HARSH ANANDKUMAR JAIN,MUMBAI vs. ASST CIT CEN CIR39, MUMBAI

O R D E R

PER AMARJIT SINGH, JM:

1. In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the Annual Letting Value (ALV) of the premises owned by the appellant at Central Garden Complex Chunabhatti, Mumbai at Rs.13,61,286/- instead of Rs.10,80,386/- offered by the appellant based on the municipal rateable value of the said premises.

2. The Ld. CIT(A) failed to appreciate that the aforesaid premises were vacant throughout the previous year and accordingly the appellant had rightly adopted the municipal rateable value for the purpose of determining income under the head ‘Income from House Property.”

3. The order passed by the Ld. CIT(A) is illegal, bad in law, ultra vires and contrary to the provisions of law and facts and is passed without application of mind and in violation of the principle of the natural justice.”

4. The revenue has also filed the appeal against the order dated 20.02.2017 passed by the Commissioner of Income Tax (Appeals)-54, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.

(x) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the ratable value of the properties as determined by the Municipal & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 Authorities is the yardstick while failing to consider that Section 23(1)(a) mandates that the annual value is deemed to be the sum of which the property might be expected to be let from year to year.? (xi) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the AO had made local enquiries to determine the sum for which the properties could be expected to be let for the4 year as per Section 23(1)(a) of the IT Act, 1961. (xii) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the facts as brought on record by AO regarding the estimated rent for the properties for the purposes of computing income u/s 23(1)(a) of the IT Act, 1961.”

6. The brief facts of the case are that the assessee filed his return of income u/s 139 of the I.T. Act, 1961 on 30.07.2011 declaring loss to the tune of Rs.3,12,15,066/-. The assessment was selected for scrutiny. Therefore, the notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. During the year under assessment, the assessee has shown his income from house property, salary, capital gain and income from other sources. The assessee has shown her flat situated at Central Garden Complex as vacant and has offered annual value of the flat as per the municipal rateable value at Rs.12,00,429/-. The notice was given and after the reply of the assessee, the annual letting value of the flat was determined to the tune of Rs.1,71,94,824/-. The deduction u/s 24 @ 30% was granted and the assessment of the assessee was completed determining the total income to the tune of Rs.1,08,58,960/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who determined the annual letting value of the flat on the basis of the rateable value fixed by the municipal authority in the year 2006-07 and by enhancing to the extent of ITA. Nos. 3668 & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 5% annual increase in subsequent year to the tune of Rs.13,61,286/- as against of Rs.1,71,94,824/-. Both the party felt aggrieved by this order, therefore, filed the above mentioned appeals before us.

ISSUE NO. 1:- 7. Under this issue the contention of the assessee is that the annual letting value of the flat is liable to be taken into consideration in sum of Rs.10,80,386/- as offered by appellant instead of assessed by the CIT(A) by increasing the yearly rent @ 5% of the ALV to the tune of Rs.13,61,286/-. The contention of the revenue is that the AO has rightly assessed the ALV of the flat which has wrongly been decreased by CIT(A). At the very outset, the Ld. Representative of the assessee has argued that the CIT(A) has decided the matter of controversy on the basis of finding by CIT(A) in the A.Y. 2010-11 and on the basis of the finding by the Hon’ble ITAT. The Hon’ble ITAT has held that the municipal annual rateable value is only liable to be considered in accordance with law for tax purpose. It is specifically argued that the case of the assessee has duly been covered by decision of Hon’ble ITAT in the assessee’s own case for the A.Y. 2010-11 in and in ITA. No. 9834/M/2014 dated 06.07.2018. On appraisal of the said order, we noticed that the matter of controversy is the same which has been raised in the present appeal. Before going further, we deemed it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case on record: - “4. Rival contentions have been heard and record perused. & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13

