VINOD HARBANSLAL KHETERPAL,THANE vs. ASST CIT CEN CIR 46, MUMBAI

This Appeal by the assessee is directed against the order of the CIT(Appeals)-38, Mumbai dt. 21/02/2014 for Asst. year 2008-09.

2.1 The assessee filed his return of income for Asst. year 2008-09 on 21/12/2009 declaring total income of Rs. 60,34,750/-, and agricultural income of Rs. 14,14,515/-. The case was taken up for scrutiny and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 ( in short ‘the Act’) dt. 31/12/2008 wherein the income of the assessee was determined at Rs. 77,89,260/- in view of the following additions:-

(i) Addition u/s 23(4)(b) under the head ‘Income from House Property’ Rs. 3,40,000/- (ii) Addition u/s 68 out of Agricultural Income Rs. 14,14,515/- 2.2. Aggrieved by the order of assessment for Asst. year 2008-09 dt. 31/12/2010, the assessee preferred an appeal before the CIT(Appeals)-38, Mumbai who disposed of the appeal vide the impugned order dt. 21/02/2014 allowing the assessee partial relief.

1. The Assessing Officer is not justified for making an adhoc addition of Rs. 3,40,000/- as income from Deemed let out house property ignoring the fact that :

1.1 The fair market rent for property in the vicinity of the said deemed let out properties are quoted at approx. Rs. 8000 to Rs. 10,000 per month.

2. The Assessing Officer is not justified in disallowing Rs. 14,14,515 ignoring the fact that:-

2.1 The appellant owns 15 Acres of land on which appellant is growing coconuts, Mangoes, guavas and vegetables.

2.2 The appellant has been earning agricultural income from past several years and income is shown as agricultural income in the return of income filed with the income tax department and has also been assessed as agricultural income after scrutiny vide assessment order passed u/s 143(3) of the income tax during the preceding assessment years.

3. The appellant craves leave to make additions, deletion or alteration to the above grounds of appeal.

4.1 In ground No: 1 (supra) The assessee contends that the assessing officer (‘AO’) was not justified in making an adhoc addition of Rs. 3,40,000/- as income from deemed let out property ignoring the fact that the fair market rent for property in the vincity of the said properties are quoted at approx Rs. 8,000 to Rs. 10,000 per month. The Ld. AR was heard and the merely reiterated the submissions put forth before the AO.

4.2 Per contra, the Ld. DR vehemently supported the orders of the authorities below. It was submitted that inspite of the fact that the Ld. CIT(A) has fixed the assessee’s appeals as many as 5 times, the assessee failed to attend/ submit any details whatsoever and the Ld. CIT(A) disposed off the matter on the basis of material on record allowing the assessee deduction u/s 24(1) of the Act. The Ld. DR further contended that no material evidence was brought on record by the assessee in these proceedings to controvert the findings of the Ld. CIT(A) in respect of the estimation of deemed rental income from the two residential flats at Rs. 3,40,000/-.

4.3.1 We have heard the rival contentions and perused and carefully considered the material on record on this issue. It is seen that in the course of assessment proceedings, the AO observed that the assessee had not shown rental income from two of his properties; i.e. a flat at 504, Hawa Mahal, Thane and a residential house at Vakratund, Thane. Invoking the provisions of Section 23(4)(b) of the Act, the AO computed the income from the aforesaid two properties at Rs. 3,40,000/-.

4.3.2 On appeal the Ld. CIT(A) while upholding the AO’s estimation of income from the above two properties at Rs. 3,40,000/- he directed the AO to allow the assessee deduction u/s 24(1) of the Act @ 35% of the annual letting value determined. The finding of the Ld. CIT(A) in the impugned order at paras 7.0 to 7.2 thereof are as under:- “Decision: 7.0 I have carefully considered the facts of the case, the stand taken by the AO in the assessment order and the grounds of appeal.

7.1 The appellant’s submission that the monthly rental in respect of the two properties in question range between Rs. 8,000/- to Rs. 10,000/- is not supported by any evidence and therefore, the appellant’s submissions are not acceptable. The Hon’ble Supreme Court in the case of Sheila Kaushish vs, CIT(1981) 131 ITR 435, held that the annual value of the property is required to be determined with reference to “standard rent” and not the actual rent received. In the case of Smt. Radha Devi Dalmiya 125 ITR 134 the Hon’ble Allahabad High Court held that the determination of the annual letting value on the basis of 7% of the investment was a just and a fair method of determining the annual letting value. The Hon’ble Supreme Court in the case of Dr. Balbir Singh 152 ITR 388 held that in estimating ALV, return on investment is to be taken on the basis of 7.5% to 8.5% of cost. In the case of Chem Mech (P) Ltd. 83 ITD 427, the Hon’ble ITAT, Mumbai held that the ALV has to be determined on the basis of (i) standard rent determined in accordance with the rent control Act (ii) annual municipal value if available (iii) the actual rent, if the actual rent received or receivable is more than the standard rent or annual municipal value. The Tribunal further held that the highest of these three figures was the standard rent as per the Bombay Rent Control Act which was 8.5% of the total investment and therefore the assessing officer was directed to adopt the standard rent at 8.5% of the total investment as the annual value.

7.2. Therefore, in view of the provisions of section 23(4)(b) of the Act, the estimation of income from the house properties other than the self occupied property at Rs. 3,40,000/- made by the AO is considered reasonable and particularly in view of the fact that the contrary has not been proved by the appellant and therefore, the addition is hereby confirmed. However, the AO is directed to allow the deduction u/s 24(1) of the Act @ 30% of annual letting value determined.”

