VIJAY NARANJI KATARI A,MUMBAI vs. ITO 13(1)(3), MUMBAI

आदेश / O R D E R

Per Sandeep Gosain, Judicial Member:

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO “1. (a) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of Rs.25.200/- assessed as property income by estimating income of flat at Lonavala at Rs.36,000/-. (b) The learned assessing officer has erred in estimating the ratable value at Rs.36,000/- without any details which is arbitrary and hence the estimate made is bad in law and it should be deleted. (c) The appellant prays that, addition of Rs.25,200/- made be deleted. Without prejudice, the addition being made on adhoc basis and it should be deleted. 2. (a) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the addition of Rs.1,57,500/-- as income from Vijay Guest House. The appellant prays that, estimate made be deleted. (b) The learned assessing officer and the CIT(A) has estimated income from the Guest House, which is contrary to the facts and evidence on record and hence it should be deleted. (c) The learned CIT(A) erred in observing that, the appellant has not given details and evidence. The learned assessing officer and the CIT(A) erred in estimating occupancy rate and charges per day without any details being brought on record which is based on conjectures and being arbitrary the same should be deleted. (d) The appellant prays that, the addition of Rs.1,57,500/- be deleted. Without prejudice, the estimate of income being on higher side it be reduced. 3. (a) On the facts and in the circumstances of the case, the learned CIT(A) erred in making addition uls.l4A of Rs.l,56,763/- and CIT(A) erred in confirming the same, which addition be deleted. (b) The learned assessing officer, failed to appreciate that, the provisions of section 14A are not attracted and the addition made be deleted. The appellant prays that, the addition of Rs.l,56,763/- be deleted. Without prejudice, the addition be reduced.”

Ground No.1

“4.3 Decision:- I have considered the facts of the case and the submissions made by the assessee. The Assessing Officer has estimated the annual let out value of the property located at Bangroli village, Maval Taluka, Lonavala District. It appears, the assessee has not declared any rental income from this property. The Assessing Officer, after considering reply submitted by the assessee during the assessment proceedings has estimated the property's ratable value at Rs. 36,000/- p.a. He has also allowed the standard deduction @ 30% on this amount. The assessee during the appellate proceedings has stated that the property could not be let out during the year and it was lying vacant. He further submitted that the municipal taxes paid on this property were only Rs. 3,050/- p.a. Considering the municipal taxes paid at 1j3rd of the total rental income earned during the year the rent that would have been received works out to Rs. 9,150/- and submitted that the Assessing Officer had taken unreasonably high value while estimating the property income. It is seen from the facts on record that the assessee relied only on the municipal taxes paid as basis for estimation of rental income. This .cannot be a measure to estimate ALV of the property, since, for the purpose of valuation of the property tax the assessee ought to have given the monthly/annual rental income from the said property. It is not on record what has been submitted by the assessee to the municipal authorities for property tax valuation. In the absence of this factual information, besides as the assessee is also not keen to produce any other

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO supporting documents, it is held that the ALV estimated by the Assessing Officer cannot be disturbed and, therefore, the same is confirmed. The ground of appeal of the assessee is dismissed.” 6.1 After hearing ld. DR present in the court and after perusal of documents as as well as orders passed by lower authorities we found that CIT(A) has passed a detailed order thereby mentioned that the assessee had relied only on the Municipal taxes paid as basis for estimation of rental value and since the payment of Municipal taxes is not a measure to estimate the ALV of the property therefore the CIT(A) has held that it is not on record as to what had been submitted by the assessee to the Municipal authorities for property tax valuation. Since the assessee had not supplied any documentary proof therefore the CIT(A) in the absence of such factual information has held that the ALV estimated by assessing officer cannot be disturbed.

6.2 No new circumstance has been brought on record before us by the learned DR in order to controvert or rebut the findings recorded by the learned CIT (A) on the basis of the remand report. Moreover, there is no reason for us to deviate from the findings recorded by the learned CIT (A). Therefore, we are of the considered view that the findings recoded by the learned CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground raised by the assessee stands dismissed.