5. In the course of assessment proceedings, it was observed that the assessee had declared the net annual value of the flats at Central Garden Complex, Tower No.5, Chunabhatti, S.M. Road, Mumbai as per the municipal rateable value at Rs.10,80,384/-. It was seen that the said flats had been shown by the assessee as vacant. It is informed that 6. By the impugned order, CIT(A) restricted the addition to the extent of Rs.12,96,463/- as against Rs.1,71,94,824/- considered by the AO. Considering the fact that municipal rateable value for the F.Y.2009-10 was determined at Rs.12,96,463/- should be adopted as ALV of the said flats subject to further addition of 1/9th of the said value after having the following observation: - 5.3.1 I have considered the submissions of the appellant and perused the materials available on record. It is a matter of record that the flats in question owned by the appellant have been lying vacant since April, 2008 when he took possession of the same. Since the said flats have not been let out, what would be relevant is provisions of Section 23(l)(a) rather than Section 23(1 )(c) of the Act. At the outset, it would be pertinent to take into account the settled legal position in regard to determination of ALV under Section 23(l)(a) of the Act. It is evident from plain reading of Section 23(l)(a) of the Act that the annual value of the house property is to be determined on notional basis as "the sum for which the property might reasonably be expected to let from year to year". The rent which the owner might realize if the property were let from year to year is made the basis for fixing the annual value of the property. The word 'reasonably' used in Section 23(l)(a) is very important. What the owner might reasonably expect to get from a hypothetical tenant if the property were let from year to year affords the statutory yardstick for determining the annual value or ALV of the property. It is now well-established that (i) ALV would be the sum at which the property may reasonably be let out from year to year by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances; (ii) actual rent received would be a reliable yardstick in normal circumstances and (iii) such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property. It is a settled law that where the property is subject to & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 the Rent Control Act, the fair rent cannot exceed the standard rent [Mrs. Shiela Kaushish (supra), Dewan Daulat Rai Kapoor (supra) and Dr. Balbir Singh v. MCD 152 ITR 388 (SC)]. In the case of a building subject to Rent Control Legislation, neither the owner can claim to recover from the hypothetical tenant nor can the latter be assumed to be willing to pay to the former anything more than the standard rent. Therefore, the reasonable expectation of the owner of the property must be limited by the measure of the standard rent lawfully recoverable from such tenant. An analysis of the judicial pronouncements of the Hon'ble Apex Court on the subject also reveals that the annual value of the property in a given case will be the higher 5 of: (a) the municipal valuation, (b) the standard rent determinable under the Rent Control Act and (c) the actual rent received or receivable by the assessee. 5.3.2 In light of the aforesaid legal position, let us now examine whether the action of the A.O. in determining the ALV of the flats at Rs.1,71,94,824/- is in accordance with law. As stated above, the flats in question have never been let out in the past and, therefore, the actual rent reasonably receivable by the appellant therefrom (which has been held by the Hon'ble Courts to be a reliable yardstick of fair rent) is not known. It is also observed that the said flats owned by the appellant but lying vacant since April, 2008 are not subject to the provisions of the Maharashtra Rent Control Act, 1999. Section 6 of the Maharashtra Rent Control Act, 1999 provides that the provisions of the said Act will not apply, if a property is not let or given on licence for a continuous period of one year. As the flats in question have not been let out since possession thereof was taken in April, 2008, the case of the appellant falls under the exceptions as a result of which there is no statutory requirement of having the standard rent determined so that the same can be used for ascertaining the ALV of the said flats for the purpose of Section 23(l)(a) of the Act. Since the flats owned by the appellant are not covered by the Maharashtra Rent Control Act. 1999 the standard rent determinate under that Act also cannot be taken as the ALV of the said flats. 5.3.3 It is in this background that the question of taking the rateable value determined by the municipal authorities as the fair rental value of the said flats has got to be decided. It is observed that Section 154(1) of the Bombay Municipal Corporation Act, 1888 ('BMC Act')

ITA. Nos. 3668 & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 dealing with the determination of the rateable value of a land or building also contains the words the annual rent "for which such land or building might reasonably be expected to let from year to year" which are to be found in Section 23 of the Act. Thus, it is clear that the provisions of the BMC Act are pan materia with Section 23(l)(a) of the Act. Since the provisions of fixation of annual rent under the BMC Act are materially at par with Section 23 of the Act, the annual value fixed by the municipal authorities can be treated as a rational and reasonable yardstick of ALV u/s.23(l)(a). In this connection, it deserves to be noted that the Hon'ble Bombay High Court in the case of Smitaben N. Ambani (supra) in the context of Rule 1BB of the Wealth Tax Rules which uses the same expression "the sum for which the property might reasonably be expected to let from year to year" as is found in Section 23(l)(a) has held that the rateable value as determined by the municipal authorities would be the yardstick. 5.3.4 In the case of Mom" Kumar Subba (supra), it is recognized that the rateable value under the municipal laws can be taken as the basis of adopting the ALV u/s.23(l)(a), if it is correctly determined and & 3834/Mum/2014 Shri Harsh Anand Jain 6 the annual value so fixed bears a close proximity to the F.Y. relevant to the A.Y. in question in respect of which the assessment is to be made under the Act. It is observed from the record that the municipal rateable value of his flats amounting to Rs.10,80,386/- as returned by the appellant was fixed in 2006-07. In the course of appellate proceedings, the appellant was asked to furnish the latest annual value determined by the municipal authorities. In response, it is submitted that the Municipal Authorities have not revised the rateable value of the said flats since 2006-07. Taking an annual increase of 5% to be fair and reasonable, the rateable value returned by the appellant is enhanced by 20% and thereby worked out at Rs.12,96,463/-. As held by the Hon'ble ITAT, Mumbai Bench in the case of Parkpaper Industries (P) Ltd. (supra), in the case of property which is not let out, municipal value would be a proper yardstick for determining the annual value. In that case, the action of the A.O. in adopting the annual value on the basis of inquiries regarding market rent in the vicinity of the property was held to be not in accordance with law. It is noticed from the record that similar view upholding the municipal rateable ITA. Nos. 3668 & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 value as the ALV u/s.23(l)(a) was taken on identical facts by the then CIT(A)-41, Mumbai while deciding the first appeal in the connected case of Shri Virendra Jain for A.Y.2009-10 vide order dated 09.01.2012. The plea of the appellant that the facts of Woodland Associates Pvt Ltd. (supra) followed by my predecessor while deciding the issue against the assessee in the connected case of Shri Anand Jain in his appeal for A.Y.2009-10 vide order dated 16,01.2013 are different and distinguishable from those of the appellant is found to be not without substance for the reasons given in para 5.2.2 above. I also find merit in the further plea of the appellant that the A.O. can make enquiries about prevailing market rent in the locality only in a case where there is receipt of actual rent so as to see whether the actual rent received or receivable by the assessee is less than the fair rent. Therefore, in view of the above discussion, the action of the A.O. in determining the ALV of the flats owned by the appellant at Rs.1,71,94,824/- as against Rs.10,80,386/- offered by the appellant cannot be sustained and it is held that the municipal rateable value of Rs.12,96,463/- as worked out above for F.Y.2009-10 should be adopted as the ALV of the said flats, subject to further addition of l/9 Ih of the said value. The A.O. is, therefore, directed to substitute the ALV of the said flats at Rs.12,96,463/- (as enhanced by l/9' h of said value) as against Rs.1,71,94,824/- considered by him in the impugned assessment order. Hence, Ground No.2 of the present appeal is allowed to the extent indicated above.

