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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
This appeal by Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-5, Mumbai [in short CIT(A)], in appeal No. IT- 103/15-16/17/16-17 dated 06.04.2016. The Assessment was framed by the Addl. Commissioner of Income Tax, Range-11(2), Mumbai (in short ‘ACIT') for the A.Y. 2012-13 vide order dated 20.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO of deemed rent estimated under section 23(1)(a) of the Act. For this Revenue has raised the following ground No. A: -
“A. On the facts and in the circumstances of the case and in law, the id. CIT(A) has erred in deleting addition of Rs. 4,21,694/- on account of Expected Reasonable Rent as per Section 23(1) of the Income Tax Act, which is calculated @8% of the value of properly as per balance sheet value, as widely held by different courts.”
Briefly stated facts are that the assessee is engaged in legal profession and derives income from legal profession, i.e. profits and gains from business or profession, income from house property, capital gains and income from other sources. The assessee owns three residential properties namely Silver Arch Flat with backyard land (SOP), Bunglow at Pune and Farmhouse at Pune. The assessee vide letter dated nil admitted that the Bunglow at Pune and Farmhouse at Pune is neither let out nor used by assessee but only two-three times in a weekend for rest and for recreation and also to study and prepare for cases/ legal matters is being utilized. Despite that the assessee’s Counsel vide letter dated nil offered the let out value i.e. ALV in respect of above two properties as follows: -
“1) Pune bunglow ₹ 30,000/-
2) Pune Farm House ₹ 15,000/-”
The AO taken 8% of the value of the property as deemed rent i.e. ALV within the meaning of section 23(1)(a) of the Act and estimated the notional rent at ₹ 6,02,419/- and after taking deduction under section 24(1)(a) of the Act at ₹ 1,80,275/- estimated the taxable ALV at ₹ 4,21,694/- from Firm house at Pune. Similarly, the AO referred to assessee letter dated 11.03.2015 for the ALV of the Bunglow at Pune, wherein suo moto offered at ₹ 5.46 lacs as income from house property after making admissible deduction under section 24(a) of the Act. Therefore, the AO added the ALV of these properties at ₹ 9,67,694/- to the return of income of the assessee. Aggrieved, assessee preferred the appeal before CIT(A), who relying on the order of his predecessor in AY 2011-12 has directed the AO to estimate the income from house property by computing the only letable value at Municipal rateable value. The CIT(A) observed in Para 4.2 as under: -
“4.2 This issue was considered by CIT(A) in A.Y. 2011-12 in para 3 of the order which is held as under:
"When we consider jurisdictional High Court's decision in identical issue of M. V. Sonawala vs. CIT 246 ITR 177(Bom.) where it is held that income from house property has to be computed on the basis of sum received by the property let out year to year and "municipal rateable value". This decision was taken by the Bombay High Court after following the decision of Calcutta High Court in the case of CIT v. Prabhawati Ehausal where it is held that in the case of self- occupied property annual value has to be computed as municipal rateable value.
Following the above order and Bombay High Court decision, the AO is directed to estimate the income from house property at municipal rateable value. Ground of appeal is partly allowed.”
Aggrieved, now revenue is in appeal before Tribunal.
At the outset, the learned Counsel for the assessee filed copy of Tribunal’s order for AY 2011-12 in vide order dated 13/10/2017, wherein exactly identical facts, Tribunal has directed the AO to compute the income of the assessee on the basis of Municipal Rateable value in term of the Banglow at Pune and Farm House at Pune by observing in Para 7 as under: -
“7. We have perused the material on record in including the cases relied upon by the authorities below. We find that the Ld. CIT (A) has directed the AO to compute the income in question on the basis of municipal ratable value in accordance with the decision of the Hon’ble High Court of Bombay in M.V. Sonawala Vs. CIT (supra), wherein it has been held that the income from house property has to be computed on the basis of some receipt by the property let out year to year and municipal value. Since, the impugned order in question is in accordance with the law laid down by the jurisdictional High Court and the issue involved is fully covered by the judgment of the Hon’ble jurisdictional High Court aforesaid, we do not find any reason to interfere with the findings of the Ld. CIT (A). Hence, we uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. We accordingly direct the AO to compute the income of the assessee on the basis of municipal ratable value.”
When this order was confronted to the learned Sr. Departmental Representative, he relied on the assessment order and particularly he relied on the concession given by assessee that ratable value of Pune Bunglow be taken as ₹ 5,46,000/-. We find that the Tribunal following the decision of Hon’ble Bombay High Court in the case of MV Sonawala Vs. CIT 246 ITR 177 (Bom.) directed the AO to compute the income of the assessee from house property taking the ALV on the basis of municipal ratable value. We find that the Tribunal has decided the issue and taking consistent view and respectfully following the same, we direct the AO accordingly. This issue of Revenue’s appeal is dismissed.
