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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & RAM LAL NEGI, JM
2 to 664/Mum/2016 & 699 to 703/Mum/2016 आदेश / O R D E R Per Bench : These are cross appeals by the Revenue and assessee arising out of respective orders of ld. Commissioner of Income Tax (Appeals) for the concerned assessment years.
Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of by this common order.
Revenues appeal 2. The common issue raised in Revenue’s appeal reads as under:
Grounds of appeal:
On the facts and in the circumstances of the case and in law, the learned CIT (A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below: The order of the CIT (A) is opposed to law and facts of the case. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the enhancement made in the annual letting value without appreciating that the valuation was based on the expert opinion of the Government Registered valuer and market trend.
3. Brief facts of the case are as under:
The assessee is the owner of the property at Cuffe Parade, Mumbai measuring 3,100 sq.ft. of carpet area. It had entered into a leave and license agreement with TATA Motors for a monthly compensation of Rs.50,000/-and interest free refundable deposit of Rs.2.35 crores w.e.f. 31.12.2007. The Assessing Officer sought information from a Govt. Registered Valuer to provide the market value of the flat so let out for the year 2007. In a letter of reply the valuer stated that the market value for the said flat based on and 2009 respectively. In the said letter, the said valuer mentioned as under:
This letter shall not be construed as a Valuation Report of the Registered Valuer or opinion of the Registered valuer. The undersigned has replied and given information purely based on letter received, oral discussion with the departmental officer and the maps and the stamp duty ready reckoners at his disposal and the undersigned has neither visited nor inspected the property under reference.
The Assessing Officer, thereafter, confronted the assessee with the above fact. In reply, the assessee stated that the municipal rateable value should be considered as the value referred to in section 23(1)(a). Relying on the decisions of the Hon'ble Bombay Court in the case of M.V. Sonavala v.CIT (177 ITR 266), the Hon'ble Calcutta High Court in the cases of CIT v. Prabhabati Bansali (141 ITR 419) and CIT v. Satya Co. Ltd. (25 Taxman 193), the assessee contended that since the rent received by it was more than the municipal ratable value, the former should be taken as the ALV. The Assessing Officer did not agree with the contention of the assessee. Relying on the decision of Hon'ble Patna High Court in the case of Kashiprasad Kataruka v.CIT (101 ITR 816) the Assessing Officer came to the conclusion that if the Assessing Officer shows that rateable value under municipal laws does not represent the correct fair rent, then he may determine the same on the basis of material/evidence placed on the record. The Assessing Officer also stated that the assessee did not produce any evidence such as the comparable rent of the neighboring flats to show that the rent actually received by it as per section 23(1 )(b) is more than the amount for which the property might reasonably be expected to let from year to year as per section 23(1)(a) of the Act. According to the Assessing Officer, this is because the interest-free deposit of Rs.2.35 crores that the assessee has municipal valuation was used in determining the rent actually received by it. The Assessing Officer, therefore, estimated it at 10% of Rs.6,79,30,523/- amounting to Rs.67,93,052/- per year which amounted to Rs.5,66,088/- per month. In view of enhancement of ALV to Rs.67,93,052/-, the Assessing Officer after allowing deduction @ 30% u/s. 24 of the Act made addition of Rs.43,35,136/- as income from house property.
Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals).
Before the ld. Commissioner of Income Tax (Appeals) it was contended that the rateable value as determined under the municipal laws can be taken as per the reasonable yardstick, unless there is sufficient material on records for the assessing officer to take a different valuation. The assessee also referred to the provisions of section 154 of the BMC Act. It also referred to the decision of honourable Bombay High Court in the case of CIT vs. Tiptop Typography [2014] 48 taxman.com 191 (Bom). It was submitted that the Hon’ble High Court had held that although the municipal rateable value may not be binding on the assessing officer in certain cases but is definitely a safe guide. The Assessing Officer further submitted that the valuation report relied upon by the assessing officer suffers from various discrepancies. In support of these contentions, the assessee had itself obtained fresh valuation report from the registered value M/s.Techno Arch Consultants for assessment year 2010-11 and it was submitted as additional evidence. and 2012 - 13.
