethra Ravi, JM:
This appeal by the Revenue against the order dated 16.01.2014 passed by the Commissioner of Income Tax (Appeals)-VI, Kolkata [‘CIT(A)’] for Assessment Year 2009-10.
We find this appeal was filed with a delay of 19 days and initially for non-filing of affidavit seeking condonation of delay, this Tribunal dismissed the appeal vide its order dated 14.07.2017. The assessee challenged the same before the Hon’ble High Court of Delhi and on considering the facts and circumstances, the Hon’ble High Court of Delhi was pleased to hold that the delay of 19 days is not extraordinary and explanation offered by the appellant-Revenue to be plausible and on merits. The Hon’ble High Court was pleased to set aside the order passed by this Tribunal and restored the appeal to the file of this Tribunal for disposal in accordance with law. Therefore the delay of 19 days are condoned.
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. 3. Coming to the merits of the case, the only issue raised by the appellant-Revenue is as to whether the CIT(A) is justified in deleting the addition made on account of difference between rent received by the assessee and fair market value for the properties in the facts and circumstances of the case.
Brief facts emanating from the record is that the assessee is a company and engaged in the business of finance, investment and also real estate. The real estate division of M/s Ballarpur Industries Ltd. has been demerged and vested with the assessee from Assessment Year 2007-08. On perusal of the relevant material, the Assessing Officer found that the assessee offered income from house property of Rs.5,40,00,000/- was the property of M/s Ballarpur Industries Ltd. before demerger and held that the transaction between the said M/s Ballarpur Industries Ltd. and the assessee falls u/s 40(a)(2)(b) of the Act. It was submitted by the assessee that the annual ratable value issued by the municipal authority is much less than the actual rent received as per rent agreement and claimed the rent received should be considered as annual value u/s 23(1) of the Act. The Assessing Officer did not find merit in the submissions of the assessee and applying the method as per Schedule III of Wealth Tax Act 1957 calculated the rental value of the above said properties at Rs.8,21,41,216/- (Rs.102,67,65,198/- ÷ 12.5) and added to the total income of the assessee.
As aggrieved by the order dated 08.12.2011 passed by the Assessing Officer u/s 143(3) r.w.s 115WE(3) of the Act, the assessee filed an appeal before CIT(A). The assessee contended that the Assessing Officer erred in view that the case of the assessee does fall u/s 40(a)(2)(b) of the Act. Further contended challenging the action of Assessing Officer in working out the annual value of rent as per Schedule III under W.T. Act and erred in not following Rule 5 of Schedule III of the W.T. Act which refers (i) rent received or
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. receivable or (ii) annual value assessed by the local authority. The assessee also brought to the notice of CIT(A) regarding the order in deleting the similar addition for Assessment Year 2008-09 passed by the CIT(A) having jurisdiction in assessee’s own case and canvassed the facts and circumstances in the year under consideration are similar to the Assessment Year 2008-09 and prayed to delete the addition made by the Assessing Officer. The CIT(A) on considering the facts and circumstances of the case and that of the order passed in Assessment Year 2008-09 by his predecessor deleted the addition made by the Assessing Officer by observing that the Assessing Officer has not brought any data of rent of other similar property vis-à-vis the property of the assessee. The fair market rental value which a property can fetch in the market and whether the assessee has shown lesser rental value from its group company. There is no document or other evidences in the form of comparison to show that the assessee has shown lesser value of rent than the prevalent market rate. The relevant portion of which is reproduced hereinbelow:
“5. The assessing officer has made addition to ‘income from house property’ by increasing annual value of the rented properties and reducing the deduction for interest. The reduction in the deduction claimed for interest has not been disputed by the appellant in the present appeal. Thus, the only dispute is regarding annual value taken. It is seen that the assessing officer has, on this issue, followed the assessment order for the immediately preceding year i.e. AY 2008-09. The appeal against the said order was decided by my predecessor vide order dated 23.12.2011 in appeal no. 175/CIT(A)-VI/Cir-6/10-11/Kol. In this order, after considering the facts of the appellant’s case and the legal position, he had deleted the addition on account of increase in annual value with following remarks: “The Assessing Officer has not brought any data of rent of other similar property vis-a-vis these properties. The fair market rental value which a property out of these can fetch in the market and whether the assessee has shown the lesser rental value from its Group Company has not been brought on record. There is no document or other evidences in the form of comparison to show that the assessee has shown lesser value of rent than the prevalent market rate. Every agreement between the two companies of a Group does not make the transaction suspicious. There are so many factors which are to be observed while giving the property on rent including the tenant’s goodwill of vacating it in future and agreeing for increase in rent, amount of advance and rate of interest on advance given thereon etc. The cost of properties and the rent is dependent on a number of factors and not merely on the cost price of the immovable property. The method followed by the Assessing Officer is not an
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. appropriate method to determine the market rental value of a property. The Municipal Value is much lower than the rent being received by the appellant and in the absence of any conclusive evidence regarding lower rental value being charged by the appellant, taking of huge advance almost full value of property, lower rate of interest and in the light of cost of the property vis-a-vis rental value (i.e. return of money @ 5% of cost price), it is held that the rent being received by the assessee is reasonable and fair” There is no change in the material facts or legal position this year and I am fully in agreement with the view of my ld. Predecessor in the matter. Respectfully following the reasoning given in his order for AY 2008-09 the addition made by taking annual value of the rented out properties at Rs. 8,21,41,216/- instead of Rs. 5,41,00,000/- is deleted.”
