ITO WD 1 (2)(2), MUMBAI vs. SUDHEER OMPRAKASH BAHL, MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A)— 2, Mumbai dated 17/03/2017 for A.Y.2010-11 in the matter of order passed u/s.143(3) of the Act.

Grievance of revenue relates to deletion of estimation of rent made by the AO.

Nobody appeared on behalf of assessee instead of giving opportunity, the Bench, therefore, decided to dispose the appeal after considering the contention of learned DR and going through the material placed on record. From the record I found that the assessee is the proprietor of M/s. Khyber Restaurant. The assessee is the owner of Flat No.91-B, Colaba, Mumbai – 5. The area of the flat is 3000 sq.ft. The Shri Sudheer Omprakash Bahl assessee vide leave and licence agreement dated 23/01/2008 let out the flat alongwith the one reserved covered car parking space in the compound to Induslnd Bank for a period of 33 months commencing on 1.2.2008 and ending on 31.10.2010 both days inclusive on a monthly rent of Rs. 16,500/- from April, 2009 to January, 2010 and Rs. 18,150/- from February, 2010 to March, 2010 and interest free security deposit of Rs.5,75,00,000/-. The assessee had disclosed annual rental value of the said flat u/s. 23 of the I.T. Act at 2,01,300/-. The annual rental value of the said flat disclosed for the immediate previous assessment year 2009-10 was Rs. 1,83,000/-. It was observed by the AO that the rent received by the appellant for the purposes of section 23(l)(b) as disclosed is Rs. 2,01,300/- which is less than the amount u/s. 23(l)(a) of the I.T. Act. Therefore, he held the amount of Rs. 54,85,680/- to be the Annual Value of the Flat determined u/s. 23 and was charged to tax u/s. 22 of the I.T. Act.

By the impugned order, CIT(A) deleted the addition so made after observing as under:- 3.4 The facts of the case, the stand taken by the AO in the assessment order and the contentions raised by the learned authorized representative of the appellant during the appellate proceedings as well as the written submissions made are carefully considered. In the previous years, in the assessee's own case, an identical issue has also been examined by the Hon'ble ITAT vide order Nos.2162, 2163, 2164, 2165 and 2166/Mum/2009 dated 18.11.2011 for the A. Yrs. 1999-2000,2000-01,2001- 02, 2002-03 and 2005-06 respectively. Relying upon the decision of the Full Bench of the Hon'ble Delhi High Court in the case of CIT -vs- Moni Kumar Subba [333 ITR 38], the Hon'ble ITAT, Mumbai Bench has in the appellant's own case held that the notional interest worked out on the interest free deposit was not in accordance with the provisions of section 23(1) (a) of the Income-tax Act. Further, the Hon'ble ITAT in the said order (supra) has determined ALV at Rs.28,000/- p.m. in respect of A. Yr. 2005-06, as against Shri Sudheer Omprakash Bahl Rs. 15,000/- p.m. declared by the appellant. The operative part of the decision is as under: ' "4. We have heard the arguments of both the sides and also perused the relevant matter on record. The learned representatives of both the sides have cited various Judicial pronouncements on the issue involved in these appeals in support of their respective stand. It is, however, observed that in the decision recently delivered in the case of the CIT vs. Moni Kumar Subba 333 ITR 38 (Del), the full Bench of Hon 'ble Delhi High Court has considered and decided a similar issue after taking into consideration all the relevant aspects of the matter including the various judicial pronouncements relevant thereto. As held by the full Bench of the Hon 'ble Delhi High Court in the case of Moni Kumar Subba (supra), the notional interest on the interest free security deposit cannot be taken as determinative factor to arrive at the fair rent and section 23(l)(a) does not mandate this. It was held that section 23(l)(a) requires determination of the "fair rent" being "the sum for which the property might reasonable be expected to let from year to year" and the AO has to make enquiry as to what would be the possible rent that the property might fetch. It was held that the AO can ignore the municipal valuation for determining the ALV if he finds that the same is not based on relevant material for determining the "fair rent" in the market and there is sufficient material on record for taking a different valuation. In the present case, although such relevant material in the form of comparable instances of rent in the similar locality was collected by the AO by making the enquiries, he proceeded to adopt the fair rent of assessee's property at Rs.2,50,000/- per month by taking into consideration mainly the notional interest on the interest free deposit which, in our opinion, was not in accordance with the provisions of section 23(1 )(a) as held by the Hon'ble Delhi High Court in the case of Moni Kumar Subba (supra). The learned CIT(Appeals)t on the other hand, examined the material gathered by the AO in the form of comparable instances and found on such examination that one of such comparable cases, namely, Poonam K. Rohira and GauriKapoo was the closest to the case of the assesses. In the said case, deposit taken was Rs.2.5 crores and rent received was Rs.27,902/- per month as against deposit of Rs.2.24 crores taken by the assessee and rent of Rs.23,000/- per month. On the basis of the said comparable case, the fair rent of the assessee's property was determined by the learned CIT(Appeals) at Rs.28,000/- per month for assessment years 1999-2000 to 2002-03 which, in our opinion, is in consonance with the ratio laid down by the full Bench of Hon 'ble Delhi High Court in the case of Moni Kumar Subba (supra). We, therefore, find no infirmity in the impugned orders of the learned CIT(Appeals) relying on the order of his predecessor dated 30-04-2007 to direct the AO to adopt the ALV of the assessee's property for assessment years 1999-2000 to 2002-03 on the basis of fair rent of Rs.28,000/- per month as against Rs.23,000/- shown by the assesses and Rs.2,50,000/- taken by the AO. The appeals of the Revenue for assessment years 1999-2000 to 2002-03 are accordingly dismissed.