The additional evidences were forwarded to the assessing officer. The ld. Commissioner of Income Tax (Appeals) obtained remand report from the assessing officer and also rejoinder from the assessee. Thereafter, the ld. Commissioner of Income Tax (Appeals) held as under:
4.26 I have considered the facts of the case and the submissions of the appellant. I have also gone through the remand report and reply of the appellant to it. I have also gone through the decisions relied on by the Ld. AR. From the facts of the case and decisions cited above, it is clear that interest free deposit received by the appellant from lessee cannot be considered to be a factor influencing lease rentals. In the current case, the actual rent received by the appellant is higher than the municipal value of the house property. Besides, the stamp duty valuation adopted by the A.O. also suffers on the same grounds on which the A.O. has rejected the municipal valuation. The same also suffers from incorrect assumptions made by Shri Santosh Kumar, such as age of the property considered as 25-30 years instead of 65 years. This has been explained in detail by the appellant. The appellant has also produced its valuation report. For A.Y.2010-11, the valuer has estimated reasonable rent of the property ranging from Rs.1,19,0007- to Rs.1,45,000/- per month. Considering the higher range of Rs.1,45,000/-per month, the reasonable letting value of the property come to Rs.17,40,000/- p.a. (as per para 4.8 of the valuation report). As against this, the appellant has earned rental income and there is savings in interest expenditure due to acceptance of interest free deposit. The rental income of the appellant is Rs.6,00,000/-. The unsecured loan funds of the appellant have reduced from Rs.4,25,00,000/- to Nil. The appellant has incurred interest expenditure of RS.19,56,781/- for the year ended 31.03 2010. The average borrowings for the purpose of business of the appellant for the year ended 31.03.2010 were Rs.2,12,50,000/-. The average interest rate for the year ended 31.03.2010 is approximately 10%. Since the appellant had used the interest free deposit of Rs.2,35,00,000/-, the resultant interest savings @10% works out to Rs.23,50,000/-. Thus, total rent and interest savings work out to Rs.29,50,000/-. For A.Y.2010-11, as demonstrated by the appellant above, the interest savings and rentals received by the appellant equal to 10% of stamp duty value as arrived at by the valuer of the appellant. Enhancing the income from house property by considering it as having been suppressed on account of interest free deposit received would lead to double taxation of interest or such deposits. This aspect has 6 to 664/Mum/2016 & 699 to 703/Mum/2016 also been appreciated by the Hon'ble Mumbai Tribuna in case of Kaira Can (supra), which has considered the decision of Bombay High Court in case of Tip Top Typography (supra) and the decision of Full Bench of Delhi High Court in case of Moni Kumar Subbah (supra). The facts involved in the decision before Mumbai Tribunal was similar. The Tribunal has held as under: "6. We have heard both the parties on this issue of inclusion of notional interest income on the interest free security deposit. It is a settled proposition of law by virtue of the judgement of the Hon'ble jurisdictional High Court in the case of J. K. Investors (Bombay) Ltd. (supra) and Tip Top Typography (supra) that the notional interest should not be included while computing the income from house property under section 23(i)(a) and (b) of the Act. It is also a settled proposition that actual rent received or receivable by the land lord constitutes a reliable evidence to ascertain the properties' capacity to earn rent in open market. The forms should be accepted unless the Assessing Officer has contrary evidence to suggest the deflation of rental income by extraneous consideration. This is also an admitted fact in this case that the rent received is much higher than the municipal rateable value of the property. It is also discouraged and unapproved by various Benches of the Tribunal that when the interest income earned by the assessee on the said security deposits deposited with the banks the same is offered to tax, the inclusion of such interest on the said deposits for the purpose of ALV amounts to double taxation. Considering the factual matrix of the present case, we are of the considered opinion that the issue raised by the assessee has to be decided in favour of the assessee. We order accordingly,"
Following the decision of the Mumbai Tribunal and having regard to the factual matrix of the case, the rent received by the appellant of Rs.6,00,0007- is reasonable estimation ALV under section 23(1 )(a) of the Act for A.Y.2010-11. Thus, the addition of Rs.43,35,136/-made by the AO by adopting 10% of stamp duty value for A.Y.2010-11 is deleted and the ground is allowed.
4.27 The additions in A.Ys.2011-12 and 2012-13 have been made on similar basis by extrapolating the valuation obtained from Mr. Santosh Kumar for A.Y.2010-11. The facts involved in these three assessment years are similar. Therefore, following the reasons given above, the adjustments made by the AO in respect of the income from house property for A.Ys.2011-12 and 2012-13, are also deleted.