8. We have considered rival contentions and carefully gone through the orders of the authorities below. We have also deliberated on the judicial pronouncements cited by learned AR and DR during the course of hearing before us. We found that issue is squarely covered by the decision of Co-ordinate Bench in case of another family member of assessee Shri Virendra Jain vide order dated 14/11/2017 wherein Tribunal have held as under:- 6. I have considered rival contentions and carefully gone through the orders of the authorities below and found from record that rateable value was offered by assessee at Rs.3,86,376/- in ITA. Nos. 3668 & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 respect of premises situated at Central Garden Complex, Chunabhatti, Mumbai. The said premises were vacant throughout the previous year. The ALV so offered by the assessee was based on the Municipal rateable value. However, the AO did not accept the same and recomputed ALV at Rs.68,36,502/-. The CIT(A) considered various judicial pronouncements including the decision of Bombay High Court in the case of Tip Top Typography 368 ITR 330 and also decision of the Co-ordinate Bench in case of other family members of the assessee directed the AO to adopt ALV as per the rateable value fixed by Municipal Authority at Rs.4,63,651/-. Considering the decision of Hon’ble Bombay High Court and other High Courts as discussed by CIT(A) in his order and after applying the same to the facts of the case reached to the conclusion that ALV of the house property should be as per the rateable value fixed by Municipal Authority. I do not find any infirmity in the order of the CIT(A). The CIT(A) after considering the fact that in the immediately preceding year 2010-11, the ALV has been determined at Rs.4,63,651/-, enhanced the same by 5% and worked out to Rs.4,86,834/-. The detailed reasoning given by CIT(A) is as per material on record, therefore, do not require any interference on our part.”

In the facts and circumstances of the case and in law, the Ld. CIT(A) erred in confirming the Annual Letting Value (ALV) of the premises owned by the appellant at Central Garden Complex Chunabhatti, Mumbai at Rs.14,26,109/- instead of Rs.10,80,386/- offered by the appellant based on the municipal rateable value of the said premises.

2. The Ld. CIT(A) failed to appreciate that the aforesaid premises were vacant throughout the previous year and accordingly the appellant had rightly adopted the municipal rateable value for the purpose of determining income under the head ‘Income from House Property.”

3. The order passed by the Ld. CIT(A) is illegal, bad in law, ultra vires and contrary to the provisions of law and facts and is passed without application of mind and in violation of the principle of the natural justice.”

11. The revenue has filed the present appeal against the order dated 27.02.2017 passed by the Commissioner of Income Tax (Appeals)-54, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.

On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the ratable value of the properties as determined by the Municipal Authorities is the yardstick while failing to consider that Section 23(1)(a) mandates that the annual value is deemed & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13 to be the sum of which the property might be expected to be let from year to year.? (xi) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the AO had made local enquiries to determine the sum for which the properties could be expected to be let for the4 year as per Section 23(1)(a) of the IT Act, 1961. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the facts as brought on record by AO regarding the estimated rent for the properties for the purposes of computing income u/s 23(1)(a) of the IT Act, 1961.”

13. The facts of the present case is quite similar to the facts of the case as narrated above in ITA. No.3891/M/2017. There is no need to repeat the same. The matter of controversy is also the same which has been adjudicated above while deciding the ITA. No.3891/M/2017. The finding of the above mentioned in ITA. No.3891/M/2017 is applicable to the facts of the present case as mutatis and mutandis. Since we are assessing the ALV of the flat of the assessee @ municipal rateable value by assessing the 5% of the annual increase, therefore, we assess ALV of the flat by increasing the rate of 5% of the earlier A.Y. 2011-12 i.e. Rs.5,11,175/- total to the tune of Rs.25,558/- . Accordingly, the appeal of the assessee is hereby allowed and the revenue is hereby dismissed. & 3748/Mum/2017 3891 & 3892/Mum/2017 A.Ys. 2011-12 & 2012-13