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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI PAWAN SINGH
O R D E R
PER PAWAN SINGH, JM:
1. The present appeal is filed by the assessee against the order of CIT(A)-14, Mumbai dated 18.06.2014 for Assessment Order (AY) 2010-11 on the following grounds of appeal: Ground I
1. On the facts and in the circumstances of the case, and in Law, the Learned CIT(A) erred in determining the annual value of the property at Rs.56,05,028/- based on the remand report, thereby enhancing the Assessed income, without understanding the basis of actual Annual value of Rs. 3,60,000/-, The CIT(A) further erred in not adjudicating the grievance of the Assessee, on the addition of Notional Interest of Rs.23,70,000/- made by the Assessing officer.
2. The Ld. CIT and the AO failed to, appreciate that :- a) The assessee has received rent of Rs.3,60,000/- only which is offered to tax as Annual Value. b) The Lease agreement was old when the rates were less which has now increased due to opening of Sea Link. c) The flat is very moderately furnished and hence commands less rent. d) Annual value is to be worked based on the Municipal value which is Rs. 1,04,597 (being 50% of Rs.2,09, 193/-) e) The Assessee owned and has collected only for its 50% share and hence rent is not comparable with other flats, whereas the valuation is done for 100% of the property at Rs. 56,05,028/- . The Share of Assessee which works out to Rs. 28,02,514/- being the 50% share, in case the valuation made by CIT(A) is considered.. 3. The appellant, therefore, prays that the Annual Value of Rs.3,60,000/- be accepted.
2. The only effective ground raised
in the present appeal is against the determination of annual value of property at Rs. 56,05,028/-/- by adding notional interest of Rs. 23,70,000/- to the actual rent receipt of Rs. 3,60,000/- by invoking the provisions of section 23(1(a) of the Act.
3. Brief facts of the case are that the assessee, filed return of income on 28.09.2010 declaring total income of Rs. 69,362/-. The return was selected for scrutiny and it was observed by the Assessing Officer (AO) that during the relevant AY, assessee has received an amount of Rs. 3,60,000/- by leasing out property at Benreeza Apartments, Worli Sea Face, Mumbai. Assessee has also received an interest free security deposit of Rs. 2,37,00,000/- from the lessee. The assessee was asked to furnish the detail as to why the notional interest @ 10% should not be worked out on the security deposit and same be not added to the Annual Letting Value (ALV) of the property, the assessee submitted his reply dated 26.03.2012 and relied upon the decision of J.K. Investor (Bombay) Ltd. vs. DCIT (74 ITD 274), Malad International Ltd. Vs. DCIT (13 SOT 49), Super Leasing Ltd. vs. ACIT (56 TTJ 258) and submitted that property under reference is jointly owned by the assessee- company with M/s Noraza Estates & Investments Pvt. Ltd.
4. After considering the submission, the AO invoked the provision of section 23(1)(a) of the Act. The AO further observed that while determining the ALV the municipal value of the property or fair rent of the property whichever is higher is generally taken as the annual value. However, while calculating the ALV, the AO calculated the ALV on the basis of amount received on account of leave and licence basis + interest on security deposit and calculated gross Annual Value in the assessment order.
5. Aggrieved by the order of AO, the assessee preferred an appeal before the CIT(A). After considering the submission and remand report sought during the appellate proceeding, the CIT(A) enhance the ALV of the property to Rs. 56,05,028/-, for the year under consideration, against which the present appeal is filed before us.
We have heard the Authorised Representative (AR) of the assessee and Departmental Representative (DR) for the revenue and perused the material available on record. The AO as well as CIT(A) erred in calculating the ALV of the property. AR of the assessee further argued that the provisions of Rent Control Act is not applicable in the City of Mumbai.
