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Revenue by : Shri Suman Kumar (DR) Assessee by : None Date of hearing : 12.04.2017 Date of Pronouncement : 26.05.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER:
1. 1. These two appeal by Revenue under section 253 of the Income-tax Act (the Act) are directed against the order of ld. CIT(A)-27, Mumbai dated 31.10.2013 & 07.10.2013 for Assessment Year 2009-10 & 2010-11 respectively.
2. First we shall take appeal . The Revenue has filed this appeal against the deletion of penalty levied u/s 271(1)(c) of the Act. Though the Revenue has raised as many as four grounds of appeal
. However, as per our considered view the only substantial ground of appeal is whether the ld. CIT(A) erred in deleting the penalty levied u/s 271(1)(c) of the Act.
3. Brief facts of the case are that the assessee filed return of income for relevant AY on 23.09.2009 declaring loss of Rs. 2,73,92,317/-. The assessment was completed u/s 143(3) of the Act on 26.12.2011. The Assessing Officer (AO) while passing the assessment order, made the addition of Rs. 3,91,307/- on income from House Property. No appeal was filed by assessee against the additions in the assessment & 333/M/2014- Smt. Muktaben G. Kakadia order. The AO initiated the penalty on account of addition of notional rent as income from House Property of Rs. 3,91,307/-. Notice u/s 274 r.w.s. 271(1)(c) dated 26.12.2011 was served upon the assessee. Assessee filed her reply dated 08.05.2012 on 22.05.2012. In the reply, the assessee contended that the assessee voluntary offered notional income on House Property. There was no concealment on the part of assessee and no tax payable on the aforesaid assessed income. The reply of assessee was not accepted by AO. The AO hold that, in case the assessment was not selected for scrutiny, the income not offered by the assessee on the House Property would have escaped from the assessment. It was the duty of assessee to disclose true amount of her total income in accordance with the provisions of the Act. The AO levied the penalty @ 100% on the amount of tax sought to be evaded. The AO worked out the penalty of Rs. 1,33,006/-. On appeal by assessee before the ld. CIT(A), the penalty was deleted. Thus, aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.
4. The case fixed on 12.04.2017, none appeared on behalf of assessee despite repeated calls and pass over. We left no option except to hear the submission of ld. DR for the Revenue and to rely upon the material available on record. The ld. DR for the Revenue argued that the assessee concealed her income by not offering the income from House Property. It was further argued that had the return of income was not selected for scrutiny, the assessee would have succeeded in concealing the income. It was further argued that the contention put forth on behalf of assessee before the ld. CIT(A) that there was any rejection of bonafide claim made by assessee during the assessment proceeding was not tenable. The assessee actively concealed the income and it was a fit case for levy of penalty and the finding of the ld CIT(A) are liable to be reversed.
We have considered the contention of ld. DR for the Revenue and perused the material available on record. During the assessment, the AO noticed that the assessee is having a number of flats and shops on different locations and made the investment in the flats and shops. The assessee has shown investment in properties at Rs. 23,11,41,247/-. The assessee has offered Income from House Property of & 333/M/2014- Smt. Muktaben G. Kakadia
Rs. 11,01,450/- only. The AO asked the assessee to furnish the detail of the property let out and deemed let out along with the computation of notional income. The assessee submitted details of property. On the basis of the details the notional income from house property was computed @ 8.55% of total investment in these properties. The AO determined the rental income on the basis of detailed provided by assessee. The notional income of House Property was determined at Rs. 5,59,010/-. The AO after allowing deduction u/s 24(a) added the income of Rs. 3,91,307/-. The AO issued notice for levy of penalty under section 274rws 271(1)(c). In the reply of notice, the assessee contended that the assessee voluntary offered the notional income. We have seen that he AO worked out the notional rental income during the assessment on the basis of estimated deemed income from ‘house property’ and added the same in the income of the assessee. The assessee has not filed any appeal against the addition made by AO. The Hon’ble Bombay High Court in DIT Vs Administrator of Late Mr. F.E. Dinshaw (2013) Taxman.com 95(Bom) held that if the claim made by the assessee in the return of income, which was rejected by revenue, it would not amount to furnishing of inaccurate particulars or concealment of income. The ld CIT(A) passed the order after considering the decision in DIT Vs Administrator of Late Mr. F.E. Dinshaw (supra). Considering the above factual and legal position we do not find any reason to interfere in the order of ld CIT(A). Hence, we do not find any merit in the grounds of appeal filed by the revenue.
