M/S SASI ENTERPRISES,CHENNAI vs. ACIT, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – I, Chennai, dated 10.04.2008 and pertains to assessment year 2000-01.

Shri G. Seetharaman, the Ld. representative for the assessee, submitted that the first issue arises for consideration is addition of `2,29,500/- with regard to income from house property at Raja Nagar, Neelankarai. According to the Ld. representative, the house property was let out during assessment year 1996-97 for `3,30,000/-. The Assessing Officer presumed that there would be enhancement of 20% in the annual letting value and the estimated the income at `3,96,000/-. In fact, the assessee let out the property for `90,000/- and after reducing 1/3rd standard deduction provided under the Income-tax Act, declared a sum of `67,500/-. The Ld. representative further submitted that for assessment year 1997-98, the property was not let out and the same was vacant. Similarly, for assessment years 1998-99 and 1999-2000, the property was vacant. For assessment year 2000-01, it was let out for `90,000/-.

On the contrary, Shri T.R. Senthil Kumar, Ld. Sr. Standing Counsel, submitted that the assessee declared rental income in respect of the house property at Raja Nagar, Neelankarai, at `90,000/-. The Assessing Officer found that during the assessment year 1996-97, the very same property was let out for `3,30,000/-.

In the case before us, according to the Sr. Standing Counsel, the assessee appears to have claimed that the property was under attachment and nobody was willing to take the same on rent. According to the Ld. Sr. Standing Counsel, attachment of property cannot be an impediment for letting out of the property. If any person claims that attachment is an impediment for letting out of property, then the provisions of Income-tax Act cannot be implemented. According to the Ld. Sr. Standing Counsel, the Assessing Officer was expected to estimate the rent receivable if it was not let out and if it is let out, the Assessing Officer was expected to estimate the reasonable rent from year to year. In this case, the Assessing Officer on the basis of rental value declared by the assessee for 1996-97, estimated the same by taking an increase of 20%. Therefore, according to the Ld. Sr. Standing Counsel, the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. The Ld. Sr. Standing Counsel placed his reliance on the judgment of Madras High Court in N. Nataraj v. DCIT (2004) 266 ITR 277.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee returned a rental income of `90,000/- during the year under consideration. The Assessing Officer found that for the assessment year 1996-97, the assessee has returned rental income of `3,30,000/- for the very same property, therefore, `90,000/- declared by the assessee was very low. Accordingly, the Assessing Officer estimated 20% increase of annual rental value and determined the same at `3,96,000/-. After giving 1/3rd allowance for repair and maintenance, he estimated the same at `2,97,000/-.

For the assessment year under consideration, i.e. for 2000- 01, the assessee claims that it was let out for `90,000/-. The Assessing Officer has no material to suggest that the assessee has let out the property for more than `90,000/-. On presumption that the property would have fetched more than `90,000/- since the assessee has let out the same for `3,30,000/- during assessment year 1996-97, the Assessing Officer estimated value at `3,96,000/- for the year under consideration. As observed earlier, if the contention of the Assessing Officer that the rent receivable would be `3,96,000/- for the assessment year 2000-01, then it is not known how the very same Assessing Officer accepted the rental value at `2,49,000/- for the assessment year 2001-02. Therefore, it is obvious that the rental value is not constant at Raja Nagar, Neelankarai.

The assessee now claims before this Tribunal that the property was attached, therefore, it could not be let out. When the property was under attachment, this Tribunal is of the considered opinion that there was legal impediment in letting out the property. Therefore, naturally the attachment has to be taken into consideration while estimating the annual value of the property. We have carefully gone through the provisions of Section 23 of the Act.

Now coming to the second part of Section 23 of the Act, when the property was let out, the actual rent received or receivable by the assessee has to be taken into consideration. In the case before us, the assessee has declared actual rent of `90,000/- as income. After reducing the standard deduction provided under the provisions of Income-tax Act, the assessee admittedly disclosed `67,500/-. Therefore, this Tribunal is of the considered opinion that when the assessee actually disclosed the rent received, the Assessing Officer cannot estimate the same on the ground that the rent would be more than the rent declared for the assessment year 1996-97, especially, when the Assessing Officer himself accepted for lower rent during the assessment year 2001-02.