DR for the revenue vehemently argued that the property is situated at prime location i.e. at Worli Sea Phase and the ALV was correctly calculated by the CIT(A). The assessee was given full particular on the remand report of the AO and thus the order of CIT (A) does not require any interference of this Tribunal. 8. Rival contention of the parties were considered. During the appellate proceeding, the AO was directed to conduct enquiry from the society or building to ascertain the fair market rent of the property accordingly. The AO completed the enquiry and submitted his report which is as under: “In this case additions were made by the A.O. by way of addition of notional interest of Rs. 23,70,000/- being 10% of security deposit while calculating annual value of the rented property. The total annual value was worked at Rs. 27,30,000/- [original rent of Rs.3,60,000/- + notional interest of Rs. 23,70,000/- Now, Ld. CIT(A) has remanded matter back to the A.O. to conduct the fresh enquiries regarding the same for which the property might reasonably to lie let out. The Ld CIT(A) further directed to conduct enquiries from the society building ill which flat is located and its adjacent society to find out comparable rate a/rent for flat at Benereeza, Worli, Mumbai. According, Inspector of charge has been deputed to conduct the enquiries. During field visit to society, Inspector find out that flat on the 5th floor of the some building of Benreeza society. Worli, Mumbai i.e. flat No.5A & 5B were also let out during the period under consideration. The owner of these flats are M/s. Ipsita Finance & Investment Pvt. Ltd. & Saiga Securities Pvt. Ltd. During the Course of enquiries from these parties they submitted letter dated 15.05.2014 [copy enclosed along with L/L agreement of flat on 5th Floor, Benreeza Apartment. It is also stated in the fetter that the lease rent received in F.Y.2009-10 is Rs.28,97,076/-ond Rs.27,07,952/ pertaining to M/s Ipsita Finance & Investment Pvt. Led. & Saiga Securities Pvt. Ltd. respectively The Copy of Leave & License agreement is enclosed for the consideration and reference of Ld. CIT(A)-14, Mumbai. In this agreement there is mention of charge of lease rent of Rs.7.50,000/- per month for the period 11/1/2010 to 31/3/2010.” 9. We have noticed that Inspector of charge conducted the enquiries, and report was submitted by AO ,which revealed that a flat on the 5th floor of the some building of Benreeza society. Worli, Mumbai i.e. flat No.5A & 5B were also let out during the period under consideration. The owner of these flats are M/s. Ipsita Finance & Investment Pvt. Ltd. & Saiga Securities Pvt. Ltd. During the Course of enquiries from these parties it was revealed that a owner of a flat on 5th Floor, Benreeza Apartment received lease rent of Rs.28,97,076/-and Rs.27,07,952/-.
We have observed that CIT(A) while appreciating the fact of the case observed that for calculating the ALV, the municipal valuation of the property or fair rent of the property whichever is higher is generally taken as Gross ALV. However, while calculating the ALV, the CIT(A) calculated the same on the basis of amount received and calculated the interest on the security deposit and calculated the Gross ALV. The assessee has let out the property on the basis of lease agreement and further executed memo of understanding by virtue of which the rent is increased from time to time. Interestingly, neither the copy of lease agreement nor the memo of understanding by virtue of which the lease was renewed from time to time is placed on record. Since the provisions of Maharashtra Rent Control Act, 1999 are applicable in the City of Mumbai wherein the provisions for fixation of standard rate is provided as per section 14 of the Act, so we deem it appropriate to restore the case to the file of AO to determine the ALV in accordance with the provisions contained therein for fixation of standard rent as amended up-to-date to City of Mumbai. The AO shall provide adequate and fair opportunity to the assessee and pass the order in accordance with law. The assessee is also directed to file the copy of lease agreement and the memo of understanding in respect of leave and licence in the relevant AY in respect of property.
In the result, appeal filed by the assessee is allowed for statistical purpose. Order pronounced in the open court on this 7th April, 2016.
Sd/- Sd/- (R.C. SHARMA) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated 07/04/2016 S.K.PS आदेशक���त�ल�पअ�े�षत/Copy of the Order forwarded to :
अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. आयकरआयु�त(अपील) / The CIT(A), Mumbai. 4. आयकरआयु�त/ CIT