For assessment years 2008 - 09 and 2009-10, the ld. Commissioner of Income Tax (Appeals) held that facts are identical to the above assessment years and following the above reasons he held that rent received by the assessee is appropriate estimation of ALV the assessing officer by adopting 8% of the value determined by him based on the valuation of Mr Santosh Kumar is deleted.
Against the above order, the assessee is in appeal before us.
We have heard both the counsel and perused the records assessee's appeal. The ld. Counsel of the assessee submitted that the ld. Commissioner of Income Tax (Appeals) has passed a very reasonable order. In this regard, he placed reliance upon the following case laws:
Tip Top Typography (368 ITR 330) (Bom) 2. Karia Can Company Ltd. (ITA No. 2733/M/2008 dated 30.01.2015) 3. Savani Brothers (46 CCH 64) (Mum)
He also referred to the valuation report from the M/s.Techno Arch Consultants submitted by the assessee before the ld. Commissioner of Income Tax (Appeals). He further submitted that the said letter of the valuer relied upon by the Assessing Officer itself mentioned that it should not be treated as valuation report or opinion of the government valuer.
Per contra, the ld. Departmental Representative placed reliance upon the order of the Assessing Officer. He however referred to the valuation report obtained by the Assessing Officer from the government. The ld. Departmental Representative further placed reliance upon the decision of the ITAT, Mumbai in the case of ACIT vs. Sh.
Virendra Jain (in vide order 12.08.2015). The ld. Departmental Representative further referred that the decision of the Hon'ble jurisdictional High Court Commissioner of Income Tax (Appeals).
We have carefully considered the submissions of both the counsel. We find that in this case the assessee is the owner of the property at Cuffe Parade, Mumbai, being Flat No. –A3 admeasuring 3,100 sq. ft. of carpet area. As per its leave and license agreement with Tata Motors Ltd., it was receiving monthly compensation of Rs.50,000/- and has received a interest free refundable deposit of Rs.2.35 crores. The Assessing Officer sought opinion from the government registered valuer, Shri Santosh Kumar. The government valuer informed that the assessee is the owner of the property flat at Cuffe Parade, Mumbai being Flat No. A3 admeasuring 3,100 sq. ft. of carpetarea on the 3rd floor of wing A of building known as “Pallonji Mansion Cooperative Housing Society Ltd.” situated at Plot No. 43, Prakash Peth Marg, Cuffe Prade, Mumbai-400 005. The value given by the said valuer was stated at Rs.6,43,29,898/-. The Assessing Officer took the lettable value at 8% of the market value, which comes to Rs.51,46,392/-. Thereafter, the Assessing Officer gave a standard deduction u/s. 24 and computed the lettable value at Rs.36,02,474/-.
Before the ld. Commissioner of Income Tax (Appeals), the assessee submitted the the actual rent received was more than the municipal lettable value and hence placing reliance upon the several decisions including Hon'ble Bombay High Court in the case of Tip Top Typography (supra), the ld. Commissioner of Income Tax (Appeals) deleted the addition.
Hon'ble jurisdictional High Court in the case of Tip Top Typography (supra). In the said decision, the Hon'ble jurisdictional High Court had concluded that the market rate in the locality is an approved method for determining the fair rental value but it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful that he can resort to enquire about the prevailing rate in the locality. Thus, the municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. It is definitely a safe guide.
We may further reproduce gainfully paragraph 47 and 48 of the said order, which reads as under:
We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and license 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 and as urged before us, the 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, then, as held by the Delhi High Court, the Assessing Officer is not prevented from carrying out the necessary investigation and enquiry. He must have cogent and satisfactory material in his possession and 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 make a 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 rate stated therein straightway. He must find out as to whether the property which has been let out or given on leave and license basis is of a similar nature, namely, commercial or residential. He should also satisfy himself as to whether the rate obtained by him from the deals and transactions and documents in 10 to 664/Mum/2016 & 699 to 703/Mum/2016 relation thereto can be applied or whether a departure therefrom can be made, for example, because of the area, the measurement, the location, the use to which the property has been put, the access thereto and the special advantages or benefits. It is possible that in a high rise building because of special advantages and benefits an office or a block on the upper floor may fetch higher returns or vice versa. Therefore, there is no magic formula and everything depends upon the facts and circumstances in each case. However, we emphasize that 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. After the above ascertainment is done by the Officer he must, then, comply with the principles of fairness and justice and make the disclosure to the Assessee so as to obtain his view.
