Income Tax Appellate Tribunal - Mumbai
Dcit 29(1), Mumbai vs Dinesh M Shah, Mumbai on 22 February, 2017
आयकर अपीलीय अधिकरण "जी " न्यायपीठ मुंबई में।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
BEFORE SHRI CN PRASAD, JUDICIAL MEMBER AND
SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER
ITA NO. 2562/MUM/2015 : (A.Y : 2010-11)
DCIT 29(1) Vs. Dinesh M Shah
R.No.108, 1st Floor, C-10 Bldg., Prop. M/s Mehula
Pratyakshakar Bhavan Enterprises
Bandra Kurla Complex 104, Arnath Sravodya Nagar
Bandra (E) Jain Mandir, Mulund (W)
Mumbai - 400 051 Mumbai - 400 080
PAN : AAGPS5149G
(अपीलार्थी / Appellant) (प्रत्यर्थी / Respondent)
अपीलार्थी की ओर से / Assessee by : Shri Devendra Jain
प्रत्यर्थी की ओर से Revenue by : Mrs Beena Santosh
सुनवाई की तारीख / Date of Hearing : 15/02/2017
घोषणा की तारीख Date of Pronouncement : 22/02/2017 आदे श / O R D E R PER C.N.PRASAD (J.M.) :
This appeal is filed by the assessee against the order of the Ld. CIT (Appeals)-40, Mumbai dated 30.03.2015 for the assessment year 2010-11. The revenue in its appeal has raised the following grounds :
"1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of salary of Rs.10,11,674/- without appreciating the fact that the assessee has not proved as to how the excess salary expenditure laid for planning of expansion of the business and as to how the same did 2 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 not yield any positive results which necessitated the retrenching the staff in the subsequent year.
2. On the facts and in the circumstances of the case, the Ld. CIT(A). erred in holding that the lease rent of Rs.1,16,10,000/- received by the assessee from M/s Sanyo Resorts Pvt. Ltd was to be taxed as income from house property and not as income from other sources as held by the AO.
3. On the facts and circumstances of the case, the Ld. CIT(A) erred in granting the relief to the assessee as per the decision of the ITAT Mumbai in the assessee's own case for A.Y.s 2008-09 & 2009- 10 in which the perverse and bad in law findings of the CIT(A) have been relied upon. Hence the decision of the ITAT was not factually correct and had no force in law.
4. On the facts and circumstances the Id. CIT(A) erred in restricting the notional income from house properties in respect of unoccupied house properties to Rs.5,45,760/- as against assessed by the AO at Rs.20,65,000/- without appreciating the fact that rent estimated by the AO was reasonable having regards to the location of premises and investment made therein.
5. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the amount of RS.7,20,000/- added as ALV being the notional interest from security deposit of Rs.72 lacs in respect of let out property and assessed to tax by the AO as inclusive rental value u/s 22. The Ld.CIT(A) ought to have appreciated the fact that no income from this security deposit was earned and included in the total income and that security deposit was invested for capital appreciation in the immovable property. The CIT(A) also should have considered the ratio of Hon'ble Punjab and Haryana High Court's judgement in the case of K Steetlite Electric Corporation(336 ITR 346).
6. The appellant craves leave to add, to amend, alter, substitute or modify any of the above ground or add a fresh ground as and when found necessary either before or at the time of hearing."3
Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11
2. The first ground relates to the disallowance of salary expenses incurred by the assessee to its employees on the ground that the increase in salary is manyfold, but there is decrease in turnover during the year. On appeal the Ld. CIT (Appeals) deleted the disallowance taking note of the fact that the assessing officer has not disputed the incurring of expenditure by the assessee.
3. The Ld. DR supporting the orders of the assessing officer submits that salaries increased manyfold during this assessment year when compared to the previous year and there was no explanation by the assessee as to why there was such an increase during this assessment year when there was no increase in profits. Therefore, Ld. DR submits that the assessing officer is justified in restricting the salary expenditure to the amount of expenditure incurred on salaries in the previous assessment year.
4. The ld. Counsel for the assessee strongly supported the orders of the ld. CIT (Appeals) in deleting the disallowance.
5. We have heard the rival submissions, perused the orders of the authorities below. The assessing officer restricted the salary expenditure during this assessment year observing that there is steep increase in salary expenditure during this year when compared to the last year, however, there is decrease in profits. He also observed that there was no explanation from the assessee why there was steep increase in salaries. Therefore, he restricted the salary expenditure only to the extent of the salary which was debited in the preceding assessment year i.e. 2009-10. The ld. CIT (Appeals) considering the 4 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 submissions of the assessee and the findings of the assessing officer deleted the addition observing that assessing officer has not doubted the fact of payment of salary and that there was no allegation that these employees are relatives of assessee or they are covered under 40A(2)(b) of the Act, the assessing officer has only disallowed these expenses observing that there was no commensurate increase in turnover. Before the ld. CIT (Appeals), the assessee relied on the decision of Supreme Court in the case of CIT Vs. Walchand and Co.(P) Ltd. [65 ITR 381] and submitted that the Hon'ble Supreme Court held that the rule that increased remuneration can only be justified if there is corresponding increase in the profits of the employer was erroneous. It is the finding of the ld. CIT (Appeals) that the assessee has demonstrated that these expenses were actually incurred which are evidenced from the bank statement and the confirmations from the employees and even the assessing officer has not doubted the fact of incurring of expenses. In the circumstances, we do not see any valid reason to disallow the said expenses. We agree with the view of the ld. CIT (Appeals). This ground of revenue is rejected.