Aggrieved by the order of CIT(A), the Revenue is before us by challenging the action of CIT(A) in deleting the addition made by the Assessing Officer. The ld. DR, Shri C. J. Singh submits that the assessee entered with an agreement with M/s Ballarpur Industries Ltd. to rent out seven(7) properties for 10 years lease w.e.f. 01.07.2006. He placed reliance in the case of CIT vs. Moni Kumar Subba reported in [2011]10 taxmann.com 195 (Delhi) and referred to Para No.16 of the said order and argued that if the municipal authority correctly determines ratable value of property, can be taken as Annual Letting Value (ALV), but the said value is not binding on the Assessing Officer. If the Assessing Officer ensures that ratable value under municipal laws does not represent the correct fair rent, that he may determine the same on the basis of material/evidence placed on record. The relevant portion in the case of Moni Kumar Subba (supra) is reproduced hereinbelow:
The next question would be as to whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal ITA No.499 of 2008 with ITA No.803 of 2007, ITA No.1113 of 2008, ITA No.388 of 2010, Authority Act can be the basis of adopting annual letting value for the purposes of Section 23 of the Act. This question was answered in affirmative by the Calcutta High Court in Satya Co. Ltd. (supra) on the ground that the provisions contained in the Delhi Municipal Corporation Act for fixing annual letting value is pari materia with Section 23 of the Act. The Court opined that the fair rent fixed under the Municipal laws, which takes into consideration everything, would form the basis of arriving at annual value to be determined under Section 23(1)(a) and to be compared with actual rent and notional advantage in the form of notional interest on interest free security deposit could not be taken into consideration. It is clear from the following discussion therein:
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. "6. With regard to question Nos. (5) and (6) which are only for the asst. yrs. 1984-85 and 1985-86 the further issue involved is whether any addition to the annual rental value can be made with reference to any notional interest on the deposit made by the tenant. When the annual value is determined under sub-cl. (a) of sub-s. (1) of s. 23 with reference to the fair rent then to such value no further addition can be made. The fair rent, takes into consideration everything. The notional interest on the deposit is not any actual rent received or receivable. Under sub-cl. (b) of s. 23(1) only the actual rent received or receivable can be taken into consideration and not any notional advantage. The rent is an actual sum of money which is payable by the tenant for use of the premises to the landlord. Any advantage and/or perquisite cannot be treated as rent. Wherever any such perquisite or benefit is sought to be treated as income, specific provisions in that behalf have been made in the Act by including such benefit, etc., in the definition of the income under s. 2(24) of the Act. Specific provisions have also been made under different heads for adding such benefits or perquisites as income while computing income under those heads, e.g., salary, business. The computation of the income under the head House property is on a deemed basis. The tax has to be paid by reason of the ownership of the property. Even if one does not incur any sum on account of repairs, a statutory deduction therefore is allowed and where on repairs expenses are incurred in excess of such statutory limit, no deduction for such excess is allowed. The deductions for municipal taxes and repairs are not allowed to the extent they are borne by the tenant. However, even ITA No.499 of 2008 with ITA No.803 of 2007, ITA No.1113 of 2008, ITA No.388 of 2010, such actual reimbursements for municipal taxes, insurance, repairs or maintenance of common facilities are not considered as part of the rent and added to the annual value. Accordingly, there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. Whatever benefit or advantage which is derived from the deposits - whether by way of saving of interest or of earning interest or making profits by investing such deposit - the same would be reflected in computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of so-called notional interest on the deposit made by the tenant, since there is no provision to this effect in s. 22 or 23 of the IT Act, 1961."
Shri C. J. Singh further submitted that the aforementioned view in the order of Hon’ble High Court of Delhi has been accepted by High Court of Calcutta in the case of Satya Co. Ltd., wherein it was held the annual value fixed by the municipal authorities can be a rationale yardstick, but 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
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. passage of time i.e. the annual value was fixed by the municipal authorities much earlier in point of time on the basis of rent then received, may not provide a safe yardstick in the assessment year in question when assessment is to be made under the Income Tax Act. Further he argued in such circumstances the Assessing Officer in a given case, can ignore the municipal valuation for determining ALV 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 ld. DR, Shri C.J. Singh prayed to allow the grounds raised by the Revenue and placed reliance in the case of Moni Kumar Subba (supra) and submitted that the facts and circumstances of the present case is similar to the facts and circumstances of the aforesaid judgment of High Court of Delhi. The ld. DR referred to Page No.28 of the Paper Book and submitted that the municipal value as shown by the assessee by way of statement is only 1,87,907/- and the assessee received a rent of Rs.5,41,00,000/- from seven properties which are located in commercial cities like Mumbai, Delhi, Pune etc. can fetch more than the value determined by the municipal value and as received by the assessee itself. Thus, the Assessing Officer is right in ignoring the value as shown by the assessee.