In so far as assessment year 2005-06 is concerned, it is observed that the learned C/T (Appeals), however, has taken a different stand by directing the AO to determine theALVofthe assessee's property on the basis of rent ofKs. 15,000/~ per month actually received. As already held by us while disposing of the Revenue's appeals for assessment years 1999-2000 to 2002-03, the ALV of the asessee 's property was correctly determined by the learned CJT (Appeals) by taking fair rent of Rs.28,000/- per month on the basis of material gathered by the AO in the form of comparable instances of rent received for the similar property in the same locality. Following our decision rendered in assessment years 1999-2000 to 2002-03, we modify the impugned order of the learned CIT(Appeals) for assessment year 2005-06 and direct the AO to determine the ALV of the assessee's property by taking the fair rent at Rs.28,000/- per month. The appeal of the Revenue for assessment year 2005-06 is thus partly allowed." The Bombay High Court has in the case of the appellant himself on the same issue for the earlier A.Yrs 1999-2000 to 2005-06, held vide their order dated 22nd August 2014 as under: "All these appeals are filed by the Revenue. They are directed against an order of the Income Tax Appellate Tribunal. The Income Tax Appellate Shri Sudheer Omprakash Bahl Tribunal has held that the ratio of the Full Bench decision of the Delhi High Court in the case of Commissioner of Income Tax V/s Moni Kumar Subba and which is reported in (2011) 333 ITR 38 (Delhi) does not permit the revenue to reject the amount determined as rent or license fees by the assesse on mere doubt or suspicion. There has to be cogent and satisfactory material to indicate that the rent or fees determined by the parties are not indicative of the fair or market rent. The Annual Letting value has to be determined and decided only in such cases where there is established fraud, collusion or an attempt is made by the parties to inflate or deflate the rent because of relationship or such other consideration, otherwise the determination of the rent or fees between the lessor and the lessee cannot be said to be influenced by any exigencies aforesaid for the Income Tax Authorities to determine and decide the Annual Letting Value. In all these cases, the parties have fairly brought to our notice a judgment of this Court - - - • in Commissioner of Income Tax-12, Mumbai vs.Tip Top Typography Tax Appeal No. 1213 of 2011andconnected appeals] decided on 8thAugust, 2014, One of us (S.C.Dharmadhikari, J,) is a party to this judgment. We have followed the ratio of the Pull Bench of the Delhi High Court in the above case and respectfully concurred with it. In such circumstances and when he revenue was unable to produce any material so as to challenge the determination made by the parties, the approach of the Commissioner of Income tax and the Tribunal and to determine the annual letting value on the basis of valuation of Municipal Corporation cannot be termed as perverse or vitiated by any error of law apparent on the face of it. In fact, in some of the appeals, the Tribunal has determined the letting value at a rate more than the municipal valuation. In such circumstances, the quantum of rent determined can be safely tered as fair. The appeals are devoid of any merit as they do not raise any substantial question of law and they are accordingly dismissed. No costs." The appellant has actively agitated against the action of the AO to resort to the adoption of rateable value in place of the actual rent received by the appellant. He has cited the decision of Bombay High Court in Tip Top Typography to justify his stand. He has strongly contended that the ratio of the said case squarely applies to the facts of the present case of the appellant as per the unambiguous observations made by the Hon'ble Bombay High Court in his own case. On going through the order of the Bombay High Court in the assessee's own case, it is observed that while dismissing the appeal of the department against the addition to the rental income, the Bombay High Court has inter alia also referred to the judgment in the case of Tip Top Typographies with approval and has specifically stated that (the law) "does not permit the revenue to reject the amount determined as rent or license fees by the assessee on mere doubt or suspicion. There has to be cogent and satisfactory material to indicate that the rent or fees determined by the parties are not indicative of the fair or market rent. The Annual Letting value has to be determined and decided only in such cases where there is established fraudf collusion or an attempt is made by the parties to inflate or deflate the rent because of relationship or such other consideration, otherwise the determination of the rent or fees between the less or and the lessee cannot be said to be influenced by any exigencies Shri Sudheer Omprakash Bahl aforesaid for the Income Tax Authorities to determine and decide the Annual Letting Value." 3.5 After examining all aspects is seen that it cannot be denied that there is no relationship whatsoever between the Licensor and the Licensee, viz. the Induslnd Bank in the present case, nor is there any finding that there are any suspicious circumstances or any fraud or collusion surrounding the Leave & License arrangement entered into by the appellant. That being so, the case of Tip Top Typographies cited by the appellant's representative as well as of Moni Kumar Subba, and the ratio thereof cited approvingly by the Hon'ble High Court in the appellant's own case, covers the facts of the appellant's case. On the facts of the present case, the conditions precedent to resort to enquiry or adoption of the prevailing rateable value are absent. In view of the same, and in my considered opinion, the rent actually received by the appellant shall be taken to be the actual rent for tax purposes. Respectfully following the Hon’ble Bombay High Court in appellant own case order dtd. 22.08.2014, I am of the considered opinion that the estimation of rent done by the AO is not justifiable one.

In the result, appeal of the Revenue is dismissed.