VULPECULA TRADING & INVESTMENTS CO. P. LTD,MUMBAI vs. ITO 1(3)(4), MUMBAI

The briefly stated relevant facts are that the assessee has taken a Ground Floor Premises on rent from M/s Liberty Cinema. The assessee earns rent from Arab Bangladesh Bank Ltd. The assessee claims that the said premises was being exploited for live and license business. During the assessment, the AO noticed that the claim of deduction was made by the assessee without making the payment to Municipal Authorities.

During the first appellate proceedings, the assessee submitted the whole of the amount was paid in subsequent AY (on 26/28/07/2011 and 24/09/2011) i.e. before filing of the return of income and therefore, the claim is fully allowable. The CIT(A) considered the same and rejected stating that the debit of a sum of Rs. 32,70,358/- is not allowable at all in the year under consideration and therefore, he has disallowed entire sum of Rs. 32,70,358/- which has the effect of enhancement by Rs. 9.5 Lakhs.

Aggrieved with the above decision of the CIT(A), the assessee has filed an appeal before the Tribunal namely Shri Rajesh S. Shah, Ld. AR for the assessee submitted that the CIT(A) erred in enhancing the assessment without issuing proper notice to the assessee. He argued that mere ordersheet entry do not constitute an issue of notices. Further, we mentioned that the Municipal Authorities created the demand of Municipal Tax vide letter dated 16.03.2011 that falls in the AY under consideration, therefore, the claim of the assessee is justified in the AY 2011-12. Ld. AR claims that the said sum constitutes an additional rent payable by the assessee only in case of additional demand, if any raised by the Municipal Authorities. Ld. AR of the assessee also critical of invoking of the provisions of section 43B of the Act.

On the other hand, Ld. DR for the Revenue relied heavily on the order of the AO and the CIT(A). He submitted that said amount of Rs. 32,70,358/- is not allowable at all as the same does not constitute expenditure in the hands of the assessee-tenant. Regarding the notice, Ld. DR for Revenue mentioned that the issue inmates from the books of accounts of the assessee, the enhanced income of Rs. 9.5 Lakhs as part of Rs. 32,70,358/- which is debited to the P&L A/c of the assessee. He also submitted that there is no clarity on the actual payers of the Municipal Taxes. He also mentioned that the Municipal Taxes are incurred by the owner of the House and not by the tenant- the assessee. There is no clarity, if the amount of tax is actually paid by the assessee against the additional rent payable by the assessee to the landlord.

I heard both the parties and perused the orders of Revenue. It is a settled proposition of law that the Municipal Taxes has to be paid by the landlord. In that case, why the said amount was debited in the P&L A/c of the assessee and how it becomes the assesee’s liability. As such, there is no discussion in the order, if the additional demand of Municipal tax, if any, is the liability of the assessee-tenant. The AO/Assessee is required to bring in the relevant clauses from rental deed on to the records. The AO is also required to deliberate on what is wrong with the claim of the assessee, if it is the assessee’s liabilities on rental document and the same is discharged dutifully. Regarding the enhancement, there is no discussion about the assessee taking such objections before the first appellate proceeding. Assessee cannot sign on the order sheet on 20.08.2014, not insisting on a notice and entertain a change of mind now before us. Therefore, the CIT(A) needs to discuss the same in his order in the remand proceedings now. The CIT(A) is also required to bring out the facts on the allegation of making enhancement without issuing the statutory notice. In any case, it is the settled legal proposition that in cases of enhancement of the assessment, if any, the CIT(A) is under statutory obligation to issue the notice as per the provisions of the Act.

Considering the above absence of clarity on facts, I am of the opinion that the matter should be remanded to the file of the CIT(A) for fresh consideration and the speaking order on the issues raised by the assessee in the Grounds and the discussion given in preceding paragraphs of this order. The CIT(A) shall grant reasonable opportunity of being heard to the assessee.

In the result, Grounds raised by the assessee are allowed for statistical purpose.

In the result, appeal of the assessee is allowed for statistical purpose.