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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA
सुनवाई क� तार�ख / : 09.10.2017 Date of Hearing घोषणा क� तार�ख / : 01.01.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This is an appeal by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) dated 01.3.2017 and pertains to the assessment year 2012-13.
The grounds of appeal read as under:
(A.Y. 2012-13) Shri Suketu Shah vs. ITO 1. On facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the action of the learned Assessing Officer in holding that the Appellant's office premises at Nariman Point were not occupied by him for purposes of his business and that therefore, its notional rental income was chargeable to tax under the head 'income from house property'.
2. Without prejudice to the first ground above, the learned Commissioner also erred in confirming the action of the learned Assessing Officer in determining the annual letting value of the Nariman Point property @ Rs. 9,04,650 being standard rent calculated @ 8% of the investment value of the property instead of on 'municipal rateable value' basis as sought by the Appellant.
Further, the annual letting value calculated @ 8% basis is, in any case, excessive and deserves to be reduced in appeal.
3. On facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the action of the learned Assessing Officer in charging the Appellant to tax on 'notional rental' basis under the head 'income from house property' in respect of his Gamdevi shops, when at that time of the year under appeal, there were no customers forthcoming to take properties on rent in the locality. The Appellant submits that in these circumstances, the annual value of these properties ought to be taken at Nil on basis of 'real income' theory.
4. On facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in confirming the action of the learned Assessing Officer in charging the Appellant to tax on 'notional rental' basis under the head 'income from house property' for the full year in respect of his Gamdevi shops, even though the shops were acquired during year and not held by him for the full year.
Without prejudice to the first ground above, the learned Commissioner also erred in confirming the action of the learned Assessing Officer in determining the annual letting values of the Gamdevi shops @ Rs. 44,41,760 being standard rent calculated @ 8% of the investment values of the properties instead of on 'municipal rateable value' basis as sought by the Appellant. Further, the annual letting values calculated @ 8% basis are, in any case, excessive and deserve to be reduced in appeal.
(A.Y. 2012-13) Shri Suketu Shah vs. ITO 6. Both the learned Commissioner (Appeals) and the learned Assessing Officer erred in passing their respective orders without granting the Appellant an adequate opportunity of being heard.
At the outset, the ld. Counsel of the assessee submitted that he shall not be pressing ground nos. 1 and 3 and, hence, the same are dismissed as not pressed.
The first issue in the remaining grounds relate to the ld. Commissioner of Income Tax (Appeals)’s confirmation of the action of the Assessing Officer in determining the annual letting value of Nariman Point property @ Rs.9,04,650/- being standard rate calculated @ 8% of the annual value of the property instead of on municipal rateable value basis as sought out by the assessee. In this case, while computing the notional rent of the unaccounted property of the assessee, the Assessing Officer held as under:
3.8 In this case, the property under consideration is apparently not covered by the Rent Control Act and therefore, the municipal rateable value or the standard rent was not required to be adopted as the ALV of the property. Thus it was necessary to determine the fair rental value of the property in accordance wih the provisions of section 23(1)(a) of the I. T. Act, 1961. As per the provisions of section 23(1)(a), for the purpose of section 22, the annual value of any property shall be deemed to be the sum for which the property might reasonably be excepted to let from year to year. The word used in this section is ‘might’ and not ‘can’ or ‘is’. This implies that a notional income is to be gathered what a hypothetical tenant would pay, which is to be objectively ascertained on a reasonable basis irrespective of the fact that the property is not let out. During the course of assessment proceedings, the assessee was asked to submit the annual value of the property. As per the submission, the annual value of the properties were computed at Rs.4,19,370/-. The assessee has computed the annual value on basis of municipal rateable value. It has been held various Courts that where a property is let out or not let out, the determination of the ALV should be governed by the factors of the real market rent available either in the same building or in different building in the same
(A.Y. 2012-13) Shri Suketu Shah vs. ITO vicinity or the rent received from the sub-tenants by the main tenant. Therefore, the annual letting value determined by the assessee is not acceptable. It has been hled by the Hon’ble Allahabad High Court in the case of Smt. Radhadevi Dalmia reported in 125 ITR 134 and by the Hon’ble Gujarat High Court decision in the case of Sakarlal Balabhai and also the Hon'ble Supreme Court in the case of Mrs. Sheila Kaushish Vs CIT 131 ITR 435 (SC) that a percentage on the investment, which could be treated as a reasonable return for working the standard rent. Further the Murnbai ITAT in the case of JTO vs. Chem Mech (P) Ltd. (2002) 83 ITD 427 (Mum) and ACIT Vs Omprakash & Co. (2004) 87 TTJ 183 (Mum) followed the above decisions.