6. In the result, appeal of the Revenue for AY 2009-10 is dismissed. for AY 2010-11
7. The Revenue has raised the following Grounds of appeal: 1. "Whether on the facts and circumstances and in law, the Ld. CIT (A) was correct in holding the assessee was eligible for Municipal Ratable Value even though the assessee has NOT offered the notional income on deemed let out property u/s 23(1) of the total investment made to 2. "Whether on the facts and circumstances and in law, the Ld. CIT (A) was correct in holding the assessee eligible for Municipal Ratable Value even though the assessee has NEVER offered the notional income on deemed let out property and Assessing Officer computed notional rent @ 8.50% of the total investment made to acquire such residential and commercial properties in order to bring the same under & 333/M/2014- Smt. Muktaben G. Kakadia the head Income from House Property and allowed mandatory deduction u/s 24(a) to meet the both the ends of justice?"
Brief facts of the case are that during the relevant AY, the assessee filed return of income on 07.10.2010 declaring total income of Rs. 21,66,870/-. The assessment was completed u/s 143(3) of the Act on 31.12.2012. The AO while making the assessment noticed that assessee is having 21 Flats and Shops in different locations and made investment in Flats and Shops at Rs. 29,48,33,833/-. The assessee was asked to furnish the details of premises let out and deemed let out. The assessee furnished the details of various properties as mentioned in para 3 of the assessment order. The AO further noticed that assessee has offered Income from House Property from six Flats and Ships only at Rs. 17,11,300/- and remaining properties are either shown under construction or possession is not taken. The AO further observed that Flat/property shown at Serial No. 12 to 15 in para 3 of its order was ready for possession and total investment made in these properties were Rs. 2,33,27,551/-. On the basis of investment, the AO computed the notional rental income @ 8.50% of total investment. The AO worked out the notional rent of Rs. 13,87,989/- and after giving deduction u/s 24(a), the addition of Rs. 13,87,989/- under the head “Income from House Property” was added in the total income of assessee. Aggrieved by the order of AO, the assessee filed appeal before the ld. CIT(A). The ld. CIT(A) directed the AO to verify the municipal ratable value of the disputed property and modify the order accordingly. Aggrieved by the order of AO, the Revenue has filed the present appeal before us.
The appeal came up for hearing on 12.04.2017, none-appeared on behalf of assessee despite the service of notice. This appeal was fixed along with the appeal . As none appeared on behalf of assessee, we left no option except to hear the submission of ld. DR for the Revenue and to proceed with on the basis of material available on record. Ld. DR for the Revenue argued that the ld. CIT(A) was not correct in giving direction to the AO that assessee was eligible for municipal ratable value. In fact, the assessee never offered the notional income on deemed let out of the property u/s 23(1) of the Act on total investment 4 & 333/M/2014- Smt. Muktaben G. Kakadia made to acquire such residential and commercial properties. The assessee never offered notional income on deemed let out of the property. The AO computed the notional rent @ 8.50% of total investment and allowed the allowable deduction u/s 24(a) of the Act. Ld. DR for the Revenue further submitted that the order of AO was quite reasonable. It was also argued that the similar disallowance was made against the assessee in earlier years but no appeal was filed by assessee.
