NAROTAM SATYANARAYAN SEKHSARIA,MUMBAI vs. DCIT CIR 3(1), MUMBAI

Briefly stated the assessee is Resident Individual who filed its Return of Income for impugned AY on 29/07/2009 declaring total income of Rs.7,08,39,800/- which was picked up for scrutiny assessment u/s. 143(3) vide Assessing Officer [AO] order dated 15/12/2011 wherein the total income was determined at Rs.7,17,00,410/- after making certain adjustments and disallowances. AO noted that the assessee was in occupation of three residential properties which called for addition of house property income from two properties on ‘deemed to be let out’ basis as per the provisions of Section 23. The assessee explained that the municipal ‘Annual Letting Value’ [ALV] of the first property situated at ‘Lonavala’ area measuring approx. 4296 Sq. Ft. was Rs.35,499/- and the same should be taken as the fair rental value of the property. The second property was situated at ‘Chirawa’ and stated to be an old ancestral property in which assessee hold one half share. As per assessee’s contention, the same was lying vacant and could not be tenanted due to lack of demand and hence, keeping in view the prevalent market rate, the same could not fetch an annual rent of more than Rs.5,000/- per annum. Rejecting the contentions of the assessee, the AO worked out the ALV of the two properties at Rs.11,08,278/- & Rs.25,000/- and added the same to the income of the assessee after providing for the statutory deductions of 30%. Aggrieved, the assessee carried the matter before CIT(A) but remained unsuccessful vide order dated 08/05/2012. CIT(A) noted that the AO arrived at the ALV of the first property on the basis of data obtained from one website namely magicbricks.com and the same was Narotam Satyanarayan Seksharia proper, justified and hence, did not call for any interference. Aggrieved, the assessee is in appeal before us.

The Ld. Counsel for Assessee [AR], while placing reliance on the judgment of Hon’ble Bombay High Court in CIT Vs. Tip Top Typography [368 ITR 330], contended that the method adopted by AO to arrive at ALV of the first property was not proper and reasonable. The rates quoted on the website were subject to heavy negotiations and rentals of the property was dependent upon number of factors such as location of the property, construction quality, proximity to various facilities etc. and hence, that date provided by the website was not true measure of ALV of the property. Per contra, Ld. DR supported the stand taken by the lower authorities.

We have heard the rival contentions and perused the material available on record including cited case law. The only question is to be decided is the fair rental value of the two properties in terms of section 23(1)(a). We find strength in the arguments of Ld. AR that the method adopted by AO was not true determinative to arrive at fair rental value of the property in terms of Section 23(1)(a) as the rental value of the property would be dependent on numerous factors and no single formula could be applied to arrive at the fair rental value of the property. The Hon’ble Bombay High court in the cited case law have clearly established that the AO must have cogent and satisfactory material in his hand to arrive at true rental value. He should not make guess work or act on conjecture or surmises. There must be definite positive material to indicate that the parties have suppressed the prevailing market rate. The AO can make comparative study by identifying the similar transactions. There was no magic formula and everything depends upon the facts and circumstances of each case. If these observations are applied to the inquiries made by the AO in the present case, we find that the same was a mere guess work and not a true or correct estimation. No cogent material was placed on record and no comparative study was made to arrive at ALV of the property. The Ld. AR fairly conceded that, the ALV of the property may be taken on