We are not in agreement with Shri Chhotaray that the municipal rateable value cannot be accepted as a bona fide rental value of the property and it must be discarded straightway in all cases. There cannot be a blanket rejection of the same. If that is taken to be a safe guide, then, to discard it there must be cogent and reliable material.
We find that in the said decision of the Tip Top Typography (supra), the Hon'ble Bombay High Court has unequivocally expounded that the municipal lettable value cannot be disregarded straight away, for disregarding the same there must be cogent and reliable material. The Assessing Officer must not make guess work or act on conjecture and surmise. It was also expounded that the enquiries that the Assessing Officer can make would be for ascertaining the going rate, he can make a corporative study and make analysis. In that regards, transaction of identical nature can be ascertained by obtaining the requisite details. Now we examine as to what was the cogent material available to the Assessing Officer in rejecting the municipal lettable value. We find that except for the surmise, there was no material whatsoever. The Assessing Officer had obtained a letter from a government valuer, the said letter may be gainfully reproduced hereunder:
With reference to Notice u/s. 133(6) of the IT Act, No. Mum. DCIT2(3)(OSD)/133(6) Sheba Properties/2012-13 dated 13/02/2013 received on 16/02/2013 and further as per telephonic talk of Dy. CIT(OSD)-2(3) with the undersigned relating to assisting the department in ascertain Stamp Duty Ready Reckoner Market Value Zone, rate and consequently it’s market value for the year 2007 and year 2009 as per stamp duty ready reckoner, of the property known as Flat No. A3, on 3rd Floor of “A” – Wing in Pallonji Mansion CHSL situate at Plot No. 43, Prakash Pethe Marg, Cuffe Parade, Mumbai-400 005 situate on plot of land bearing Plot No. 43 of Colaba Division and admeasuring 3,100 sq. ft. Carpet area i.e. 3,720 sq. ft. built-up (Equivalent to 345.72 sq. Mtrs. Built-up).
The abovementioned property for the year 2007 was located under Zone No.1/2 of Colaba Division as per stamp duty map. The rate of residential flat in New Building without lieft is prescribed at Rs.1,68,300 per sq. mtr. Built-up. The age of the building is presumed to be 25 to 30 years in absence of any information. The market value as on year 2007 is as follows: Rs.1,68,300 x 345.72 sq. mtrs built up x 0.70 (Depreciation factor)=Rs.4,07,29,273/-
The abovementioned property for the year 2009 was located under Zone No.1/2 of Colaba Division as per stamp duty map. The rate of residential flat in New Building without lift is prescribed at Rs.2,80,700 per sq. mtr. Built-up. The age of the building is presumed to be 25 to 30 years in absence of any information. The market value as on year 2009 is as follows: Rs.2,80,700 x 345.72 sq. mtrs built up x 0.70 (Depreciation factor)=Rs.6,79,30,523/- This letter shall not be construed as a Valuation Report of the Registered Valuer or opinion of the Registered valuer. The undersigned has replied and given information purely based on letter received, oral discussion with the departmental officer and the maps and the stamp duty ready reckoners at his disposal and the undersigned has neither visited nor inspected the property under reference.
A reading of the aforesaid clearly reveals that there was a disclaimer by the said person in the last paragraph. The said valuer had clearly mentioned that he has never visited the said property under reference. In such circumstances, by no stretch of imagination, it can be said that the Assessing Officer had any material much less cogent Hon'ble jurisdictional High Court as above. The Assessing Officer has not mentioned that the Assessing Officer has himself visited the premises.
In these circumstances, in our considered opinion, the ld. Commissioner of Income Tax (Appeals) has passed a very reasonable order by placing reliance upon the proper and germane case laws. Accordingly, we do not find any infirmity in the same. Since we have decided the issue on the basis of the Hon'ble jurisdictional High Court directly on the subject, the decision of the tribunal referred by the ld. Departmental Representative are not germane. Accordingly, we affirm the order of the ld. Commissioner of Income Tax (Appeals).