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO Ground No. 2

“5.3 Decision:- I have considered the facts of the case and the submissions made by the assessee. This ground is raised as the assessee has been aggrieved by the Assessing Officer's estimation of income from a guest house at Rs. 4,93,200/-. During the assessment proceedings, the Assessing Officer called for the details with regard to availability of rooms, location, occupation, rent etc. In response the assessee submitted that the said building was in a dilapidated condition having 6 rooms and Rs. 125/- per day per person was being charged as the tariff. However, the Assessing Officer, as the information submitted by the assessee, in his opinion, was not satisfactory he estimated rent per day per person at Rs. 300/-. He has also taken the occupancy rate at 75% and accordingly he estimated Rs. 4,93,200/- as rent received from the guest house. During the appellate proceedings the assessee submitted that the Assessing Officer while estimating the income at Rs. 4,93,200/- has not brought any material on record but decided the issue on surmises and imagination. In addition to this, the assessee also submitted the electricity bills paid by the assessee in respect of the above mentioned guest house in support of his claim that the occupancy rate of the guest house during the relevant period was not to the extent of 275 days as mentioned by the Assessing Officer. I have considered the facts of the case and details submitted by the assessee and found that neither the Assessing Officer nor the assessee could conclusively prove the stand taken by them. The Assessing Officer has resorted to the estimation of income from the guest house as the assessee could not provide any evidence or photograph of the guest house. In the absence of this the Assessing Officer should have carried out certain local enquiries before arriving at the amount of addition. Similarly, the assessee has not produced any books of accounts which include client/customer register in support of his submissions which would have given the details of the occupancy rate and also amount charged per person per day. In the absence of the complete details based on the facts available on record, such as the guest house situated adjacent to high way, in the limits of the city and also nearer to oil refinery of Reliance Industries Ltd., the rent the assessee would have received has to be arrived at. However, the factors such as lesser amount of electricity charges paid, lack of running water facility and the dilapidated condition of the property are also considered for deciding the income which the assessee would have earned from the guest house during the relevant period. For the above reasons mentioned, in my opinion, the occupancy rate may be taken at 50% per annum and charges per day per person per room may be taken at Rs. 150/-. Thus, the amount works out to Rs. 1,57,500/-

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO (150 X 6 X 175). The Assessing Officer is directed to adopt the above figure for the purpose of estimation of income from the guest house. This ground of appeal is partly allowed.”

7.1 Ld. CIT(A) has passed a detailed order thereby observed that the assessing officer has resorted to the estimation of income from the guest house as the assessee could not provide any evidence such as account books, registers etc or photograph of the guest house. The CIT(A) has rightly held that in the absence of this the AO should have carried out certain local enquiries before arriving at the amount of addition. Therefore after discussing the entire case, the CIT(A) has rightly come to the conclusion by taking occupancy rate at 50% per annum and charges per day per person per room by taking @ Rs.150 per day and has worked out the amount in question which comes to Rs.1,57,500 (150 x 6x 175) as detailed above.

7.2 No new circumstance has been brought on record before us by the learned DR in order to controvert or rebut the findings recorded by the learned CIT (A) on the basis of the remand report. Moreover, there is no reason for us to deviate from the findings recorded by the learned CIT (A). Therefore, we are of the considered view that the findings recorded by the learned CIT (A) are judicious and are well reasoned. Accordingly, we uphold the same. Resultantly, this ground raised by the assessee stands dismissed.