The second issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of expenses relatable to exempt income being 0.5% of average value of investment under section 14A of the Act read with Rule 8D2(iii) of the Income Tax Rules 1962 (hereinafter the Rules). For this Revenue has raised the ground No. 2:-
“2. On the facts and circumstances of the case the order of the Ld. CIT(A) has erred in deleting disallowances of Rs. 58,84,401/- being 0.596 of average value of investment u/s. 14A r.w.r. 8D 2 (iii) for the exempt income earned by the assessee”
Briefly stated facts are that the assessee has earned exempt income to the tune of ₹ 7,93,67,395/- and claimed the same as exempt of the Act. The AO computed the disallowance by applying Rule 8D2(iii) of the Income Tax rules by applying 0.5% of average value of investment at ₹ 58,84,401/-. Aggrieved assessee preferred the appeal before CIT(A). the CIT(A) deleted the disallowance relying on the predecessor CIT(A) for AY 2011-12 wherein the CIT(A) observed in Para 5.1 as under: -
“5.1 in the AO's computation, AO had computed 0.5% of average value of investments u/s 14A applying Rule SD and total disallowance was Rs.58,84,401/-. This issue was considered by CIT(A) in A.Y. 201112 in para 5 of the order which is held as under:-
5. The AO had disallowed Rs.51,30,492/- being 0.5% of average value of investments as per Rule 80(2)(iii) for the exempt income earned by the appellant during the year. In his submissions, the appellant stated that no expenses were claimed by him against either the dividend income or exempt capital gains. He further stated that Scrutiny Transaction Tax and Custodian and other PMS charges were debited to his capital Account and no deduction was claimed for such expenses either from tax free or taxable income. The appellant further stated that his P & L Account reflected expenses only related to his profession and no expenses related to exempt income. The appellant prays that in view of the expenses claimed only in the capital account which was not claimed in P & L A/c, no disallowance is required in his case. The appellant relied on the decision of ITAT in the case of ACIT-11(2) vs. lqbal M. Chagla in Income tax Act, 1961 No.877/Mum/2013 where it is held as under: -
"The assessee had not claimed any expenditure in its P & L A/c so the onus was on the AO to prove that out of the expenditure incurred under various heads a part of some expenses were related to earning of exempt income. He has just adopted the formula of estimating expenditure on the basis of investments. But the jurisdiction for calculating the disallowance is missing. Provision of Rule 80 cannot and should not be applied in a mechanical way. Facts of the case have to be analyzed before invoking the provisions. We are of the opinion that the AO had not deliberated upon the facts of the case before making the disallowance, whereas the FAA has decided the issue on merits. Therefore, confirming his order, we decide the effective ground of appeal against the AO.
Here appellant had debited his expenditure in Capital account, hence no disallowance is required in view of the above decision. 40's disallowance is deleted. Ground of appeal is allowed."
Aggrieved, now Revenue is in appeal before Tribunal.
Before us, the learned Sr. Departmental Representative stated that the assessee has not attributed any expenses to the exempt income and assessee has incurred indirect expenses which are clearly claimed in its profit and loss account. When a query was put to him which expenses are given related to the exempt income, he could not answer. On the other hand, the learned Counsel for the assessee first of all stated that the issue is covered by Tribunals decision in assessee’s own case for AY 2011-12 in vide order dated 13.10.2017, wherein exactly on identical issue, Tribunal has confirmed the findings of CIT(A) vide Para 9 and 10 as under: -
“9. We have gone through the entire material on record including the cases relied upon by the authorities below. We notice that the co-ordinate Bench of the Tribunal in ACIT vs. Iqbal M Chagla (supra) has decided the identical issue in favour of the assessee. The relevant portion of the decision reads as under:-.
“The Assessee had not claimed any expenditure in its P & L A/c so the onus was on the Assessing Officer to prove that out of the expenditure incurred under various heads a part of some expenses were related to earning of exempt income. He is just adopted the formula of estimating expenditure on the basis of investments. But the justification for calculating the disallowance is missing. Provision of Rule 8D cannot and should not be applied in a mechanical way Facts of the case have to be analyzed before invoking the provisions. We are of the opinion that the Assessing Officer had not deliberated upon the facts of the case before making the disallowance, whereas the FAA has decided the issue on merits. Therefore confirming his order, we decide the effective ground of appeal against the Assessing Officer.
In the present case since, the assessee had not claimed any expenditure in P&L Account the onus was on the Assessing Officer to prove that out of the expenditure incurred under various heads, a part of some expenses were related to earning of exempt income. However, the AO has calculated the disallowance without pointing out as to which part of the expenses relates to exempt income. Since, the facts of the present case are identical to the facts of the case relied upon by the Ld. CIT (A) and the Ld. CIT (A) has deleted the addition in question by following the decision of the Mumbai Tribunal aforesaid, we do not find any reason to interfere with the findings of the Ld. CIT (A). We accordingly uphold the findings of the Ld. CIT (A) and dismissed this ground of appeal of the revenue."
10. Further, the learned Counsel for the assessee drew our attention to the balance sheets, wherein he has capitalized the expenditure of brokerage and other charges at ₹ 10,67,805/-, custodian and other PMS charges of ₹ 35,98,438/- and STT of ₹ 6,85,622/-. He further, drew our attention to the profit and loss account and stated that the professional receipts are to the tune of ₹ 28.38 crores and against the same net profit is 26.97 crores and professional expenses are merely little over 1.40 crores i.e. equivalent 0.5 % of the total receipt. The learned Counsel for the assessee stated that no disallowance is called for in view of the above given facts.
We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the CIT(A) has relied on the earlier orders i.e. AY 2011-12 in assessee’s own case. Further, the facts verify the case of the assessee that direct expenses are already booked by assessee and not claimed in the profit and loss account as noted above. Further, going through the profit and loss account it is noticed the expenses for professional income booked by the assessee as very meagre and there is no scope for further disallowance in relation to exempt income. Accordingly, we confirm the order of CIT(A) and this issue of Revenue’s appeal is dismissed.
In the result, the appeal Revenue is dismissed.
Order pronounced in the open court on 11-05-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 11.05.2018 kao kI ga[- .