DR NIRMAL JAIN,MUMBAI vs. DCIT CIR 7(3), MUMBAI

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ITA 3167/MUM/2017Status: DisposedITAT Mumbai11 October 2018AY 2011-129 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the two flats, combined into a single unit with one entrance and kitchen, should be considered as one property for self-occupation, making the annual value nil. It also deleted the disallowance of business expenses, noting the assessee had already suo moto disallowed a larger portion.

What were the facts?

The assessee treated two adjacent flats, used as a combined residence and office, as a single unit. The AO and CIT(A) treated them as separate units for calculating deemed rent, though the CIT(A) allowed an alternative calculation for the annual value.

What were the issues?

Whether two adjacent flats combined into one unit should be treated as a single property for self-occupation and deemed rent calculation, and whether a partial disallowance of business expenses is justified when the assessee has already made a larger suo moto disallowance.

Which sections of the Income-tax Act were involved?

Section 23(1)(a),Section 23

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “B” BENCH, MUMBAI

For Appellant: Shri Madhur Agrawal, AR
Hearing: 11.10.2018Pronounced: 11.10.2018

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-18, Mumbai [in short CIT(A)], in appeal No. CIT(A)-18/T-329/16-17 vide order dated 23.01.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle 7(3), Mumbai (in short ‘DCIT/ AO’) for the A.Y. 2011-12 vide order dated 20.02.2014 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2.

The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in assessing the income from House property vide treating the flat No. 2404B as separate flat from flat No. 2403B and assessing the deem rent under section 23(1)(a) of the Act. For this assessee has raised the following ground No. 1: -

“1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (appeals) -18, Mumbai (CIT(A)) grossly erred in confirming the addition made by the learned assessing officer (AO) of ₹ 4,02,27/- under the head ‘income from House property’ by treating flat No 2404B out of the appellant’s self- occupied property to be a separate unit even when flat No 2403B and 2404B owned by the appellant were a single residential unit.”

3.

Briefly stated facts are that in the present case flat No. 2403B and 2404B were used by the assessee as his own residence cum office which are combined into one house by the assessee. A copy of the certificate from the society confirming the fact that these adjacent flats are combined into one flat is enclosed by assessee in its paper book as Annexure-1. Ongoing through the certificate from society we find that there is only one entrance and one kitchen from both the flats. The flats have an area of 997 sq. ft each. For sake of convenience for his office and residence use, assessee modified the flats into a single house. Merely because assessee modified the two separate flats of 997 sq. ft. each to make a single house, the benefit of section 23 of the Act could not be denied when the other requirements of section 23 of the Act are fulfilled.

4.

But the AO and CIT(A) has not considered the explanation of the assessee and treated these two flats as separate for the purpose of assessing the deem rent under section 23 of the Act under the head of income from house property. The CIT(A) observed as under: -

“Under this Ground of Appeal the Appellant has agitated addition of Rs.4,02,271/- wider the Income from House Property. I have considered the Assessment Order and submissions of the Appellant and find that the Appellant has claimed the status of Self Occupied Property (SOP) in respect of adjacent Flat bearing No.2403 B & 2404 B. The A.O. treated them as two separate Fiats as per separate Documents and Registration. However, the assessee claimed that two adjoining Hats were modified into a single unit, having a single kitchen and having single entrance. The Appellant therefore prayed that the same is rightly claimed as Self Occupied Property (SOP). I have carefully considered the submission of the Appellant and I find that there is no such concept of adjoining Flats u/s 23 under the head Income from House Property. Therefore, I find that this contention of the Appellant is not tenable in law. I am therefore, of the opinion that the 2nd Fiat is liable to be taxed as deemed let out property instead of Self Occupied Property (SOP). However, the Appellant has alternatively claimed that the deemed ALV may be assessed at the rate of 8% of the cost of the Flat, which works out to Rs.577674/-. This contention of the Appellant is found tenable as per the various decisions of ITAT. I accordingly accept the alternative plea of the Appellant and direct the A.O to adopt deemed ALV of Rs.5,74,674/- and grant standard deduction at the rate of 30% and tax accordingly.”

5.

Aggrieved, now assessee is in appeal before us.

6.

