SUNIL T. DOSHI,MUMBAI vs. JCIT RG 24(2), MUMBAI

1 ITA 456 & 457/Mum/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI

Before Shri Saktijit Dey (JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No. 456/Mum/2016 - AY 2010-11 I.T.A No. 457/Mum/2016 - AY 2005-06

Shri Sunil T Doshi vs The Dy.CIT, Cir.24(2) / 30(2), M/s Vepari & Co Mumbai Oricon House, 4th Floor 12, K. Dubash Marg Mumbai-400 023 PAN : ABXPD4329F APPELLANT RESPONDENT

Appellant by Mrs Ruchi Tamhankar Revenue by Shri V Justin

Date of hearing 25-01-2018 Date of pronouncement 21-02-2018 O R D E R Per G Manjunatha, AM : These appeals filed by the assessee are directed against separate

orders of CIT(A)-41, Mumbai dated 19-11-2015 for the assessment

years 2010-11 and 2005-06, respectively. Since facts are identical,

these appeals were heard together and are disposed of by this common

order, for the sake of convenience. ITA No.456/Mum/2016

2 ITA 456 & 457/Mum/2016 tax, Range 24(2), Mumbai (AO) in respect of claim of depreciation of Rs.1,43,700/- on computer by invoking Explanation 1 of the provisions of section 271(1}(c) of the Act. 2. The appellant submits that, it has neither concealed the particulars of income nor furnished inaccurate particulars of such income. 3. The appellant submits that, the facts in the case of the appellant do not justify levy of penalty u/s.271(1)(c) of the Act, as the AO has not discharged the onus cast on him by law for levy of penalty.”

of income for the assessment year 2010-11 on 18-10-2010 declaring

total income at Rs.1,82,35,396. During the course of assessment

proceedings, the AO observed from the statement of house properties

filed by the assessee that the assessee owned 4 house properties and

claimed two properties as used for his own business. Therefore, he

called upon the assessee to explain as to why annual letting value of

house property shall not be computed under the provisions of section

23(1) of the Income-tax Act, 1961. In response to show cause notice,

the assessee submitted that out of 4 properties, one flat at No.1304,

bldg No.9, Man Space, Quiescent House, Malad (W), Mumbai is self

occupied property for own residence. In respect of properties situated at

Ankur, Goregaon (W), Mumbai and Unit No.218, Linkway Estate

Premises Co-operative Society Ltd, Malad, these are used for his own

business are not under the name and style of M/s Alliance Media &

Entertainment Pvt Ltd, a company in which he is having 99%

shareholding. Assessee further submitted that he had computed annual

value of house property at 301, Laher CHS Ltd, Malad (W) on the basis

3 ITA 456 & 457/Mum/2016 of municipal valuation. The house properties used for his own business

are outside the purview of section 22 of the I.T. Act , therefore, the

question of computation of deemed annual letting value does not arise.

The AO, after considering relevant submissions of the assessee

observed that the assessee failed to compute deemed let out value of 2

properties even though the properties are owned in his personal name

on the ground that those two properties are used for his own business

ignoring the fact that the assessee is running the business in the name

of a private limited company, which is a distinct separate legal entity and

hence, the properties owned in his personal name even though used for

his own business, cannot be claimed exempt for the purpose of

computation of deemed annual letting value. Insofar as third property,

AO observed that even though the assessee has computed deemed let

out value of property on the basis of municipal valuation, the value

adopted by the AO for computation of annual letting value is not in

accordance with provisions of section 23 As the section mandates

computation of annual value on the basis of sum for which the property

might reasonably be expect to let from year to year. Therefore, rejected

computation of annual letting value of property by the assessee and

determined annual letting value of all the three properties @8% of

investment in properties and re-computed income from house property. 4. Aggrieved by the assessment order, the assessee preferred appeal

4 ITA 456 & 457/Mum/2016 before the CIT(A). Before the CIT(A), assessee reiterated its

submissions made before the AO to argue that the AO was erred in

computing annual letting value of two properties used by him for his own

business carried out under the name and style of M/s Alliance Media &

Entertainment Pvt Ltd wherein he is holding more than 99%

shareholding. The assessee further submitted that in respect of deemed

let out property, the AO has adopted 8% of the value of the property to

determine annual letting value of the property ignoring the fact that the

provisions of section 23 mandates computation of annual letting value

on the basis of sum for which the property might reasonably be expected

to let from year to year or where the property is part of the property let

out and the actual rent received or receivable by the owner is in excess

of the sum referred to in clause (a), the sum so received or receivable.