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO Ground No.3

“6.3 Decision :- The Assessing Officer in the assessment order has raised a very interesting issue, i.e. the share of profit from the firm which is exempt u/s 10(2A) of the Income Tax Act has been taken into consideration for invoking provisions u/s 14A. The assessee during the year received salary of Rs. 3,62,000/- and profit of Rs. 9,19,303/- from the firm. The assessee claimed interest of Rs. 2,18,485/- as deduction in the computation. The Assessing Officer has calculated the disallowable expenses on account of interest at Rs. 1,56,763/- relatable to earning of exempt income. During the appellate proceedings the assessee submitted that the share of profit from partnership firm should not be considered for the purposes of see. 14A, as the firm is paying tax on total income and as such the profit received by the partner cannot be taxed, as it amounts to double taxation. I have considered the facts of the case and also the submissions made by the assessee. It is seen from the assessment order that the assessee has raised loans and advanced the same to the partnership firm. As far as this fact is concerned neither the Assessing Officer nor the assessee is in dispute (it is not mentioned that the quantum of amount given to the firm by the assessee). The assessee on the said loan has paid Rs. 2,18,485/- as interest. The same has been claimed as deduction from the income received by the assessee from the firm. The case of the Assessing Officer is that the assessee earned exempted income only because he invested in the partnership firm. Therefore, any expenditure on account of interest should be subjected to the provisions of see. 14A. There is no dispute in the amounts advanced and also the purpose for which the advance/loan was given. There is also no mixing of funds advanced by the assessee to the firm. It has also been observed by the Assessing Officer that for exclusive purpose of investment in firm the aforesaid amounts were advanced. I find that the reasoning given by the Assessing Officer is well founded and correct. Coming to the argument of the assessee that the tax has already been paid by the firm on the profits derived and the balance amount only has been received by the assessee and also other partners and if any disallowance is made u/s 14A, would amount to double taxation, is not correct for the reason that the Assessing Officer has not taxed the share of profit received by the assessee from the firm but he has only disallowed the expenses which are attributable to the earning of exempt income. Further, it may be pointed out that the dividend and other exempt incomes as per see. 10(34) would also suffer dividend distribution tax u/s 115-0 of the Income Tax Act; it is also to be mentioned that the company pays the income tax in addition to dividend distribution tax u/s 115-O. Therefore, the assessee's argument that expenditure relatable to the exempted income should not be subjected to any disallowance in the hands of the recipient is not correct. However, it is observed from the (A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO computation of total income, that the Assessing Officer has disallowed the interest claimed by the assessee and also the disallowance made u/s 14A. In the light of above, the correct claim of the assessee would be Rs. 2,14,485/- (total interest claimed) - Rs. 1,56,763/- (interest claimed proportionate to exempt income) = Rs. 57,722/-. Thus, only Rs. 57,722/- is allowable as expenditure on account of interest. Thus, Rs. 1,56,763/- to be added to total income of the assessee. This ground of appeal is partly allowed.”

8.1 We have heard ld. DR and perused the material on record. ld. CIT(A) has passed the detailed order after taking into consideration the arguments raised by the both the parties in para no.6.3 mentioned above. Ld. CIT(A) after detail discussion has rightly observed from the computation of total income that the AO has wrongly disallowed the interest claimed by the assessee and also the disallowance made u/s 14A. Therefore ld. CIT(A) made correct claim of the assessee in the afore mentioned para and directed the same to be added to total income of the assessee.

8.2. After analyzing the afore mentioned order we found that the CIT(A) has dealt with all the issues and has passed judicious and well reasoned order and no new circumstances have been brought before us in order to controvert or rebut the findings recorded by the CIT(A). Therefore, we see no reason to deviate or interfere into the findings recorded by the CIT(A) and hence, we reject these grounds raised by the assessee and uphold the order of the CIT(A).

(A.Y. 2009-10) Vijay Naranji Kataria Vs. ITO

Sd/- Sd/- (Jason P. Boaz) (Sandeep Gosain) लेखा सद�य / Accountant Member �या�यक सद�य / Judicial Member मुंबई Mumbai; �दनांक Dated : 24.08.2016 Ps. Ashwini आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. आयकर आयु�त(अपील) / The CIT(A) 4. आयकर आयु�त / CIT - concerned 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard File आदेशानुसार/ BY ORDER,