The ld. AR, Shri Sanjay Bhattacharya, submits that the valuation of all properties is placed at Page Nos.37 to 50 of Paper Book. He submits that the assessee was receiving rent from 2006-07 onwards and there was no addition made in the said Assessment Year and in the subsequent years. He submitted that the CIT(A) held that the Assessing Officer failed to bring any evidence on record to show that the rent received by the assessee is lower than comparing to any other properties and the method followed by the Assessing Officer is not in accordance with law. The addition made by the Assessing Officer has been deleted by the CIT(A) for Assessment Year 2008-09 and by placing reliance on the same reasoning, the CIT(A) deleted Page | 6
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. the addition in the year under consideration. The ld. AR further argued that the reference and calculation as adopted by the Assessing Officer is not as per law i.e. section 40(a)(2)(b) of the Act. He further argued that if there is no objection to the value determined by the municipal authority it can be taken as fair market value or otherwise the value adopted by the assessee has to be taken into consideration. The assessee offered the income as per law and the facts and circumstances in the case law as advanced by the ld. DR is not at all applicable to the facts and circumstances of the present case.
Heard both parties and persued the material available on record. The contention of the Shri C.J. Singh, ld. DR is that the Assessing Officer can ignore the municipal value if it is lower than the rent received or it does not represent the correct rent. The said value determined by the Municipal Laws is not binding on the Assessing Officer and he may have to determine the same on the basis of material/evidence placed on record. It is noticed from the record as pointed out by the ld. DR that the annual ratable value as per Municipal laws relating to the properties of the assessee is only Rs.1,87,907/- but however the rent received by the assessee is of Rs.5,41,00,000/-. According to Assessing Officer the said properties were located in big cities like Mumbai, Delhi and Pune and according to ld. DR the value as determined by the municipal laws is not binding on the assessee, the Hon’ble High Court of Delhi observed that the municipal value is not a yardstick to follow in determining the annual ratable value of any property. We find that the Hon’ble High Court of Delhi in the case of Moni Kumar Subba (supra) held that the annual value fixed by the Municipal authorities can be valuable 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 assessment is to be made under the Income Tax proceedings. Page | 7
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. 10. Further it held that it may not be a safe yardstick if there is a change in the circumstances because of passage of time that the annual value fixed by the municipal authorities much earlier. Therefore it is clear that the Hon’ble High Court of Delhi pleased to say the annual value fixed by the municipal authorities can be rationale and reasonable but subject to the condition that the value determined by the municipal value should be a close proximity with the Assessment Year under consideration.
As noticed from Page No.28 wherein is a written submission, before the CIT(A) showing municipal value is far less than the rent received by the assessee. It is noted from the record as held by the CIT(A) that no evidence whatsoever brought on record by the Assessing Officer for comparison that the rent received by the assessee is far less than to any of the property located in the similar area. The CIT(A) also held that Assessing Officer erred in applying the method provided in Schedule III of Wealth Tax Act. It is correct to note that the Assessing Officer did not accept the claim of rent received by the assessee and he doubted that it has been received between M/s Ballarpur Industries Ltd. and the assessee according to their suit will. Admittedly, the value determined by the municipal authority regarding the seven properties of assessee is much less than the rental income as shown by the assessee.
The Hon’ble High Court of Delhi opined that in the case of Moni Kumar Subba (supra), that if the Assessing Officer finds the value determined by the Municipal authorities is not reasonable, he can determine the value on the basis of material/evidence by placing on record. As discussed above, there was no such exercise done by the Assessing Officer. However it has to be noted that the appellant- Revenue is following consistently in accepting the income as offered by the assessee under the head income from house property for
I.T.A No.895/Kol/2014 M/s Avantha Realty Ltd. earlier A.Y. 2006-07 and subsequent assessment years. As noted above, the CIT(A) in the present year under consideration considering the reasoning given by his predecessor for A.Y. 2008-09 deleted the additions by holding the rental income as offered by the assessee is reasonable/fair, so therefore, in our opinion, the CIT(A) rightly justified in deleting the addition made by the Assessing Officer. Thus only ground raised by the Revenue fails and it is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 30.09.2019.
Sd/- Sd/- [P. M. Jagtap] [S.S. Viswanethra Ravi] Vice President Judicial Member Dated : 30.09.2019 Place : Kolkata RS, Sr.PS Copy of the order forwarded to: 1. Appellant –DCIT, Circle-6, Kolkata 2 Respondent – M/s Avantha Realty Ltd., 6B, Pretoria Street, Kolkata – 700071. 3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata
By order, //True Copy// Assistant Registrar, ITAT, Kolkata