3.8 When the property is not covered by the Rent Control Act, the annual value can be determined by comparison of annual value fixed of the adjacent properties let out. In Bombay, it is the "Annual Ratable Value" as fixed by the Municipal Corporation Act which is taken as annual value as the same is based on the cost of construction of the building and other relevant cost including interest on amount borrowed for the construction of the property. At this juncture a reference is made lo (he decision of the Hon.'ble ITAT fvumbai in the case of ITO Vs Chem Mech (P) Ltd [77 TTJ 743]. Following the ratio laid down in the judgment, the standard rent of a property under the Bombay Rent Control Act is to be determined by taking interest rate of 8.5 per cent ON the total investment in the property being higher than the Municipal Valuation and the notional rent. It is perused from the details that the value of the properties are as under: 1] Office Premises at Tulsiani Chambers, Nariman Point, Mumbai 2] Shop Mo 4A and 4B, Gita Smruii Premises Cooperative Society Ltd., Pandita Ramabai Road, Gamdevi, Mumbai -400007. In the present case, the standard rent in Bombay is to be fixed at 8.5 per cent of the total investment as per the Bombay Rent Control Act, which is worked out as under: a) Office Premises at Nariman Point - Cost of investment Rs. 9,04,650 Rs.1,06,42,940 - therefore the annual letting value @8.5% b) Shop 4A and 4B at Gamdevi - cost of investment Rs. 44,41,760 Rs.5,22,56,000 - therefore annual Jetting value @8.5% Rs. 53,46,410 Less: Deduction u/s. 24(a) Rs.16,03,923 Rs.37,42,487
4. Upon the assessee’s appeal, the ld. Commissioner of Income Tax (Appeals) confirmed the Assessing Officer’s action.
(A.Y. 2012-13) Shri Suketu Shah vs. ITO 5. Against the above order, the assessee is in appeal before the ITAT.
I have heard both the counsels and perused the records. Both the counsels fairly agreed that the issue in this case can be decided on the basis of the Hon'ble jurisdictional High Court decision in the case of CIT vs. Tip Top Typography (in of 2011 and others dated 08.06.2014). In this case the Hon'ble jurisdictional High Court has expounded as under: As regards municipal valuation:
(i) We are not in agreement with the department that the municipal rateable value cannot be accepted as a bonafide 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;
(ii) The market rate in the locality is an approved method for determining the fair rental value but it is only when the AO 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. The municipal rateable value may not be binding on the AO but that is only in cases of afore referred nature. It is definitely a safe guide;
(iii) In the event 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 in Moni Kumar Subba 333 ITR 38 (Del)(FB), the AO 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 AO can make would be for ascertaining the (A.Y. 2012-13) Shri Suketu Shah vs. ITO 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 AO 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 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 AO 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 AO 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 AO he must, then, comply with the principles of fairness and justice and make the disclosure to the Assessee so as to obtain his view; 7. Accordingly, respectfully following the precedent as above, I remit the issue to the file of the Assessing Officer to determine the issue in dispute in accordance with the ratio emanating out of the decision of the Hon'ble jurisdictional High Court.
In ground no. 4, the assessee has agitated that the ld. Commissioner of Income Tax (Appeals) also erred in the action of the Assessing Officer in charging the assessee to tax on notional rental basis under the head income from house property for (A.Y. 2012-13) Shri Suketu Shah vs. ITO the full year instead of half year, even where the shops were acquired for ½ year and not held by him for the full year. Upon careful consideration, I find that the assessee’s submission is cogent on this issue. This issue also stands remitted to the file of the Assessing Officer. The notional rent has to be computed after the concerned premises were acquired by the assessee. The Assessing Officer shall make the computation accordingly.