DCIT 29(1), MUMBAI vs. DINESH M SHAH, MUMBAI

The Ld. DR supporting the orders of the assessing officer submits that salaries increased manyfold during this assessment year when compared to the previous year and there was no explanation by the assessee as to why there was such an increase during this assessment year when there was no increase in profits. Therefore, Ld. DR submits that the assessing officer is justified in restricting the salary expenditure to the amount of expenditure incurred on salaries in the previous assessment year.

The ld. Counsel for the assessee strongly supported the orders of the ld. CIT (Appeals) in deleting the disallowance.

We have heard the rival submissions, perused the orders of the authorities below. The assessing officer restricted the salary expenditure during this assessment year observing that there is steep increase in salary expenditure during this year when compared to the last year, however, there is decrease in profits. He also observed that there was no explanation from the assessee why there was steep increase in salaries. Therefore, he restricted the salary expenditure only to the extent of the salary which was debited in the preceding assessment year i.e. 2009-10. The ld. CIT (Appeals) considering the 4 Shri Dinesh M Shah submissions of the assessee and the findings of the assessing officer deleted the addition observing that assessing officer has not doubted the fact of payment of salary and that there was no allegation that these employees are relatives of assessee or they are covered under 40A(2)(b) of the Act, the assessing officer has only disallowed these expenses observing that there was no commensurate increase in turnover. Before the ld. CIT (Appeals), the assessee relied on the decision of Supreme Court in the case of CIT Vs. Walchand and Co.(P) Ltd. [65 ITR 381] and submitted that the Hon’ble Supreme Court held that the rule that increased remuneration can only be justified if there is corresponding increase in the profits of the employer was erroneous. It is the finding of the ld. CIT (Appeals) that the assessee has demonstrated that these expenses were actually incurred which are evidenced from the bank statement and the confirmations from the employees and even the assessing officer has not doubted the fact of incurring of expenses. In the circumstances, we do not see any valid reason to disallow the said expenses. We agree with the view of the ld. CIT (Appeals). This ground of revenue is rejected.

Coming to the ground nos. 2 and 3 relating to the assessability of rental income, the ld. Counsel at the outset submits that the Co-ordinate bench of the Tribunal in dated 22.05.2013 for the assessment year 2008-09 held that the income from letting out of the properties was held to be assessed under the head income from house property as against the assessing officer treating the same under the head income from other sources. A copy of the order is placed on record.

On reading of the Co-ordinate bench decision, we find that the issue has been considered by the tribunal in the assessment year 2008-09 and it was held that lease rent in respect of the property situated in Village Kolkhe, Taluk Panvel, District Raigad (within the limits of gram panchayat Kolkhe) should be assessed under the head Income from House Property, observing as under : “2.4 We have heard the rival submissions and perused the material on record. It is observed that form the copy of relevant rent agreement, that only two plot nos. reflected in 10th Schedule and 11th Schedule are having RCC structure. The assessee along with others thus has become co-owners of a bigger piece of land which is in fact by joining all these plots which all are next to each other. The assessee has purchased along with others the non agricultural plots from various different parties. Out of these few are only plots whereas two plots are with RCC structure on the same. The details of these schedules i.e. 10th and 11th forming part of the lease rent agreement are given as under : THE TENTH SCHEDULE HEREINABOVE REFERRED TO PVL3-05344-2006 1) ALL that piece or parcel of Non-agricultural land or grounds situated lying and being village-Kolkhe, Tal. Panvel, Dist. Raigad within the limits of Grampanchayat Kolkhe, Panchayat Samiti Panvel as follows: Gut/Survey No Area Assessment H A P Rs. Ps 94/1D NA Old Survey 94/1B(2) 0 94 1 188 20 Including RCC, structure ground + first floor Bungalow half constructed of 200 Sq.mts, AND BOUNDED ON FOUR SIDES AS FOLLOWS: EAST Gut No. 94/I Boundary WEST Gut No. 95/I Boundary SOUTH Gut No. 94/I Boundary NORTH National Highway (N.H.48)