The common issue raised by the assessee for assessment years 2008-09 and 2009- 10 reads as under:
1. Re-assessment proceedings under section 147 are invalid and bad in law 1.1 The learned CIT (A) has erred in law and on facts in upholding the action of invoking the provisions of section 147 of the Act. The learned CIT (A) ought to have appreciated that the proceedings initiated by the AO under section 147 of the Act and consequently the order passed by him under section 147 read with section 144 of the Act are invalid and bad in law. 1.2 The learned CIT (A) has erred in law and on facts in upholding the initiation of the proceedings under section 147 of the Act based on change of opinion. The learned CIT(A) ought to have appreciated that the order passed under section 147 read with section 144 of the Act based on change of opinion is invalid and bad in law.
In this regard, we may gainfully refer to the order of the ld. Commissioner of Income Tax (Appeals) which records the reason regarded, the assessee’s submission and the ld. Commissioner of Income Tax (Appeals)’s adjudication upheld the assessment.
13 to 664/Mum/2016 & 699 to 703/Mum/2016 4. Validity of Reassessment proceedings A.Y.2008-09 & 2009-10): 4.1 The first issue relates to reassessment proceedings u/s.147 of the Act. During the re-assessment proceedings the A.O. issued notice u/s.148 of the Act. In reply the assessee submitted that the return filed u/s,139(1) of the Act should be considered as return filed in response to the notice u/s 148. The reasons recorded for re-opening is as under:- "The assessee is the owner of the property at Cuffe Parade, Murabai being Flat No.-As admeasuring 3,100 sq.ft. of carpet area on the 3rd floor of wing A of building known as "Pallonji Mansion Cooperative Housing Society Ltd." situated at Plot No.43, Prakash Pethe Marg, Cuffe Parade, Mumbai 400 005, It had entered into a leave and licence agreement with TATA Motors in which the said flat was given for rent for a monthly compensation of Rs.50,0000/- and interest free, refundable deposit 0/2.35 crores. During the financial year relevant to A. Y. 2008-09, the assessee has shown a rental income from this house property at Rs.4,50,000/-, InA.Y.2010-11, the issue of Annual Letting Value of this property with respect to section 23(i)(a) which was looked into. In this, it was found from the information received from Mr, Santosh Kumar (Govt. Registered Valuer) that the market value for the said flat based on stamp duty ready reckoners would be Rs.4,07,29,273/- and Rs.6,79,30,523/- in 2007 and 2009 respectively. From this, it can be seen that the rent income actually received by the assessee as per the provisions of sec.23(i)(b) of the Act is much less than the sum for which the property might reasonably be expected to be let from year to year as per section 23(i)(a) of the Act. Hence, I have reason to believe that income chargeable to tax has escaped assessment/is under assessed within the meaning of section 147. Issue notice under section 148 of the Income Tax Act, 1961." In response to the reasons recorded, the appellant filed submissions stating that the then AO examined and accepted the income offered which is apparent from assessment order passed u/s.143(3) and also that the information obtained u/s.133(6) of the Act from the Govt. Registered Valuer is merely ready reckoner stamp duty rates for the property in the similar locality applicable in case of payment of stamp duty at the time of transfer of property in such locality. The AO rejected the submissions of the assessee and passed the order u/s.144 r.w.s. 147 as the assessee failed to respond to notices u/s.142(1). 4.2 The appellant made the detailed submissions objecting to the proceedings u/s.147 of the Act vide its letter dated 17.06.2013. The A.O. has vide detailed order dated 19.06.2013, rejected all the objections of the appellant in respect of reassessment proceeding. Consequent to the disposal of the objections filed by the appellant, the AO had sent notices u/s.142(1) dated 09.10.2013 and 13.12.2013 asking for certain details. The appellant contended that it had verbally submitted to 14 to 664/Mum/2016 & 699 to 703/Mum/2016 the A.O. that most of the details as requested by the A.O. vide the above notices have already been submitted during the regular assessment proceedings and are already on the records. Further, details called for do not have any bearing on the issue under consideration for which reasons have been recorded. Further to above, consequent to order disposing our objection, the appellant made detailed submission vide letter dated 11.03.2014 reiterating its submissions made earlier and requested AO to drop the proceedings in light of facts and submissions made before the AO. The AO has vide order u/s.144 r.w.s.147 of the Act dated 31.03.2014 assessed the ALV of the property @8% of the extrapolated market value of Rs.6,43,29,898/- i.e.Rs.51,46,392/-. Similarly, for A.Y.2009-10, the AO has vide order u/s.144 r.w.s.147 of the Act dated 07.03.2014 assessed the ALV of the house property @8% of the extrapolated market value of Rs.7,79,30,523/- i.e.Rs.62,34,442/-. 