M/S. GURERA INDUSTRIES LTD.,NEW DELHI vs. ITO, NEW DELHI

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ITA 6023/DEL/2016Status: DisposedITAT Delhi29 November 2017AY 2012-135 pages

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

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the decision of the CIT(A) who had partly allowed the appeal. The CIT(A) observed that if the property was let out at Rs. 17 lakhs per month upon resumption of business activity, the annual value should be taken at that rate, subject to verification.

What were the facts?

The assessee declared rental income from an industrial shed at Rs. 25,000 per month. The AO, noting a significantly higher rent previously received for the same property, recomputed the annual value based on the earlier rate plus a 10% increment, making an addition to the taxable income.

What were the issues?

The primary issue was the determination of the annual value of a house property, specifically whether the AO could recompute it based on previous higher rental rates despite a subsequent reduction in rent.

Which sections of the Income-tax Act were involved?

Section 23

AI-generated summary — verify with the full judgment below

This appeal by the Assessee is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-18, New Delhi dated 16.9.2016 pertaining to assessment year 2012-13.

2.

The grounds raised by the Assessee are as under:-

“i) The Authority below erred in taking the Annual Value of House Property (Industrial Shed) Rs.23,05,590/- without appreciating the provision of Section 23 of the Income Tax Act, 1961. ii) The authority below failed to appreciate the reduced rent for the purpose of Annual Letting Value (ALV) from the angle of commercial expediency and erred in assessing on the basis of initial 4 year old rent agreement with alleged 10% increment as 1

per standard practice which is arbitrary, unjustified and uncalled for.

1.

iii) The Authority below filed to appreciate the fact that real income has to be taxed and in the facts of the case the income has been assessed notionally which is based on surmise and conjecture. iv) That in the facts of the case the CIT(A) also erred in considering the annual value @ 17 lakhs per annum applicable for FY 2014- 15 on the resumption of business activity but rejecting the same @ 25000/- per month due to discontinuance of business activity (factory closed) which is unjust and uncalled for. v) The appellant / assessee craves your honour leave to add, delete or modify any grounds of appeal during the course of hearing.”

3. The brief facts of the case are that the assessee company is engaged in the job work for Auto parts and other items. The assessee has declared the rental income from the property at Plot No. A-4, Koshi Kotwan, Mathura, Uttar Pradesh. The said property was given on rent to M/s JBM Auto Ltd. @25,000/- per month. The AO noted that earlier for the period 1.4.2008 to 30.11.2008, the rental income from the same party from the from the same property was shown at Rs. 2,25,000/- p.m. The AO, therefore, asked the assessee to explain (that when the rent was earlier higher and the security deposit was paid on the basis of such higher rent, and no specific reason for substantial reduction of the rental income has been furnished) as to why the rental income would not be computed as per the higher rate of rent earlier shown to be increased by 10% as pr the standard practice for 2 renting of property for increase by 10% every year. The assessee stated that subsequently this premise was not used and the rent offered is as per section 23 of the Income Tax Act, 1961 and the AO cannot compare rent for unused premise (vacant premise) with rent for premise in use. However, the AO did not accept this explanation and went ahead with computation as proposed in the show cause notice and held that assesse has taken the rent in cash and to avoid the tax liability the rental value has been substantially reduced. As per the normal practice in the rental arrangement and as proposed in the show cause notice, AO assessed the monthly rental of the assesee company at Rs. 2,99,475/-. Accordingly, the addition of Rs. 23,05,950/- was made to the taxable income of the assessee i.e. Rs. 2,99,475 x 12 = 35,93,700 – (30% for repairs) 1078110 = 2515590 – (already declared) 210000 = 23,05,590) and assessed the income at Rs. 25,62,680/- vide order dated 18.03.2015 passed u/s. 143(3) of the I.T. Act, 1961. Against the assessment order dated 18.3.2015, assessee appealed before the Ld. CIT(A), who vide his impugned order dated 16/09/2016 has partly allowed the appeal of the assessee .

4. Aggrieved with the order of the Ld.CIT(A) dated 16.9.2016, the Assessee is in appeal before the Tribunal.

5.

Ld. Counsel of the assessee reiterated the contentions reiterated in the grounds of appeal and prayed that the addition in dispute may be deleted.

6.

On the other hand Ld. DR relied upon the orders of the revenue authorities.

7.

I have heard both the parties and perused the orders passed by the Revenue Authorities alongwith relevant records available with me. I find that assessee has declared the rental income from the property at Plot No. A-4, Kosi Kotwan, 3 Mathura, Uttar Pradesh. The said property was given on rent to M/s JBM Auto Ltd. @ 25,000/- per month. The AO noted that earlier for the period 1.4.2008 to 30.11.2008, the rental income from the same party from the from the same property was shown at Rs. 2,25,000/- p.m. The AO, therefore, asked the assessee to explain (that when the rent was earlier higher and the security deposit was paid on the basis of such higher rent, and no specific reason for substantial reduction of the rental income has been furnished) as to why the rental income would not be computed as per the higher rate of rent earlier shown to be increased by 10% as pr the standard practice for renting of property for increase by 10% every year. The assessee stated that subsequently this premise was not used and the rent offered is as per section 23 of the Income Tax Act, 1961 and the AO cannot compare rent for unused premise (vacant premise) with rent for premise in use. However, the AO did not accept this explanation and went ahead with computation as proposed in the show cause notice and held that assessee has taken the rent in cash and to avoid the tax liability the rental value has been substantially reduced. As per the normal practice in the rental arrangement and as proposed in the show cause notice, AO assessed the monthly rental of the assesee company at Rs. 2,99,475/- and made the addition of Rs. 23,05,950/- to the taxable income of the assessee and in Appeal Ld. CIT(A) has partly allowed the appeal of the assessee. I find there is no merit in the case of assessee in justifying any reduction in the ALV of the property. The assessee has contended that any tenant would like to buy a property at the value taken by the AO than taking it on rent. But the very fact that property was let out @ 30,00,000/- / 2,000/- i.e. 1500 per sqmtrs. and rent was also paid for the period of 01.4.2008 for certain months, the claim is belied. The very receipt of rent justifies ALV to be based on such rent, in absence of anything to the contrary.

However, considering the factual matrix of the case, in my opinion, the Ld. CIT(A) has rightly observed that the property was again let out on resumption of activity @ 17 lakhs per month, the annual value was taken at that rate, if evidence to that effect is produced. Hence, the Ld. CTI(A) held that the AO may give necessary relief in re-computation of rental income, subject to verification of such rental receipt in later years, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) and reject the grounds raised by the Assessee.

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