He had computed annual letting value of the property on the basis of

municipal valuation which is in accordance with the law and also

supported by the decision of jurisdictional High Court in the case of M.V.

Sonawala vs CIT 177 ITR 246 wherein it was categorically held that

municipal valuation is one of the basis for computation of annual letting

value of deemed let out of properties. The CIT(A), after considering

relevant submissions of the assessee and also relying upon certain

judicial precedents observed that as per the provisions of section 23

annual value of sum for which the property might reasonably be

5 ITA 456 & 457/Mum/2016 expected to let out from year to year but not on the basis of municipal

valuation. The CIT(A) further observed that income offered on the basis

of municipal valuation of the year 2002 does not reflect updated and

correct annual value, therefore, the AO was right in determining the

annual letting value of the property on the basis of cost of construction /

acquisition / investment value to determine annual letting value of the

property. Insofar as two properties used by the assessee for his own

business, the CIT(A) observed that the properties are in the name of the

assessee whereas business is carried out in the name of the company

As per section 22, portions of property, if occupied for the purpose of

any business or profession carried out by him is only exempt. The

company is a separate entity and hence, premises used for running the

business of the company are not outside the scope of section 22 of the

Act. With these observations, upheld the findings of the AO in

computing annual value of the property @ 8% of investment value of 2

flats. Aggrieved by the order of CIT(A), assessee is in appeal before us.

record and gone through the orders of authorities below. The assessee

has owned 4 properties out of which two properties are used for his own

business running under the name and style of M/s Alliance Media &

Entertainment Pvt Ltd, where he holds more than 99% shares. One

property is used for his self-occupation. For the fourth property, the

6 ITA 456 & 457/Mum/2016 assessee has computed deemed annual letting value on the basis of

municipal valuation of the property determined in the year 2002. The

AO recomputed annual letting value of the two properties used by the

assessee for his own business on the ground that the assessee is

eligible for exemption u/s 22 in respect of properties which are used for

his own business in his name but not in the name of the company. If the

business is carried out in the name of the company, it cannot be

considered that the assessee is carrying out the business in his own

name which is coming within the purview of section 22 of the Act. In

respect of third property, the AO rejected annual letting value computed

by the assessee by holding that the value fixed by the municipal

authorities for the year 2002 does not reflect updated and correct annual

letting value of the property. Accordingly determined annual letting

value of the three properties @8% of value of investment in properties.

determination of annual value of properties as per which the sum for

which the property might reasonably be expected to let from year to year

or where the property or part of the property is let, then the annual rent

received or receivable by the owner in respect thereto, is in excess of

the sum referred to in clause (a), the amount so received or receivable.