4.3 In respect of reassessment, the appellant has contested that it had submitted the relevant details regarding income from house property in computation of income, financial statements and tax audit report. The AO after making scrutiny assessment did not make any adjustment in respect of income from house property. The A.O. had therefore formed his opinion in respect of income from house property and therefore reassessment proceedings by the A.O. merely based on change in opinion and therefore the reassessment order based on change in opinion is bad in law and is liable to be quashed, The appellant has relied on several judicial pronouncements including the decisions in Kelvinator of India Ltd. (320 ITR 561), Foramer v. CIT (247 ITR 436), Idea Cellular Ltd. v. DCIT (301 ITR 407), Asian Paints Ltd. v. DCIT (308 ITR 195), ICICI Home Finance Co. Ltd. v. ACIT (25 Taxmann.com 241) etc. 4,4 I have considered the facts of the case and the submissions of the appellant. I have also gone through the decisions relied on by the Ld. AR. I have also gone through the reasons recorded for re-opening of the original assessment order passed by the A.O. The reasons recorded by the A.O. to re-open the assessment is as under:- "The assessee is the owner of the property at Cuffe Parade, Mumbai being Flat No.-A3 admeasuring 3,100 sq.ft. of carpet area on the 3rd floor of wing A of building known as "Pallonji Mansion Cooperative Housing Society Ltd," situated at Plot No.43, Prakash Pethe Marg, Cuffe Parade, Mumbai 400 005, It had entered into a leave and licence agreement with TATA Motors in which the said flat was given for rent for a monthly compensation ofRs.5O,ooo/- and interest free, refundable deposit 0/2.35 crores. During the financial year relevant to A.Y, 2008-09, the assessee has shown a rental income from this house property at Rs.4,50,000/-. InA.Y.2010-11, the issue of Annual Letting Value of this property with respect to section 23(i)(a) which was looked into. In this, it was found from the information received from Mr. Santosh Kumar (Govt. Registered
15 to 664/Mum/2016 & 699 to 703/Mum/2016 Valuer) that the market value for the said flat based on stamp duty ready reckoners would be Rs.4,07,29,273/- and Rs.6,79,30,523/- in 2007 and 2009 respectively. From this, it can be seen that the rent income actually received by the assessee as per the provisions of sec.23(i)(b) of the Act is much less than the sum for which the property might reasonably be expected to be let from year to year as per section 23(i)(a) of the Act.
Hence, I have reason to believe that income chargeable to tax has escaped assessment/is under assessed within the meaning of section 147. Issue notice under section 148 of the Income Tax Act, 1961." It is, therefore, clear that the case was re-opened to assess the income from house property correctly. It is seen from the assessment order and the details available on record that no specific query regarding the income from house property and the annual letting value (ALV) of the property at Cuffe Parade was called for by the AO submitted by the appellant. The appellant had also not submitted the details in this regard during the assessment proceedings. The AO has elaborately discussed this in his order dated 19.06.2013 while disposing off the objection of the appellant. Hence, the assessment order was passed without examination of the subject issue. Since the issue has not been considered at all by the A.O., the question of re-look or change of opinion does not arise. As there was no opinion, the question of change of opinion will not be there. It is further seen that the reassessment notice was issued within four years from the end of the subject assessment year. In view of the above, it is necessary to refer to Explanation 1 of section 147. The same reads as under:- "Explanation l - Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing provision." The above Explanation makes it very clear that mere production of accounts, books or other evidence will not necessarily amount to disclosure as required u/s.147. What the appellant is trying to impress upon is that it disclosed of the impugned issue by way of computation of income and in the return of income. But, these issues were never considered by A.O. at the stage of assessment. It may not be out of place to refer to the decision of the Hon'ble Delhi High court in the case of Honda Siel Power Products Ltd. vs DCIT (340 ITR 53), where it was held that mere production of books of account or other evidence is not sufficient in view of Explanation 1. The relevant extract of the said judgment is reproduced hereunder: "The term "failure" on the part of the assessee is not restricted only to the income-tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression "failure to fully and truly
