JCIT, (OSD), CIR-8(1), KOLKATA, KOLKATA vs. SRI DEEPAK KHULLAR, KOLKATA

1. This appeal filed by the revenue is against the order of Ld. CIT(A)-3, Kolkata, dated 27.01.2016 for AY 2010-11.

The sole issue involved in this appeal of revenue is against the order of Ld. CIT(A) in deleting the addition of Rs.47,22,288/- on account of fair rental value of house property. For which, revenue has raised following two grounds: “1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.47,22,288/- which was based on due verification and estimation of fair rental value of house property. 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs.47,22,288/- overlooking the fact that the rental agreement entered in 2001 not having revised for the last nine years seems an arrangement with his own company to mitigate the tax in his own case.”

Brief facts of the case are that during the course of assessment proceedings, the AO found that the assessee earned rental income of Rs.3,15,792/- from letting out its property situated at 6, Hanger Ford Street, Kolkata-17 to M/s Samuel Frize & Co. Pvt. Ltd. The assessee is a director of M/s. Samuel Frize & Co. Pvt. Ltd. From the copies of the rent agreement, the AO found that the assessee has given total 5,248 sq. ft. area on rent. According to AO, assessee earned rental income of Rs.3,15,792/- per annum out of letting out total floor area of 5248 sq. ft. The rate of rental income earned is Rs.5/- per month per 2 Deepak Khullar, AY 2010-11 sq. ft. According to him, this is very low compared to the area and business activities going on in that area. The AO deputed an Inspector to verify the reasonable rent prevailing in that area and particularly in that building. After inspection, ITI reported as under: "As directed. by D.C.I.T. Circle-8, Kolkata I personally visited the address of Regency Building. 6- Hungerford Street, Kolkata - 17 in connection with scrutiny proceeding of Deepak Khullar [PAN: AFWPK0656D) for the A.Y 2010-11 to find out the reasonable expected rent of the premises. In compliance, I met with Mr. M. M. Varghesse Mgr. (Admn.) Federal Bank of India situated at 1st & 2nd floor of Regency Building and found that they have taken the office on lease initially for a period of 9 years from 2002-2011 which was again renewed in 2011 for a rent of 78 (approx.) per Sq.ft. from M/s. Paramount Tie up Pvt. Ltd. (Xerox copy of rent bill for the month of February.2013 enclosed ). I also met Mr. Debapriya Das, (Accountant) Mom Art Gallery and Mr. Vinay Dubey of Ideal Insurance whose office is situated at 3rd floor & 4th floor respectively of the said premises and found that approximate rent for the F.Y 2009-10 was Rs. 80 per sq.ft." According to AO from the above inspector’s report it is crystal clear that in the same building on the same floors Federal Bank of India has taken office premises on lease rent @ Rs.78/- per sq. ft. per month. Approximately, same rate of rent (Rs.80/- per sq. ft. per month) is being paid by other tenants i.e. Mom Art Galary and Ideal Insurance, in the same building. Therefore, the AO observed that from the above finding of ITI, it is conclusively proved that when the prevailing rate of rent is Rs.80/- per sq. ft. per month in that building itself, assessee is showing rent @ Rs.5/- per sq. ft. per month, which cannot be acceptable by any stretch of imagination. Therefore, the AO held that the assessee has entered into rent agreement with his related party and undervalued the reasonable rent of the let out property. In the light of above, the AO held expected rent of let out property @Rs.80/- per sq. ft. per month. At this rate, the fair rent of the property was calculated by AO at Rs.50,38,080/-. Therefore, the AO made addition of Rs.47,22,288/- on account of rental income under the head house property after allowing standard deduction @ 30%. Aggrieved, assessee preferred appeal before the Ld. CIT (A), who following the ITAT’s order in the case of Smt. Sarita Arora in ITA No. 118/Kol/2013 dated 16.12.2015 deleted the addition. Aggrieved, revenue is in appeal before us.

We have heard rival submissions and gone through the facts and circumstances of the case. At the time of hearing, the Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of ITAT in the case of DCIT Vs. Smt. Sarita Arora, ITA No. 118/Kol/2013, for AY 2009-10 dated 16.12.2015 and in the impugned order the Ld. CIT (A) has deleted the addition by following the aforesaid decision cited supra which need not be interfered with. On the other hand, the Ld. DR relied on the 3 Deepak Khullar, AY 2010-11 order of the AO. We find that the Tribunal vide para 7 of its order in the case of assessee’s sister wherein the sister also received rent from M/s. Samuel Frize & Co. Pvt. Ltd. which was disagreed by AO and similar addition on estimation was made by AO, which was later deleted by ld. CIT (A) which order of Ld. CIT (A) has been upheld by the Tribunal as under: “7. We have heard the Id. Representatives of both the sides and carefully considered the relevant material available on record and the facts relating to the issue on merits , in which the issue on this ground is whether the Assessing Officer considered the evidence placed before him during the assessment proceedings in right perspective or not. It appears from the record that the assessee produced all the evidences in reference to the income returned but the observations of the Assessing Officer regarding the agreements dated 30.03.1978, 11.08.2001 and 02.08.2008 were not registered, cannot be enforced in the relevant year under consideration, not stipulated any period of rent, in our opinion, is not justified. Further, the Assessing Officer observed that the rent has not been revised, the assessee is expected to get higher rent in the relevant year are all on assumptions and presumptions without there being any evidence to that effect. With reference to the report of the Income Tax Inspector that, as a dubious from the Assessing Officer's assessment order that the lettable rental value in similar area in financial year 2008-09 is a minimum of Rs.50/- per sq. ft., but, however, the Ld. CIT(Appeals) has rightly observed that the report of the Inspector in estimating the value cannot partake the assessment of an approved valuer, but for the reason of that the Income Tax Inspector is not technical person to submit valuation report. In our view, in absence of any evidence it is just improper to fix the rent on mere assumptions and presumptions, therefore, we confirm the order of the Id. CIT(Appeals) on this issue and dismiss the ground no. 1 raised by the revenue.” The Ld. CIT (A) for deleting the addition made by the AO, has taken into consideration the fact that the space and amenities given to Federal Bank and M/s. Samuel Frize & Co. Pvt. Ltd cannot be compared with each other and therefore, the Inspector’s report cannot be the basis to discard the rental agreement by assessee with M/s. Samuel Frize & Co. Pvt. Ltd and that the department has been consistently accepting the rent except this assessment year, therefore was not sustainable. We note the Ld. CIT (A) has relied on Tribunal’s order in assessee’s sister’s case, wherein also the AO has made similar addition based on ITI report which has been deleted by ld. CIT (A) and upheld by Tribunal. Since the facts and law are identical and in the absence of any contrary material brought on record by the revenue before us, we do not find any infirmity in the order of Ld. CIT(A) which is hereby upheld. This appeal of revenue is, therefore, dismissed.

In the result, appeal of revenue is dismissed. Order is pronounced in the open court on 9th May, 2018. Sd/- Sd/- (J. Sudhakar Reddy) (A. T. Varkey) Accountant Member Judicial Member Dated: 9th May, 2018 Jd.(Sr.P.S.)

Appellant – JCIT (OSD), circle-8(1), Kolkata. Respondent – Shri Deepak Khullar, 11, Dacres Lane, Kolkata-700069 2 3. The CIT(A) , Kolkata.