Admittedly, in this case, all the three properties are not let out by the

assessee. The assessee claims that 2 properties are used for his own

7 ITA 456 & 457/Mum/2016 business in the name of M/s Alliance Media & Entertainment Pvt Ltd.

The AO has not disputed the fact that two properties are used by the

assessee for his own business; however, rejected the explanation of the

assessee for the reason that the assessee owned properties in his

individual capacity whereas the business is run in the name of the

company which is a distinct and separate legal entity. Insofar as third

property, the AO has disputed annual letting value determined by the

assessee on the basis of municipal valuation by holding that municipal

value fixed in the year 2002 does not reflect correct value of the

property. We do not find any merit in the findings of the AO for the

reason that determination of annual letting value of the property on the

basis of value of the property is not a correct method for determination of

annual letting value as per the provisions of section 23 of the Income-tax

Act, 1961. As per the provisions of section 23(1)(a), the annual letting

value of property should be determined on the basis of the sum for

which the property might reasonably be expected to let from year to year

or where the property or part of the property is let out and the actual rent

received or receivable by the owner in excess of the sum referred to in

clause (a). In this case, clause (b) is not applicable because the

properties have not been let out through out the year. As per clause (a),

the annual letting value of the property shall be determined on the basis

of the sum for which the property might reasonably be expected to let

8 ITA 456 & 457/Mum/2016 from year to year which means the prevailing market rent of the property

has to be considered for the purpose of determination of annual letting

value. The Hon’ble Bombay High Court in the case of M.V. Sonawala v

CIT (supra) observed that municipal valuation should be the basis of

determining annual value of the properties. In yet another case, the

Hon’ble Bombay High Court in the case of CIT vs Tip Top typography

368 ITR 330 (Bom) observed that in order to determine annual letting

value, municipal rateable value may not be binding on assessing officer,

but that is only in cases where he is convinced that interest free security

deposit and monthly compensation did not reflect prevailing rate. In

such a case, the AO can himself resort to enquired about the prevailing

rate in the locality. The sum and substance of the ratio of the Hon’ble

Bombay High Court is that to determine the annual letting value of

properties, the AO has to find out the correct fair rent of the property in

the locality. In this case, the AO has followed adhoc method of

estimation of 8% on total value of the property to determine the annual

letting value. Therefore, we are of the considered view that the annual

letting value determined by the AO is not in accordance with the

provisions of section 23(1)(a) and also against the settled legal

proposition laid down by jurisdictional High Court. Hence, we set aside

the issue to the file of the AO and direct him to determine the annual

value of the property on the basis of prevailing rate in the locality after

9 ITA 456 & 457/Mum/2016 affording a reasonable opportunity of being heard to the assessee.

the assesse for his own business, we find that the AO has rejected the

arguments of the assessee that two properties are used for his own

business run in the name & style M/s Alliance Media & Entertainment

Pvt Ltd on the ground that company is a separate legal entity and hence

properties used for the business are outside the purview of section 22 of

the I.T. Act. We do not find any merit in the arguments of the assessee

for the reason that the assessee has used premises to run his own

business in the name and style of M/s Alliance Media & Entertainment

Pvt Ltd, a company in which he is having 99% shareholding. Whether

the business is run in his individual capacity or in the name of a

company / firm hence the premises are used for his own business are

certainly outside the purview of section 22 of the Income-tax Act for

deemed let out. Therefore, we direct the AO to delete addition made

towards deemed let out of two properties for assessee’s own business.

statistical purpose. ITA 457/Mum/2016

income on 31-10-2005 declaring total income of Rs.3,45,32,892. The

assessment was completed u/s 143(3) on 28-12-2007 determining total

10 ITA 456 & 457/Mum/2016 income at Rs.3,61,45,052 by making various additions including addition

towards disallowance of depreciation on computer for Rs.1,43,700.

Thereafter AO initiated penalty proceedings u/s 271(1)(c) for furnishing

inaccurate particulars of income in respect of depreciation claimed on

computer purchased and put to use on 31-03-2005 and asked the

assessee as to why penalty shall not be levied for furnishing inaccurate

particulars of income. In response to notice assessee submitted that he

had purchased computers from M/s PCSS Solutions Pvt Ltd vide invoice

No.224 dated 31-03-2005 and also filed confirmation from the supplier

confirming that the system had been delivered and installed on 3 1-03-

2005. The assessee further submitted that its claim of depreciation on

computer is in accordance with law and hence, the question of levy of

penalty u/s 271(1)(c) for disallowance of depreciation does not arise.

The AO, after considering relevant submissions of the assessee and

also relying upon certain judicial precedents observed that wherever

there is a difference between the returned and assessed income, there

is an inference of concealment as a rule of law. The responsibility for

rebutting such inference is squarely on the taxpayer. The assessee is

expected to offer the explanation for the difference. If the assessee fails

to offer any explanation, then a general presumption is drawn that the

assessee has furnished inaccurate particulars of income which warrants

levy of penalty u/s 271(1)(c); accordingly levied penalty u/s 271(1)(c) in

11 ITA 456 & 457/Mum/2016 respect of disallowance of depreciation on computers. Aggrieved by the penalty order, assessee preferred appeal before the CIT(A). Before the

CIT(A) assessee has reiterated his submissions made before the AO.