We have gone through the facts and facts and circumstances of the case. we find that during FY 2010-11 the assessee resided in a house which was situated at the 24th Floor, wing of Oberoi Woods, Goregaon (East). This self occupied property unit comprised of two adjacent flats bearing nos. 2403B and 2404B During the course of assessment proceedings, assessee was asked to show cause why Flat no 24038 and 2404B should not be considered as separate units and only one of them be treated as self occupied property. In response to the same, the assessee submitted that these two flats i.e. Flat no. 2403B and 2404B are adjacent to each other on the same Floor of the B wing though purchased as separate units by separate agreements these flats were modified into a single unit with a single kitchen by the assessee, who uses the same as a residential cum office. The reason for holding this view was that both flats had been purchased vide separate registration document(s) and had been registered separately Further, AO relying on the decision of Hon’ble Ahmedabad ITAT in case of Emtici Engineering Limited vs. ACIT computed the annual value of one of the flat at 2404B of Oberoi Woods @ 8% of the cost of acquisition at Rs. 5,74,674/-. We find that this issue is covered by the Tribunals decision in the case of Suresh C. Sadarangani Vs. ACIT, in & 954/Mum/2008 for AY 2004-05 vide order dated 27.08.2009, wherein it is considered that duplex flats having two different nos. purchased by assessee jointly with his wife and flat being run on one floor and the other on other floor were interconnected with internal stair case, it was a single duplex flat for the purpose of the provisions of section 23(4)(b) of the Act. The Tribunal has considered this issue vide Para 15 to 17 by observing as under:-

“15. Whereas in the case before us the duplex flat jointly owned by the assessee and his wife is one flat, therefore, the decision relied on by the learned Departmental Representative is distinguishable and not applicable to the facts of the present case.

16.

The other decisions as mentioned in para S of this order, relied on by the learned Departmental Representative, the issue was in respect of determination/computation of annual value of the house property under s. 23(1) of the Act. Whereas the assessee's case is not on the issue under s. 23(1) of the Act. Hence, the decisions relied on by the learned Departmental Representative are distinguishable and not applicable to the facts of the present case.

17.

Applying the above provisions in the light of the ratio of the above decisions to the facts of the present case we are of the view that as per floor plan of the property a duplex flat Nos. 188 and 196, one above the other and connected with internal staircase having one kitchen was jointly purchased by the assessee and his wife having equal ownership, and was occupied by assessee and his wife as a single duplex fiat for self occupation and also assessed by the society as one owner of the flats and was not let out during the year, hence, the house falls under the provisions of s. 23(2)(a) of the Act. Merely because the assessee has entered jointly with two separate agreements to purchase the above duplex flat having two separate numbers does not mean that they are two residential units. Accordingly, the value of the property is liable to be taken at nil. In this view of the matter the addition of Rs. 5,15,274 made by the AO and sustained by the learned CfT(A) is deleted. The ground taken by the assessee is, therefore, allowed.”

7.

In view of the above decision of this Tribunal of Co-ordinate bench we are of the view that the issue is covered in favour of assessee and against revenue. Hence, we direct the AO to take the ALV of the flat as nil. This issue of assessee’s appeal is allowed.

8.

The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of 20% of business expenses holding the same as personal in nature. For this assessee has raised the following ground No 3: -

“3. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in disallowing 20% of the business expenses claimed by the appellant treating the same to be personal in nature without appreciating he fact that appellant had suo moto disallowed personal expenses.”

9.

We have heard rival contentions and gone through the facts and circumstances of the case. The AO noted that the assessee has claimed expenses of ₹ 2,14,070/- in the profit and loss account. According to AO, the expenditure claimed by assessee are not verifiable and hence, he held the expenditure as personnel in nature and not supported by third party bills. Aggrieved, assessee preferred the appeal before CIT(A), who confirmed the action of the AO by observing as under: -

“Ground No 2:

Under this ground of appeal the appellant has agitated of ₹ 2,14,070/- out of Expenditure claim by treating the same as personal nature. I find that the appellant did not give any supporting evidence in support of these expenses before me. The Appellant stated that these expenses are related to Travelling, Telephone, Meeting, etc. On going through the evidences produced, I find that non business uses and personal element cannot be ruled out. I therefore direct the AO to restrict he disallowance to 20% of the same and accordingly grant relief in respect of balance 80%.”

Aggrieved, now assessee is in appeal before Tribunal.

10.

The learned Counsel for the assessee explained that the assessee has a total receipts i.e. gross receipts at ₹ 1,45,51,288/- from TIVIT and claimed the expenses of ₹ 2,14,070/-. The learned Counsel took us through the assessee’s paper book at page 77, wherein the total expenditure incurred is to the tune of ₹ 3,94,435/- as against assessee claimed only expenditure to the tune of ₹ 2,14,070/-. According to him, the assessee suo moto disallowed a sum of ₹ 1,80,365/-. According to him, now even 20% of disallowance made by CIT(A) is without any basis. Having heard the rival contentions and goning through the facts and circumstances of the case, we are of the view that the assessee itself has disallowed a sum of ₹ 1,80,365/-. We find no reason to confirm the order of CIT(A) restricting the disallowance at 20%. Hence, we delete the disallowance and allowed this issue of assessee’s appeal.

11.

In the result, the appeal of assessee is allowed.

Order pronounced in the open court on 11-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 11-10-2018kao kI ga[- .

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