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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI PAWAN SINGH
Assessee by : Shri Anil Sathe (AR) Revenue by : Shri Ravindra Sindhe (DR) Date of hearing : 24.02.2015 Date of Order : 25.05.2016
O R D E R
PER PAWAN SINGH, JM:
The present appeal is filed by the assessee against the order of CIT(A)-16, Mumbai dated 03.09.2013, for Assessment Year (AY) 2010-11) raising the following grounds of appeal:
1. The Hon. Commissioner of Income Tax-(Appeals) erred in directing the learned assessing officer to compute annual letting value in terms of percentage of investment in the property, while ignoring the rent actually received.
2. In the alternative and without prejudice to the above, the Learned CIT(A) erred in adopting a rate of 8.5% of investment in property without appreciating the factual matrix and commercial reality.
3. The learned CIT(A) erred in not appreciating the factual matrix of the case and the intent of the appellant as explained during assessment and borne out by the objects clause of the memorandum of association.
4. The Hon. CIT(A) erred in confirming the action of the Ld. Assessing Officer erred in disallowing the expenses of Rs. 8,099 incurred by the appellant for operating the company, without appreciating the fact that the same were incurred for the existence and survival of the business of the appellant. 5. The Ld. Assessing Officer erred in coming to a conclusion that the appellant is not entitled to set off the business loss of Rs.8,099 against' the income from house property.
The assessee further vide its application dated 23.02.2016 raised the following additional ground of appeal: The learned CIT(A) erred in not appreciating that section 23(1)(c) is applicable and actual rent received should be considered as the annual letting value of the property as only a part of property was let out during the year.
We have heard Ld AR for assessee and Ld DR for revenue and perused the material available on record. AR of assessee argued that during the year under consideration assessee acquired 10 shops at Lumbini Palace at Vile Parle, Mumbai on 01.01.2010 for a total consideration of Rs. 4,99,98,460/-. During the assessment proceeding, AO asked the assessee that the rent declared by the assessee is too low considering the rental value and location of the property. The assessee submitted his reply, wherein it was contended that due to un-auspicious Vastu factor the assessee was unable to utilize the property. The contention of assessee was not accepted by the AO. The AO invoke the provision of section 23(1) (a) of IT Act, to determine the ALV of the property. And the AO extracted the basis of information available on Internet, in respect of the prevailing rent in the area @ Rs. 116/- per sq. ft. per month. The assessee contended that prevailing rent in the area @ Rs. 60 per sq. ft. per month. Thus the AO accordingly, adopted Rs. 85 per sq. ft. per month( average of the rate) and calculated the ALV of the property at Rs. 10,87,113/- (Rs.15,15,018/- minus Municipal Tax Rs. 4,65,905/-). However, the ld. CIT(A) relying upon the decision of ITAT, Mumbai in ITO vs. Chem Mech (P) Ltd. viz 83 ITD 427 Mumbai, directed the AO to compute the ALV in term of percentage of the investment in property. Ld. AR of the assessee argued that the method adopted by authority below is wrong. Ld. AR for assessee further relied upon the case of CIT vs. Tip Top Typography (2014) 48 taxmann.com 191 (Bombay). Ld. DR relied upon the order of authorities below.
We have considered the rival contention of the parties and perused the material available on record. We have seen that the AO while calculating ALV of the property relied upon the information gathered from Internet in respect of average rent prevailing in the area. The assessee contented that the average rent prevailing in the area is Rs. 50-60 per sq.ft. per month. The AO calculated the ALV on the basis of average rate contended by assessee and the information gathered by him from Internet. However the Ld. CIT (A) while disposing of the appeal of the assessee directed the AO to compute the ALV of the property in term of percentage of investment of the property.
The Hon’ble jurisdictional High Court while dealing with the issue with regard to the method of ALV in the case of Tip Top Typography(supra) held as under: 31. Section 23 states that for the purpose of section 22, the annual value of property shall be deemed to be under clause (a), the sum for which the property might reasonably be expected to be let from year to year or under clause (b) when the: property or any part of the properties are let and the actual rent received or receivable by the owner in respect thereof, is in excess of the sum which is referred to in clause (a). Then, the amount so received or receivable would be deemed to be the annual value for the purposes of section 22. There is a third category where the property or any part of it has been let but was vacant during the whole or any part of the previous year and because of such vacancy the actual rent received or receivable by the owner-in respect thereof, is less than the sum referred to in clause (a) the amount so received or receivable will be the annual value. Thereafter there is a proviso and which refers to the deduction towards tax levied by any local authority in respect of the property and these have to be deducted in determining the annual value of the property of that previous year in which such taxes are actually paid by the assessee’s, Then, there is an explanation and which states that for the purpose of clause (b) or (c) of sub-section (I) the amount of actual rent received or receivable by the owner shall not include, subject to the rules, the amount of rent which the owner cannot realize. By sub-sections (2) and (3) it has been clarified that the annual value in view of the circumstances set out in this sub-section will be taken to be nil but sub-section (2) of section 23 if will not apply in the circumstances set out by sub-section(3). If the owner has more than one house then, how the annual value has to be determined is set out in sub- section (4) of section 23. 32. Thus, the scheme is that income from house property shall be taken as a component of the income chargeable to tax. How that income from house property has to be 'computed' is then provided by the Legislature.
That is the annual value of the property. Thus, the Legislature deems the annual value firstly to be the sum for which the property might reasonably be expected to be let from year to year. In the event, the property which consists of any buildings or lands appurtenant thereto, the actual rent received or receivable by the owner in respect thereof if in excess of the sum referred to in clause (a), it is that amount so received or receivable which shall be deemed to be the annual value for the purposes of computing the tax under the head income from house property.
In view of the above legal position and considering the order of authorities below, the method adopted by the authorities below is not in consonance with the provision of Sec 23(1) (a ) of the Act, hence we deem it appropriate to restore the case for the file of AO for determination of ALV of the property in accordance with the ratio laid down by Hon’ble High Court in the case of Tip Top Typography (2014) 48 taxmann.com 191 (Bombay).
In the result, appeal filed by the assessee is allowed for statistical purpose.
Order pronounced in the open court on this 25th May, 2016.