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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI SHAMIM YAHYA (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been filed by the assessee against the order dated 28.03.2016 passed by the Ld. Commissioner of Income Tax (Appeals)-8, Mumbai, for the assessment year 2012-13, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee engaged in the business of construction, financing and investment in properties, filed its return of income for the assessment year under consideration declaring the total income of Rs. 1,92,61,028/- under the normal provisions of the Act and Rs. 2,65,31,113/- under section 115JB of the Act. The AO noted that the assessee earned rental income of Rs. 3,62,02,679/- by renting out four floors out of 8 floors of the building Blue Wave. The assessee had paid municipal taxes of Rs. 1,10,30,098/- for entire 8 floors and accordingly an amount of Rs. 34,40,456/- 2 Assessment Year: 2012-13 was recovered from the tenants and the balance amount was paid by the assessee, which was claimed as deduction u/s 27 of the Act. The AO disallowed an amount of Rs. 37,94,821/- out of the claim of Rs. 75,89,642/- holding that the property tax for vacant premises and tenanted premises are determined different by the municipal authority. Accordingly, the AO restricted the addition to Rs. 7,41,212/- for vacant premises and allowed the claim for the tenanted premises. The assessment order was challenged before the Ld. CIT (A). The Ld. CIT (A) after hearing the assessee confirmed the action of the AO following the decision of his predecessor on this point.
Aggrieved by the order of Ld. CIT (Appeals), the assessee has preferred this appeal before the Tribunal on the following effective ground:-
On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) has erred in confirming the disallowance/addition of Rs. 7,41,21,212/- made u/s 23 of the I.T. Act, 1961 on account of proportionate disallowance of Municipal Taxes paid without appreciating the facts of the case. He ought to have allowed the full deduction as claimed by the appellant.
At the very outset, the Ld. Counsel for the assessee submitted that the ITAT has decided the identical issue in favour of the assessee in assessee’s own case, for the A.Y. 2010-11 dated 04.05.2016. In view of the fact that the Tribunal has decided the identical issue in assessee’s own case, the impugned order is liable to be set aside.
5. On the other hand, the Ld. Departmental Representative (DR) relying on the order passed by the Ld. CIT (A) submitted that as per the provisions of section 23 of the Act is the property is not let out during the year the deduction from annual value as determinable u/s 23 of the Act is 3 Assessment Year: 2012-13 not possible. Hence, the Ld. CIT (A) has rightly confirmed the action of the AO.
We have heard the rival submissions and also perused the orders passed by the authorities below. The coordinate Bench has decided the identical issue in favour of the assessee in the assessee’s own case for the A.Y. 2010-11 aforesaid holding as under:-
“4. The controversy that is urged before us relates to the quantum of municipal taxes that is required to be deducted from the Annual letting value of the property in terms of the proviso to sec. 23 of the Act. Hence we refer to the provisions of sec. 23, which read as under:-
“2.3 Annual value how determined: (1) For the purposes of section 22, the annual value of any property shall be deemed to be- (a) The sum for which the property might reasonably be expected to let from year to year, or Subhi Construction Pvt. Ltd. (b) Where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable, or (c) Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable:
Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.”
“A careful perusal of the above said provisions would show that while determining the Annual Letting Value of the property, the fact as to whether it is wholly let or partially let is considered. However, proviso 4 Assessment Year: 2012-13 to sec. 23 of the Act provides for deduction of taxes levied by any local authority “in respect of the property” shall be deducted in determining the annual value of the property of that previous year in which such taxes are “actually paid”. We notice that the reference is to “the property” and not to “whole or any part of property. We have already noticed that the municipal taxes have to be deducted in the year of payment, even though, it may relate to any of the years, Thus, the importance is given to the “year of payment”, whether or not it pertains to the year in which the property income is assessed. Further, even though the provisions of sec. 23(b) and (c) makes a reference to “any part of property”, yet what is relevant is whether the amount of actual rent received or receivable by the owner is in excess of the sum referred to in sec. 23(a) of the Act. Thus, in our considered view, the question of apportionment of the rent/municipal taxes may arise only if it is shown that each floor of the property is a distinct and separate property, which is not the case here. The copies of municipal tax receipts would show that the BMC also is considering the entire building as a single property. Hence, in our view, there is merit in the contention of the assessee and accordingly we are of the view that the tax authorities are not justified in making proportionate disallowance of municipal taxes actually paid by the assessee.
Accordingly, we set aside the order of Ld. CIT (A) on this issue and direct the AO to allow the entire amount of municipal taxes paid by the assessee while computing the Annual letting value of the property.
6. The assessee has also raised an alternative ground praying for allowance of standard deduction towards repairs, if any part of the municipal taxes is disallowed. Since, we have held that the entire amount of municipal taxes actually paid by the assessee is allowable as deduction, this alternative ground becomes infructuous.
In view of the above, the appeal filed by the revenue challenging the partial relief granted by Ld. CIT (A) is also liable to be dismissed Even otherwise, the tax effect involved in the appeal filed by the revenue is less than Rs. 10.00 lakhs and hence the revenue is 5 Assessment Year: 2012-13 precluded from pursuing this appeal as per the Circular No. 21/2015 dated 10-12-2015 issued by the CBDT.
In the result, the appeal filed by the assessee is allowed and the appeal of the revenue is dismissed.”
7. Since, coordinate Bench of the ITAT has dealt with the identical issue and decided the same in favour of the assessee, we do not find any reason to deviate from the findings of the coordinate Bench. Hence, respectfully following the decision of the co-ordinate Bench passed in the assessee’s own case for the A.Y. 2010-11 aforesaid, we set aside the impugned order passed by the Ld. CIT(A) and allow the appeal of the assessee. We, therefore direct the AO to delete the addition of Rs. 7,41,212/- made u/s 23 of the Act on account of proportionate disallowance of municipal taxes paid.