We have carefully gone through the judgment of Madras High Court in N. Nataraj (supra). In the case before Madras High Court, the building belonging to the assessee-HUF was leased out to a partnership firm. The firm in turn entered into several lease agreements with different tenants for letting out the property. The rent received by the firm from its tenants was three times more than the rent stipulated in the lease agreements between the assessee and the firm. The Revenue contended before the authorities that the amount received by the firm from its tenants was the amount reasonably expected to receive from letting out of the property. The High Court found that the rent realized by the firm from the tenants was the figure which could be adopted by the Assessing Officer as sum, which the property could reasonably be expected to be let from year to year. In the case before us, it is nobody’s case that the property was leased out to other party and the other party has let out the property to several tenants. The property remained vacant for several years and the assessee let out the property by itself directly and received a sum of `90,000/-. Moreover, if the attachment of the house property was taken into consideration, it cannot be said that the property would be let out for more than `90,000/-. Therefore, this Tribunal is of the considered opinion that the judgment of Madras High Court in N. Nataraj (supra) is not applicable to the facts of the case. In those factual circumstances, the addition made by the Assessing Officer to the extent of `2,29,500/- is not justified. Accordingly, the orders of both the authorities below are set aside and the addition made by the Assessing Officer to the extent of `2,29,500/- is deleted.

The next ground of appeal is with regard to rental income from property at No.14, Gems Court, Khader Nawaz Khan Road.

Shri G. Seetharaman, the Ld. representative for the assessee, submitted that the assessee owned shop at No.8 and 9 at Gems Court, No.14, Khader Nawaz Khan Road. The assessee has disclosed `1,32,000/- as rental income from this property.

Referring to Form 16A issued by M/s Allied Ceramics Corporation, the Ld. representative for the assessee, submitted that `29,040/- was deducted from rental income in respect of letting out shop no.8 and 9 at No.14, Khader Nawaz Khan Road. The CIT(Appeals), according to the Ld. representative, went one step further and found that in the confirmation letter issued by M/s Allied Ceramics Corporation, at the bottom of the letter, the door number was mentioned as 25, Khader Nawaz Khan Road, Nungambakkam, Chennai-6. The fact that the assessee received a sum of `1,32,000/- as rental income from M/s Allied Ceremics Corporation is not in dispute. The Assessing Officer and the CIT(Appeals) are confused themselves with regard to door number mentioned in the letter of the tenant. According to the Ld. representative, the assessee is the owner of shop no.8 and 9 at Gems Court, door No.14, Khader Nawaz Khan Road, Chennai-6. The tenant has confirmed the payment of rent for shop no.8 and 9 at Gems Court.

We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims that it is the owner of shop no.8 and 9, Gems Court at Door No.14, Khader Nawaz Khan Road, Chennai-6. A perusal of TDS certificate available at page 11 of the paper-book shows that M/s Allied Ceramics Corporation issued the TDS certificate for deduction of tax. By taking advantage of the number given as 14, Gems Court, the Revenue now claims that shop No.14 was let out by the assessee and income from the said shop no.14 was not disclosed.

In the State of Tamil Nadu, a house property or commercial property was identified with door number allotted by local body, namely, Corporation of Chennai. Therefore, this Tribunal is of the considered opinion that the door number allotted by Corporation of Chennai has to be given primary importance while locating the property. After going through the material available on record, we find that Gems Court is located at door No.14, Khader Nawaz Khan Road, Chennai-6. The property owned by the assessee is at shop no.8 and 9, Gems Court, Door No.14, Khader Nawaz Khan Road.

The next issue arises for consideration is addition of `50,789/- being the expenses relating to pre-construction period.

Shri G. Seetharaman, the Ld. representative for the assessee, submitted that the assessee claimed interest of `2,53,944/- relating to pre-construction period. The assessee claimed 1/5th of interest payment to the extent of `50,789/- during the year under consideration. The Assessing Officer disallowed the claim of the assessee on the ground that the assessee has not produced any documentary evidence for payment of interest. Referring to the earlier order of the Assessing Officer, the Ld. representative submitted that for earlier four assessment years, the Assessing Officer allowed the claim of the assessee. According to the Ld. representative, this being the fifth year, the Assessing Officer cannot take different stand. When the assessee paid interest on the borrowed funds for construction of the property, the Assessing Officer cannot say that for the 5th year there was no documentary evidence. Therefore, according to the Ld. representative, the addition of `50,789/- made by the Assessing Officer is not justified.

On the contrary, Shri T.R. Senthil Kumar, Ld. Sr. Standing Counsel for the Revenue, submitted that the assessee has not produced any material for payment of interest. In the absence of any evidence, the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer.

We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, for the earlier four assessment years, the Assessing Officer accepted the claim of the assessee and allowed the interest relating to pre- construction period. Therefore, as rightly submitted by the Ld. representative for the assessee, the Assessing Officer had no reason to depart from earlier years’ finding. Since the borrowal of loan for earlier four assessment years is accepted by the Assessing Officer, the CIT(Appeals) is not justified in doubting the borrowal of loan. Therefore, the addition made by the Assessing Officer to the extent of `50,789/- is not justified. Accordingly, the orders of the authorities below are set aside and the addition of `50,789/- is deleted.

In the result, the appeal of the assessee is allowed.