We have considered the submission of ld. DR for the Revenue and perused the material available on record. During the assessment proceeding, the assessee furnished the details of following properties:
Sr Name of the property Value Remarks No. 1 Flat at Tahnee Height : Joint with G.I. 21683500 Self Occupied Kakadia 2 Flat at Kheni Tower 108668790 No Possession 3 Flat with Worli (K. Raheja) 24483699 Interior work in progress 4 Flat at Worli (Shri Ram Mill) 35856128 Advance paid possession not received 5 Aamby Valley Ltd, Pune 17152813 Advance paid Construction to start 6 Lonavala Plot : Joint with G.L.Kakadia 3200000 Construction not started 7 Kamla Business Avenue, Andheri 31613446 Agreement made under construction 8 Chennai showroom 100000 Advance paid No agreement. No possession 9 Kochi Showroom (Cochin Showroom) 5659100 Advance paid No agreement. No possession 10 Ludhiana Showroom : Joint with G.I. 7251200 Advance paid No Kakadia agreement. No possession 11 Thane Showroom : Joint with G.I. 2015032 Agreement made Under Kakadia construction 12 Kandivali Shop (Rahuuleela 3536077 Vacant Showroom) Vacant 13 Flat with worli (Harmony) 16296250 Vacant 14 Flat at (Tulsi Tower) 881100 Vacant 15 Flat at worli (Amar Nagar) 2614124 11. On the basis of information provided by assessee, the AO noticed that the property mentioned at Serial No. 12 to 15 are ready for possession and on the basis of investment made in those properties, the AO worked out the notional & 333/M/2014- Smt. Muktaben G. Kakadia rental income. On appeal before the ld. CIT(A), the ld. CIT(A) after considering the contention of assessee and referring various decision relied before him directed the AO to verify the municipal ratable value in respect of the properties and modify the order accordingly. The Hon’ble Bombay High Court in CIT vs. Tip Top Typography 368 ITR 330 while deciding the issue relating to fair rental value a prescribed u/s 23(1)(a) held as under:
“ i) We are not in agreement with the department that the municipal ratable 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 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 there from 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 & 333/M/2014- Smt. Muktaben G. Kakadia 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; (iv) Notional rent on the security deposit cannot be taken into account for the determination of the annual value. If the transaction itself does not reflect any of the afore stated aspects, then, merely because a security deposit which is refundable and interest free has been obtained, the AO should not presume that this sum or the interest derived there from at Bank rate is the income of the assessee till the determination or conclusion of the transaction. The AO ought to be aware of several aspects and matters involved in such transactions. It is not necessary that if the license is for three years that it will operative and continuing till the end. There are terms and conditions on which the leave and license agreement is executed by parties. These terms and conditions are willingly accepted. They enable the license to be determined even before the stated period expires. Equally, the licensee can opt out of the deal. A leave and license does not create any interest in the property. Therefore, it is not as if the security deposit being made, it will be necessarily refundable after the third year and not otherwise. Everything depends upon the facts and circumstances in each case and the nature of the deal or transaction. These are not matters which abide by any fixed formula and which can be universally applied. Today, it may be commercially unviable to enter into a lease and, therefore, this mode of inducting a ‘third party’ in the premises is adopted. This may not be the trend tomorrow. Therefore, we do not wish to conclude the matter by evolving any rigid test; (v) As regards properties covered by rent control legislation, the AO cannot brush aside the rent control legislation. The AO has to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. The AO either must undertake the exercise to fix the standard rent himself and in terms of the Maharashtra Rent Control Act, 1999 if the same is applicable or leave the parties to have it determined by the Court or Tribunal under that Act.”
We have noticed that ld. CIT(A) passed the order on 07.10.2013 and the decision of Hon’ble jurisdictional High Court is of subsequent date (dated 08.08.2014). Thus, considering the decision of jurisdictional High Court, we modify the order of ld. CIT(A) and direct the AO to assess the rental income of the properties in accordance with the decision of jurisdictional High Court in Tip Top Typography. & 333/M/2014- Smt. Muktaben G. Kakadia