16 to 664/Mum/2016 & 699 to 703/Mum/2016 disclose material facts" also relate to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and wider an obligation to disclose. Burden is on the assessee to make full and true disclosure." The Hon'ble High court decided the issue in favour of revenue though the re- assessment was done after four year. It held that whether or not there was a failure or omission to disclose truly and fully is essentially a question of fact. It referred to the Explanation 1 of section 147 which stipulates that mere production of books of account or other evidence is not sufficient. Merely because material lies embedded in material or evidence, which the Assessing Officer could have uncovered but did not uncover, is not a good ground to strike down a notice for re- assessment. The SLP filed against the above decision has been dismissed by the Hon'ble Supreme Court and therefore the issue has attended finality. There is no reason why the ratio of the above decision shall not be applicable to the facts of the instant appeal. I do not agree with the contention of the Ld. AR that disclosure in the statement of income and the return of income amount to full and true disclosures of material facts. There was no specific enquiry by the A.O. during the course of assessment proceedings in respect of income from house property. In view of the above, in the present case, the decisions cited by the Ld. AR are clearly distinguishable on facts. Considering the facts that the assessee failed to make full and true disclosures as envisaged by Explanation 1 to section 147, the action of the A.O. in re-opening the assessment is upheld.
Against this order, the assessee is in appeal before us.
We have heard both the counsel and perused the record. We find that the original assessment in this case was computed u/s. 143(3) and no disallowance on account of addition to rental income was there. The case was reopened on the basis of information obtained by the Assessing Officer from Shri Santosh Kumar, government registered valuer. His letter in this regard has already been reproduced by us in para 16 above. A reading of the said information clearly shows that the said information cannot at all be said to be a information on the basis of which it can be said that there was escapement of or speech. The said valuer has clearly stated that he has neither visited nor inspected the said property. Hence, the said report can by no stretch of imagination be said to be a cogent material warranting reopening. Furthermore, earlier assessment has been done u/s. 143(3) and the lettable value returned has been accepted. Now the Assessing Officer is changing his opinion on the basis of that said letter. In our considered opinion, this very much amounts to change of opinion, not permissible under law. The Hon'ble Apex Court in the case of CIT vs. Foramer France (2003) 264 ITR 566 (SC) has expounded that even after amendment, reopening on the basis of change of opinion is not permissible. The presumption that unless the Assessing Officer discusses a particular issue in his assessment order u/s. 143(3), it cannot be said that he has applied his mind, is not sustainable. Accordingly, we set aside the order of the ld. Commissioner of Income Tax (Appeals) and hold that the assessment in this case is not valid.
For assessment years 2010 -11, 2011 -12 and 2012 - 13 the common issue raised by the assessee reads as under:
1.Disallowance under section 14A of the Act under normal provisions of the Act 1.1 The learned CIT (A) has erred in law and on facts in confirming the disallowance under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 ("the Rules") and thereby directing the AO to re-compute the disallowance without appreciating the fact that no expenditure had been incurred in relation to exempt income. 1.2 The learned CIT (A) has erred in law and on facts in directing the AO to re- compute the disallowance under section 14A of the Act disregarding the facts and details of expenses submitted showing that no expenses have been incurred for earning the income exempt from tax. 1.3 The learned CIT (A) has erred in law and on facts in directing the AO to re- compute the disallowance under section 14A of the Act read with rule 8D of the 18 to 664/Mum/2016 & 699 to 703/Mum/2016 Rules disregarding the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (328 ITR 81), which requires the AO to establish nexus of expenses having been incurred for earning exempt income before applying provisions of section 14A of the Act read with rule 8D of the Rules. 1.4 The learned CIT(A) has erred in law and on facts in directing the AO to re- compute the disallowance under section 14A of the Act disregarding the facts of the case that the AO has failed in examining and rejecting claim of the appellant in light of books of accounts and also failed in establishing the nexus of expenses having been incurred for earning exempt income while disallowing certain expenses under section 14A of the Act applying provisions of rule 8D of the Rules. 1.5 Without prejudice to above, the learned CIT (A) has erred in law and on facts in not excluding the strategic investments for the purpose of making disallowance under section 14AoftheAct. 1.6 Without prejudice to above, the learned AO has erred in law and on facts in considering the professional charges paid to consultants and auditors as Indirect Administrative charges for the purpose of making the disallowance under section 14A of the Act.
