ACIT 7(2)(1), MUMBAI vs. MK WEB TECH P.LTD, MUMBAI

When the appeal was called for hearing, no one was present on behalf of the assessee. Therefore, we proceed to dispose off the appeal ex–parte qua the assessee after hearing the learned Departmental Representative.

The effective grounds raised by the Revenue pertain to deletion of addition of ` 44,07,220, made by the Assessing Officer on account of increase in annual lettable value (ALV) of the house property.

Brief facts are, in course of assessment proceedings in the impugned assessment year, the Assessing Officer wanted to verify the income returned by the assessee under the head house property. As per the details submitted by the assessee, the Assessing Officer found that the assessee has let out its premises at G.T. Techpark, Bangalore, having area of 68,764 sq.ft. at the monthly rent of ` 20,63,412, and the rate per sq.ft. works out to ` 30. He also found that the assessee has taken security deposit of ` 1.98 crore for letting out the property. For verifying the prevailing market rate of rent, the Assessing Officer issued notice under section 133(6) of the Income Tax Act, 1961 (for short “the Act”) to M/s. Salarpuria Properties Pvt. Ltd., which has also rented out properties in G.R. Techpark, Bangalore. From the reply of the said party, he found that the prevailing rate of rent was ` 34.64 per sq.ft. and where the premises were given on rent without furniture the rate per sq.ft. is ` 37.50. Confronting the aforesaid facts the Assessing Officer called upon the assessee to justify the low rent shown by the assessee. In response, it was submitted by the assessee that considering the huge area of 68,764 sq.ft. let out by the assessee the rent at ` 30 per sq.ft. is as per the market rate which cannot be 3 MK Web Tech Pvt. Ltd. compared to rent received in respect of letting out smaller areas. The assessee submitted that it has also let out to the same party an area of about 6,000 sq.ft. at the monthly rent of ` 37.63 per sq.ft. As regards the security deposit received by the assessee, it was submitted that as per prevailing practice in such type of leasing approximately 10 month’s rent is kept as security deposit. The Assessing Officer however was not convinced with the explanation of the assessee. Referring to the information obtained under section 133(6) of the Act the Assessing Officer observed that rent received in respect of properties let out at the same area / locality is much more than the rent shown by the assessee at ` 30 per sq.ft. The Assessing Officer observed, the fact that the assessee itself has let out another property to the same tenant at ` 37.63 per sq.ft. indicates the lower rent shown by the assessee. Accordingly, he proceeded to determine the annual value of the property let out at ` 37.63 per sq.ft. per month as against monthly rent of ` 30 per sq.ft. shown by the assessee. This resulted in addition of ` 44,07,220. Being aggrieved of the addition so made, assessee preferred appeal before the first appellate authority.

After considering the submissions of the assessee, the learned Commissioner (Appeals) having found that the rent shown by the assessee is as per the market rate, deleted the addition made by the Assessing Officer.

The learned Departmental Representative relied upon the observations of the Assessing Officer.

We have heard the learned Departmental Representative and perused materials on record. As could be seen from the facts on record, on the basis of information received under section 133(6) of the Act in respect of properties let out in the same locality, the Assessing Officer has held that the market rate of rent of the property let out is ` 37.63 per sq.ft. per month. In this context, he has also referred to the rent received by the assessee in respect of another property let out to the same tenant. However, as could be seen from the order of the learned Commissioner (Appeals), on verifying the facts and material on record, he found that the property let out by the assessee is having a huge area of 68,764 sq.ft. and was let out in the year 2006 at a pre–agreed rate of ` 20.63 lakh per month. The agreement also provided increase of rent by 13% in every three years of lease and in the mean time the property has already undergone two increases in rent. He has further noted, the properties in respect of which the Assessing Officer obtained information under section 133(6) of the Act and determined the ALV by adopting the rent at which they were let out are of smaller areas of 5,000 and 3,500 sq.ft. Further, even a separate property let out to the same tenant by the assessee is having area of 6,000 sq.ft. He also found that the rent received of `

In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 18.04.2018