4.3.3 Before us, the Ld. AR, except for reiterating the grounds raised and the submissions put forth before the AO, has not brought on record before us any material evidence to controvert the findings of the Ld. CIT(A) on this issue (supra). In this factual matrix of the case as discussed above, we find no reason or material evidence before us to warrant interference in or deviation from the finding of the Ld. CIT(A) that in view of the provisions of section 23(4)(b) of the Act, the estimations of income from the aforesaid two properties other than the self occupied property at Rs. 3,40,000/- per annum is reasonable and consequently uphold the same. Accordingly ground No. 1,1.1 raised by the assessee is dismissed.

5.1 In Ground No. 2( 2.1 and 2.2), the assessee contends that the AO is not justified in holding that agricultural income declared to the extent of Rs. 14,14,515/- has not been established since the assessee own 15 acres of land on which he is growing coconuts, mangoes, guavas and vegetables for past several years, which has been declared in the returns of income filed with the income tax department and accepted by them. The Ld. AR was heard in support of the grounds raised and re-iterated the submissions made before the authorities below. A copy of the order of assessment passed u/s 143(3) of the Act for Asst. year 2006-07 was filed to show that out of agricultural income declared, 20% thereof was disallowed for non production of proof/ receipts. It was prayed that since a major portion of the agricultural income declared by the assessee was accepted in the past, in this year also the authorities below may be directed to allow the assessee’s claim after verifying the supporting evidences in this regard which the assessee undertakes to file.

5.2 Per contra, the Ld. DR emphatically supported the impugned order of the Ld. CIT(A) in holding that the agricultural income declared by the assessee as exempt was not established with any material evidence. It was contended that the authorities below have observed from the 7/12 abstract of the said agricultural lands that the said lands are non irrigated and no crops were grown on the said agricultural lands except for grass. It was also submitted that despite affording the assessee adequate opportunities, the assessee has failed to produce the required evidences during appeal proceedings in respect of agricultural activities such as details of various expenditures incurred, vouchers/bills for sale of agricultural products, etc. The Ld. DR submits that in view of the above, the assessee’s claims ought to be rejected. But, however, since the Ld. CIT(A) in the impugned order has decided the matter virtually ex- parte and since the Ld. AR has submitted that the assessee will furnished evidences to establish that, agricultural activities were in fact carried out, the matter may be at best restored to the file of the authorities below for fresh examination.

5.3.1 We have heard the rival contentions and perused and carefully considered the material on record. According to the assessee, the agricultural income declared at Rs. 14,14,515/- was earned on his land measuring 15 acres whereon he had grown coconuts, mangoes, chickoo, guavas and vegetables. It was submitted such agricultural activities have been carried on in the past years also, income there from was declared in the returns of income filed before the income tax department. In this regard, the assessee placed before the bench a copy of the order of assessment passed u/s 143(3) of the Act in his case for Asst. year 2006-07, wherein in the agricultural income of Rs. 5,28,830/- was accepted to the extent of 80% of the amount declared.

5.3.2 On the other hand, we find that in the year under consideration i.e. Asst. year 2008-09, wherein the agricultural income was declared at Rs. 14,14,515/- (almost three times more than in Asst. year 2006-07) that the authorities below have found from the abstract of 7/12 of the said agricultural land, that the said lands are non irrigated and no crops were grown on the said land except grass. Further, we find from the orders of the authorities that, they have observed inspite of opportunities afforded to the assessee, he has failed to produce required evidences of agricultural activities carried out and details of various expenses incurred in this regard, and that it is in these circumstances that they have held that the agricultural income declared by the assessee as exempt income has not been proved. The Ld. CIT(A) at para 9 of his order, while rejecting the assessee’s claim, has held as under:-

“9.0 I have carefully considered the facts of the case, the stand taken by the A.O in the assessment order and the grounds of appeal. The A.O has mentioned in the assessment order that the abstract of 7/12 of the agricultural land shows the said lands are non-irrigated and no crops were grown on the said agricultural lands except grass. This has not been disproved by the appellant despite availing sufficient opportunities during the appeal proceedings. The appellant failed to produce the required evidences of agricultural activities carried and details of expenses as well as vouchers for sale of agricultural proceeds etc. The onus is on the appellant to prove that the income shown by him is exempt from tax which the appellant failed to do. Therefore, the addition made by the A.O is hereby confirmed.”

5.3.3 Taking into consideration, the facts and circumstances of the case as emanate from the orders of the authorities below and discussed at paras 5.3.1 and 5.3.2 of this order (supra) and in the light of the fact that the impugned order of the Ld. CIT(A) has been admittedly passed ex-parte since none attended before him on behalf of the assessee and also taking into consideration that the assessee has declared agricultural income of Rs. 5,28,830/- before the Income Tax Department for Asst. year 2006-07 which was partially accepted to the extent of 80% in scrutiny assessment proceedings, we are of the considered opinion that in the interest of equity and justice the issue of the assessee’s declaration of agricultural income at Rs. 14,14,515/- in this year requires to be re-examined by the authorities below. We, therefore, set aside the impugned order of the Ld. CIT(A) on this issue and restore this matter to the file of the Ld. CIT(A) for examination and verification of the assessee’s claim of the exempt agricultural income after affording both the assessee and the AO adequate opportunity to file details required in this regard on account of proof of various expenditures agricultural operations, sales proceeds/bills/vouchers, etc of agricultural proceeds etc. It is according by ordered. Consequently ground no: 2 is treated as allowed for statistical purposes.

Order pronounced in the open court on 30th March, 2016