DCIT 2(2)(2), MUMBAI vs. NRB BEARING LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य ,राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार -PER RAJENDRA, AM- अनुसार Challenging the order dated 22/12/2015 of the CIT(A)- 5,Mumbai,the Assessing Officer(AO) has filed present appeal. The assessee is engaged in the business of manufacturing, selling and indenting of bearings.It filed its return of income on 06/12/2005,declaring total income at Rs.44.53 crores.The case was selected for scrutiny and order u/s. 143(3) was passed on 30/3/ 2007,assessing total income at Rs.44.78 crores.Later on the AO issued a notice u/s.148 of the Act,as he was of the opinion that taxable income had escaped assessment. The AO completed assessment u/s.143(3) r.w.s. 147 of the Act,determining total income at Rs.71.52 lakhs. 2.Effective solitary Ground of appeal is about deleting the addition made on account of enhancement of of Annual Letting Value(ALV).The assessee is owner of building known as Shangrila at Carmichael Road Mumbai. During the assessment proceedings for AY 2007-08 the AO found that there was change of tenant with respect to flat No.4, that Futura Polyester came as a new tenant in place of Johnson and Johnson, that there was an immediate change in rent amount,that for Futura Polyester the assessee fixed rent of Rs.5.00 lakhs per month as against Rs.20,000 charged against the former tenant. The AO held that difference was due to difference in the interest free deposit, that Futura Polyester had given a deposit of Rs.15 lakhs only as against Rs.3.5 crores given by Johnson and Johnson.He was of the opinion that for the AY 2006-07, when the two flats were rented out to Johnson and Johnson and Centurion bank, the sum for which the properties might reasonably be expected to let from year to year

1359/M/16 NRB Bearing Ltd. was much more than the actual rent received by it. Accordingly, he enhanced the rent of the assessee as under:- Flat No. Mkt.Value of % adopted ALV (Rs.) No. of Final ALV ALV as per Enhancement the Flat in FY months (Rs.) assessee of ALV (Rs.) 2004-05 (Rs.) rented out (Rs.) 4 3,71,71,386 12.98 48,24,846 12 48,24,846 2,40,000 45,84,846 5 3,78,08,694 12.98 49,07,569 8 mths 34,03,632 8,35,483 25,68,149 10 days TOTAL 71,52,995 Accordingly,the AO determined the ALV of the property at Rs.71.52 lakhs which as per the assessee was only Rs.12.97 lakhs. After allowing deduction @30%, u/s. 24 of the Act,the AO enhanced and added the income from house property to Rs.50.07 lakhs.The enhancement was carried out by AO based on market rental value of the property in respect of the rent received. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA). It referred to the order of the Tribunal for the AY .s.2007-08 and 2008-09 (ITA.s 672/Mum/2011 and 1982/Mum/2011),wherein the Tribunal had restored back the matter to file of the AO to determine the ALV at Municipal Valuation rate in view of judgment of the Hon'ble Bombay High Court delivered in the case of Tip Top Typogra- phy(368ITR330).Relying upon the order of the Tribunal and the judgment of Hon'ble Bombay High Court ,the FAA deleted the addition.

4.During the course of hearing before us, the Departmental Representative (DR) referred to the order of the AO. The Authorised Representative (AR) supported the order of FAA.

We have considered available material on record. We find that the FAA has followed the order of the Tribunal wherein the judgment of Hon'ble Jurisdictional High Court, in the case of Tip Top Typography (supra ), was cited. In the said judgment the Hon'ble High Court has held as under: “Income from house property has to be “computed” by computing the annual value of the property. The annual value firstly to be the sum for which the property might reasonably be expected to be let from year to year. In the event, the property which consists of any buildings or lands appurtenant thereto, if the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), it is that amount so received or receivable which shall be deemed to be the annual value for the purposes of computing the tax under the head “Income from house property”. The principles applicable in determining the annual letting value are : (i) the annual letting value would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances ; (ii) an inflated or deflated rent based on extraneous considerations may take it out of the bounds of reasonableness ; (iii) the actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated or deflated by reason of extraneous considerations ; (iv) such annual letting value, however, cannot exceed the standard rent as per the rent control legislation applicable to the property ; (v) if the standard rent has not been fixed by the Rent Controller, then

1359/M/16 NRB Bearing Ltd. it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment ; (vi) the standard rent is the upper limit, and if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as the annual letting value and not the standard rent. It is a well-recognised principle in rating that both gross value and net annual value are estimated by reference to the rent at which the property might reasonably be expected to be let from year to year. Various methods of valuation are applied in order to arrive at such hypothetical rent, for instance, by reference to the actual rent paid for the property or for other comparable to it or where there are no rents by reference to the assessments of comparable properties or to the profits carried from the property or to the cost of construction. Considering the difficulties faced in either retrieving immovable properties in metro cities and towns, and the time spent in litigation, it is expedient to execute leave and licence agreements. These are usually for fixed periods and renewable. In such cases as well, the conceded position is that the annual letting value will have to be determined on the same basis as noted above. In the event a security deposit collected and refundable interest-free and the monthly compensation shows a total mismatch or does not reflect the prevailing rate or the attempt is to deflate or inflate the rent by such methods, the Assessing Officer is not prevented from carrying out necessary investigation and enquiry. He must have cogent and satisfactory material in his possession which will indicate that the parties have concealed the real position. He must not make a guess work or act on conjectures and surmises.There must be definite and positive material to indicate that the parties have suppressed the prevailing rate. Then the enquiries that the Assessing Officer can make, would be for ascertaining the going rate. He can make a comparative study and an analysis. In that regard, transactions of identical or similar nature can be ascertained by obtaining the requisite details. However, there also the Assessing Officer must safeguard against adopting the rates stated therein straightaway. He must find out whether the property which has been let out or given on leave and licence basis is of a similar nature, namely, commercial or residential. He should also satisfy himself whether the rate obtained by him from the deals and transactions and documents in relation thereto can be applied or whether a departure therefrom can be made. Before the Assessing Officer determines the rate by the above exercise or similar permissible process he is bound to disclose the material in his possession to the parties. He must not proceed to rely upon the material in his possession and disbelieve the parties. The satisfaction of the Assessing Officer that the bargain reveals an inflated or deflated rate based on fraud, emergency, relationship and other considerations makes it unreasonable must precede the undertaking of the above exercise.” Respectfully following the above judgment of the Hon'ble Bombay High Court, we hold that the order of the FAA does not suffer from any legal or factual infirmity.Confirming the same, we decide the effective Ground of appeal against the AO. As a result appeal filed by Assessing Officer is dismissed. फलतः िनधा�रती अिधकारी �ारा दािखल क� गई अपील नामंजूर क� जाती है. Order pronounced in the open court on 23rd May, 2018. आदेश क� घोषणा खुले �यायालय म� �दनांक 23 मई, 2018 को क� गई । Sd/- Sd/- (अमरजीत �सह / Amarjit Singh ) (राजे�� / Rajendra) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य मुंबई Mumbai; �दनांक/Dated : 23.05.2018 Jv.Sr.PS. आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : आदेश आदेश आदेश क� क� �ितिलिप �ितिलिप अ�ेिषत अ�ेिषत 1.Appellant /अपीलाथ�

2. Respondent /��यथ� 3

1359/M/16 NRB Bearing Ltd.