The next ground of appeal is in respect of restricting the notional income from house properties on the unoccupied house properties to Rs.5,45,760/- as against Rs.20,65,000/- assessed by the assessing officer. The assessing officer while completing the assessment estimated the rental value in respect of the vacant buildings estimating the rental value at Rs.29,50,000/- before allowing deduction u/s 24(a) and after deduction arrived the rental value at Rs.20,65,000/-. It appears that the estimation was made by the assessing officer looking at the location and area of the property. On appeal, the ld. CIT (Appeals) estimated the rental value of the vacant properties based on the actual rent received by the assessee during the assessment year 2015-16 from such properties. He arrived at the rental value from such properties for the current assessment year at Rs.7,79,658/- before allowing deduction u/s 24(1) and rental value at Rs.5,45,760/- after allowing the deduction.

The ld. DR supported the orders of the assessing officer and the ld. counsel for the assessee strongly placed reliance on the ld. CIT (Appeals) order. The counsel for the assessee further submitted that the assessing officer has estimated the rental value without any basis. He submits that no comparable cases were also brought on record by the assessing officer and therefore the estimation of the assessing officer is not scientific.

We have heard the rival submissions, perused the orders of the authorities below. From the perusal of the assessment order, we find that the assessing officer said to have estimated the rental values for the vacant properties looking at the location and area of the property. However, assessing officer did not cite any instances of similar properties deriving rent where the rental income is similar to the estimated value in respect of the properties of the assessee. We find that the ld. CIT (Appeals) has estimated the rental value of the current assessment year based on actual rent received by the assessee during the assessment year 2015-16. The ld. CIT (Appeals) has taken similar values of rental income of the assessment year 2015-16 for the current assessment year i.e.2010-11 and arrived at the rental value at Rs.7,79,658/- which in our opinion is reasonable and has some basis. Therefore, we sustain the valuation arrived at by the ld. CIT(Appeals). The grounds raised by the revenue on this issue are rejected.

The last ground of revenue’s appeal is with regard to deletion of notional interest from security deposit while computing the rental income. The 9 Shri Dinesh M Shah Assessing Officer noticed that the assessee has received Rs.72,00,000/- as interest free security deposit from letting out of the properties and therefore the assessing officer added Rs.7,20,000/- as notional interest from security deposit along with rental value and assessed accordingly. On appeal, the ld. CIT (Appeals) allowed the claim of the assessee holding that no addition can be made to the annual value on account of notional interest on interest free security deposit. While holding so, the ld. CIT (Appeals) considered the decisions of the jurisdictional High Court in the case of CIT Vs Tip Top Typography (2014) 48 taxmann.com 191(Bom.) and CIT v JK Investors (Bombay) Ltd (2000) 248 ITR 723 (Bom.)

The ld. DR vehemently supported the orders of the assessing officer and the counsel for the assessee supported the orders of the ld. CIT (Appeals) and also placed reliance on above decisions of the jurisdictional high court.

We have heard the rival submissions, perused the orders of the authorities below and find that this aspect of the matter has been considered by the ld. CIT (Appeals) and deleted the addition made towards notional interest while computing Annual Letting Value observing as under : “9.1 During the course of appellate proceedings, the Authorised Representative relied on the following case laws wherein it has been held that no addition can be made to the annual value on the basis of notional interest on interest free security deposit: i) CIT v. Tip Top Typography (2014) 48 taxmann.com 191(Bom.) ii) CIT v. Moni Kumar Subba [2011] 10 taxmann.com 195(Delhi)(FB) iii) CIT Vs Satya Co. Ltd (1994) 75 Taxman 193 (Cal.) iv) CIT v J K Investors (Bombay) Ltd (2000) 248 ITR 723 (Bom.)

In the result, appeal of the revenue is dismissed.