For assessment year 2010-11, the assessee has raised the following other ground:
Disallowance under section 14A of the Act under section 115JB of the Act (MAT provisions) 2.1 The learned CIT (A) has erred in law and on facts in confirming the adjustment to the book profit computation under section 115JB of the Act in respect of disallowance made under section 14A of the Act without appreciating the fact that no expenses has been incurred for earning income exempt from tax. 2.2 The learned CIT (A) has erred in law and on facts in confirming the adjustment to book profit in respect of disallowance made under section 14A of the Act without appreciating the fact that the provisions of section 14A is applicable only for computation of income under Chapter IV of the Act and is not applicable for the purpose of book profit computation under section 115JB of the Act. 2.3 The learned CIT (A) ought to have appreciated that the provisions of Chapter XII-B of the Act is a separate code in itself and other provisions of the Act does not affect the computation of book profit under Chapter XU-B of the Act and hence the provisions of section 14A of the Act cannot be imported into while computing the book profit under section 115JB of the Act. 2.4 Without prejudice to above, the learned CIT (A) ought to have appreciated that only actual expense, if any, incurred for earning exempt income and debited to Profit and Loss account could be added to book profit as per the provision of section 115JB of the Act.
years 2010-11, 2011-1 2 and 2012- 13 he shall only be pressing for ground number 1.6 above and all other grounds are not pressed. Accordingly, except for ground number 1.6 above all other grounds raised by the assessee in these appeals are dismissed as not pressed.
Upon carefully consideration, we note that the only issue arising here is that in making disallowance u/s. 14A in the normal provisions of the Act, the Assessing Officer has erred in law and facts in considering the professional charges paid to consultants and auditors as indirect administrative charges for the purpose of making the disallowance u/s. 14A. In this regard, the ld. Counsel of the assessee has placed reliance upon the decision of the Hon'ble Bombay High Court in the case of Chennai & Co. Pvt. Ltd. v.
CIT 206 ITR 616 (Bom).
Upon careful consideration, we note that this decision has been cited by the ld. Counsel of the assessee is for the proposition that a statutory expenses incurred is allowable expenditure even if no active business is conducted. We fail to understand as to how this decision is relevant here in deciding the expenses which are incurred in respect of the incurring tax free income. We find that no cogent reason has been submitted before us that the consultant charges paid to the auditors are not indirect administrative charges.
Hence, we dismiss this ground raised by the assessee.
The assessee has also raised following additional ground:
20 to 664/Mum/2016 & 699 to 703/Mum/2016 2. On the facts and in the circumstances of the case; Enhancement of Annual Letting Value ("ALV") in respect of 'Income from House Property: 2.1 the learned Assessing Office {'AO'} has erred in objecting to the order of Hon'ble Commissioner of Income Tax (Appeals) ['CIT(A'], wherein the CIT(A) has correctly held that the rent received by the assessee is appropriate estimation of the ALV under Section 23(1)(a) of the Income-tax Act, 1961 ('Act') and thereby deleted the enhancement made in the ALV as the same cannot be based on arbitrary estimates; 2.2 without prejudice to the above, the AO was not justified in estimating the fair rental value ('ALV') at an ad-hoc rate of 8% of the estimated market value of the property as worked out by Government Registered Valuer; 2.3 the AO has erred in disregarding the fact that the Government Registered Valuer has himself admitted later, vide letter dated 17 October 2015, that valuation done by him did not give 'fair market annual rating value'; 29. Since we have already decided the Revenue’s appeal on this subject in favour of the assessee, these additional grounds raised have now become infructuous and, hence, they are dismissed as such.
In the result, the Revenue’s appeals stands dismissed. The assessee’s appeal for assessment year 2008-09 and 2009-10 are allowed and the assessee’s appeal for assessment years 2010-11, 2011-12 and 20-12-13 stands dismissed.