TEXACO OVERSEAS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

The grounds raised

Apropos these grounds of appeal, we have heard arguments of both the sides and carefully perused the relevant materials placed on record before us. The Ld. Assessee’s Representative challenging the action of the A.O and ld. CIT(A) submitted that the A.O has grossly erred in law and on facts, in making an addition of Rs.6,54,153/- under head of income from house property by ignoring vital facts and evidence of the assessee. The Ld. Counsel further contended that the Ld. CIT(A) has also erred in enhancing the income from house property by Rs.7,88,684 instead of deleting the said addition. The Ld. Counsel also placed copy of the order of ITAT “H” Bench, New Delhi dated 23/4/2010 passed in assessee’s own case for A.Y 2006-07 in and contended that in the earlier assessment year in the similar set of facts and circumstances and by following the dicta rendered by the Tribunal in the case of JB. Patel & Co. vs. DCIT 312 (AT) 171 (Ahm) allowing the ground of the assessee, it was directed to the A.O to reduce such expenses incurred by the assessee for rendering additional services to the tenants for arriving at annual value and it was also directed to allow 30% deduction of such annual value u/s 24 of the Act.

On careful consideration of above, at the outset, we note that the Tribunal in the similar facts on the similar issue held in favour of the assessee. The relevant operative part of this order reads as follows:- “4. We have considered the rival submissions and have gone through the orders of the authorities below. We find that it was submitted before the CIT(A) by the assessee that the assessee was providing additional services on account of lighting in common areas during working hours, pest control services periodically for all common areas, cleaning services of common areas and security services. It was also submitted that the rental income declared by the assessee is composite income including charges for these services also and hence the expenses incurred on these additional services has to be reduced form such composite rental income to arrive at the annual value. The CIT(A) has followed a decision of the Tribunal rendered in the case of J.B. Patel & Co. vs. DCIT as reported in 312 (AT) 171 (Ahm.). In that case also composite income was received by the assessee f and it was held by the Tribunal that the annual value of the house property should be assumed at the reduced value i.e. after reducing expenses incurred in providing extra services from rental income. In the present case also, the facts are similar. It is claimed by the assessee that the assessee is providing additional services such as lighting in common areas during working hours, pest control services periodically for all common areas, cleaning services for common areas and security services. The rental income declared by the assessee is composite rental income. The rental income declared by the assessee is composite rental income including charges on account of these additional services being rendered by the assessee. For the purpose of computing income from house property, rental income in connection with user of house property only is assessable and when charges for other services stand included in such rental income, such additional charges should be reduced from rental income if the 4 Assessment Year 2010-11 quantification of the same is available. In the present case, quantification of charges for additional services is not readily available and hence we do not find any reason to interfere in the order of the CIT(A) on this issue as per which it was held by him that the annual value of the property should be determined after reducing the expenses incurred by the assessee for rendering these additional services. The CIT(A) has held so by following a decision of coordinate bench of the Tribunal rendered in the case of J.B. Patel & Co. (supra) and we therefore, decline to interfere in the order of the CIT(A) on this issue. Regarding submission of the Ld. DR of the Revenue that 30% standard deduction u/s 24(1) should be allowed on net income only, we find that CIT(A) has directed the AO to reduce such expenses for arriving at annual value and deduction @ 30% allowable u/s 24 is allowable to the extent of 30% of annual value only and hence this submission of the Ld. DR of the Revenue is already complied with by the assessee as well as by the CIT(A).”

In view of above, on specific query from the Bench, the Ld. DR replied that to the best of his knowledge, the order of the Tribunal (supra) has not been modified or set aside, hence, we hold that the issue is covered in favour of the assessee in principle and thus we follow the same. However, some recalculation is required at the end of the A.O, therefore the A.O is directed to reduce the expenses incurred by the assessee for rendering additional services to the tenants for arriving at annual rental value and thereafter, on such annual rental value, deduction u/s 24 of the Act @ 30% is to be allowed. The issue is restored to the file of the A.O to recompute the income from house property on the same line as directed by the Assessment Year 2010-11 Tribunal order for A.Y 2006-07 (supra). Accordingly, Ground No. 1 & 2 are allowed in the manner as indicated above.

Apropos these ground, the Ld. Counsel of the assessee submitted that the issue is covered in favour of the assessee by the order of the Tribunal in assessee’s own case for A.Y 2006-07(supra). The Ld. DR strongly supported the action of the authorities below and contended that if the assessee is not carrying any business activity during relevant period, then claimed expenses cannot be allowed.

On careful consideration of above contentions and relevant operative part of the order of the Tribunal(supra), we observe that on the similar issue in the similar facts and circumstances, the Tribunal for A.Y 2006-07 granted relief to the assessee by observing as under:-

On the basis of aforesaid recorded conclusions of the Tribunal we are initiated to hold that the issue is squarely covered in favour of the assessee and Ld. DR should not show us any contrary order to show that said Tribunal order has either set aside or modified by the Tribunal itself or by any higher forum. Thus, respectfully following the same we allow ground no. 3 & 4 of the assessee and the A.O is directed compute and allow the claim of the assessee on the similar line as was directed by the Tribunal order for A.Y 2006-07 (Supra). Accordingly, Ground No. 3 & 4 are allowed in the manner as indicated above.

At the very outset, the Ld. Counsel of the assessee placing reliance on the order of Hon’ble Jurisdictional High Court in the case of CIT vs. Holsin India (P)

Respectfully following the order of Hon'ble High Court of Delhi in CIT vs. Holcin (supra), we allow Ground No.5 of the assessee and the A.O is directed to delete the impugned addition u/s 14A of the Act.

In the result, appeal of the assessee is allowed in the manner as indicated above.