The assessee also relied upon the decision of Hon’ble Supreme Court in

the case of CIT vs Reliance Petroproducts Pvt Ltd 322 ITR 158 (SC) to

argue that mere disallowance of certain expenses does not tantamount

to furnishing of inaccurate particulars of income so as to levy penalty u/s

271(1)(c) of the Act. The CIT(A), after considering relevant submissions

of the assessee and also relying upon certain other judicial precedents

observed that the assessee has failed to offer any explanations for

claiming depreciation which is otherwise not allowable on computers

purchased and installed on 31-03-2005. Though the assessee claims to

have installed computer on 31-03-2005, failed to file any evidence to

substantiate its claim that computers were put to use on 31-03-2015.

Thus, the assessee’s case clearly falls within the ambit of provisions of

section 271(1)(c) of the Act as the assessee has failed to discharge the

onus cast on him and the claim is patently wrong and inadmissible, and

therefore, levy of penalty is justified. Aggrieved, assessee is in appeal

before us.

confirming penalty of Rs.48,369 levied by the AO in respect of claim of

depreciation on computer by invoking Explanation 1 of section 271(1)(c)

12 ITA 456 & 457/Mum/2016 of the Act despite the assessee furnished necessary evidences to prove

that computer is purchased and put to use on 31-03-2005. The Ld.AR

further submitted that the AO was erred in levying penalty on

disallowance of depreciation as mere disallowance of certain expenses

or claim of deduction does not tantamount to furnishing of inaccurate

particulars of income so as to levy penalty for furnishing inaccurate

particulars of income.

CIT(A).

on record. The AO levied penalty u/s 271(1)(c) in respect of

disallowance of depreciation on computer on the ground that the

assessee has furnished inaccurate particulars of income. According to

the AO, wherever there is a difference between the returned income and

assessed income, there is an inference of concealment as a result of law

and it is the responsibility of the assessee to rebut such inference with

necessary evidences. Though the assessee has filed bill for purchase of

computer, failed to file any evidence of installation and put to use

computer on 31-03-2005; therefore, the AO opined that the assessee

has made a claim of depreciation which is patently incorrect and not

allowable under the Act. It is the contention of the assessee that mere

disallowance of certain claim of expenditure or deduction would not

13 ITA 456 & 457/Mum/2016 tantamount to furnishing of inaccurate particulars of income so as to levy

penalty u/s 271(1)(c) of the Act.

find merit in the argument of the assessee for the reason that the

Hon’ble Supreme Court in the case of CIT vs Reliance Petroproducts

Pvt Ltd (supra) observed that merely because the assessee had claimed

the expenditure which claim was not accepted or was not acceptable to

the revenue, that by itself would not attract the penalty u/s 271(1)(c) of

the Act. If the contention of the revenue were accepted, then in case of

every return where the claim made was not accepted by the AO for any

reason, the assessee would invite penalty u/s 271(1)(c), i.e. clearly, not

the intention of the legislature. In this case, the assessee has claimed

depreciation on computer which was purchased and put to use on 31-

03-2005. The assessee furnished separate bill for purchase of computer

and also report of the technician for installation and put to use computer

on 31-03-2005. The assessee has furnished necessary facts before the

AO in respect of computation of its income. Merely because the AO has

disallowed certain expenses or not accepted explanation offered by the

assessee that by itself would not be a ground for levy of penalty for

furnishing inaccurate particulars of income. Therefore, we are of the

considered view that the AO was incorrect in levying penalty u/s

271(1)(c) in respect of disallowance of depreciation on computer. The

14 ITA 456 & 457/Mum/2016 CIT(A), without appreciating the facts has simply confirmed the penalty levied by the AO, hence we set aside the order of the CIT(A) confirming penalty levied by the AO and direct the AO to delete the penalty levied

u/s 271(1)(c). 14. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 21st February, 2018.

Sd/- sd/- (Saktijit Dey) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 21st February, 2018 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Sr.PS, ITAT, Mumbai