6. Coming to the ground nos. 2 and 3 relating to the assessability of rental income, the ld. Counsel at the outset submits that the Co-ordinate bench of the Tribunal in ITA No. 2571/Mum/2012 dated 22.05.2013 for the assessment year 2008-09 held that the income from letting out of the properties was held to be assessed under the head income from house property as against the assessing officer treating the same under the head income from other sources. A copy of the order is placed on record.
5Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11
7. On reading of the Co-ordinate bench decision, we find that the issue has been considered by the tribunal in the assessment year 2008-09 and it was held that lease rent in respect of the property situated in Village Kolkhe, Taluk Panvel, District Raigad (within the limits of gram panchayat Kolkhe) should be assessed under the head Income from House Property, observing as under :
"2.4 We have heard the rival submissions and perused the material on record. It is observed that form the copy of relevant rent agreement, that only two plot nos. reflected in 10th Schedule and 11th Schedule are having RCC structure. The assessee along with others thus has become co-owners of a bigger piece of land which is in fact by joining all these plots which all are next to each other. The assessee has purchased along with others the non agricultural plots from various different parties. Out of these few are only plots whereas two plots are with RCC structure on the same. The details of these schedules i.e. 10th and 11th forming part of the lease rent agreement are given as under :
THE TENTH SCHEDULE HEREINABOVE REFERRED TO PVL3-05344-2006
1) ALL that piece or parcel of Non-agricultural land or grounds situated lying and being village-Kolkhe, Tal. Panvel, Dist. Raigad within the limits of Grampanchayat Kolkhe, Panchayat Samiti Panvel as follows:
Gut/Survey No Area Assessment
H A P Rs. Ps
94/1D NA Old Survey 94/1B(2) 0 94 1 188 20
Including RCC, structure ground + first floor Bungalow half constructed of 200 Sq.mts, AND BOUNDED ON FOUR SIDES AS FOLLOWS:
EAST Gut No. 94/I Boundary
WEST Gut No. 95/I Boundary
SOUTH Gut No. 94/I Boundary
NORTH National Highway (N.H.48)
6
Shri Dinesh M Shah
ITA No.2562/Mum/2015, A.Y.2010-11
THE ELEVENTH SCHEDULE HEREINABOVE REFERRED TO PVL3-
4600-2006
1) ALL that piece or parcel of Non-agricultural land or grounds and hereditaments bearing Gut / Survey No 95, Hissa No 1, totally admeasuring 20000 Sq.mts (out of area admeasuring 38960 Sq.mts.), Assessment Rs.604.80 Paise, situated lying and being village-Kolkhe, Tal. Panvel, Dist. Raigad within the limits of Grampanchayat Kolkhe, Panchayat Samiti Panvel.
2) Four R.C.C. frame structures with cement sheet roof and one residential Premises having five rooms which are recorded in the record of Grampanchayat Kolkhe Assessment as under
Milkat No. Area (Sq.mts.) 237 Godown 464.68 238 Godown 464.68 239 Godown 464.68 240 Godown 278.81 In the 11th Schedule of agreement there are four RCC old structures and one existing residential structure with 5 bedrooms with total area of 1858.72 sq.mtr. shown. Total area of the big plot which is 106920 sq.mtrs, when compared with built up part is disproportionate as there is very small area in form of RCC structure.
The land being appurtenant to building, though disproportionately big, still during the year the nature of income having been derived from a big plot of land with some godowns on it which is undisputedly asset with share of appellant in it has to be assessed as Income from House Property."
It is relevant to state that the Chennai ITAT in the case of ACIT V T&R Welding Products (India) Ltd. has held in a similar set of facts when major portion of the leased out property is a land and the lease agreement permits the lessee to build permanent structure 7 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 therein, the lease income has to be assessed under the head 'income from house property'. Also, the Delhi ITAT in the case of Sanjit Singh Rathee V. ACIT has held that vastness of the land cannot be the criterion for allowing or disallowing the claim of deduction for repairs under section 24(1)(i) of the Act. Considering the factual matrix of the case of the assessee in toto and the position of law, we are of the considered view the impugned lease receipt is 'income from house property' as the conditions of section 22 of the Act is fulfilled. In view of that matter, we do not find any infirmity in the decision of the Ld.CIT(A) and the same is upheld. Accordingly Grounds No. 1 & 2 are dismissed."
Following the said order, we direct the assessing officer to assess the rental income in respect of the said properties under the head Income from House Property. The grounds raised by the revenue on this issue are rejected.
8. The next ground of appeal is in respect of restricting the notional income from house properties on the unoccupied house properties to Rs.5,45,760/- as against Rs.20,65,000/- assessed by the assessing officer. The assessing officer while completing the assessment estimated the rental value in respect of the vacant buildings estimating the rental value at Rs.29,50,000/- before allowing deduction u/s 24(a) and after deduction arrived the rental value at Rs.20,65,000/-. It appears that the estimation was made by the assessing officer looking at the location and area of the property. On appeal, the ld. CIT (Appeals) estimated the rental value of the vacant properties based on the actual rent received by the assessee during the assessment year 2015-16 from such properties. He arrived at the rental value from such properties for the current assessment year at Rs.7,79,658/- before allowing deduction u/s 24(1) and rental value at Rs.5,45,760/- after allowing the deduction.
8Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11
9. The ld. DR supported the orders of the assessing officer and the ld. counsel for the assessee strongly placed reliance on the ld. CIT (Appeals) order. The counsel for the assessee further submitted that the assessing officer has estimated the rental value without any basis. He submits that no comparable cases were also brought on record by the assessing officer and therefore the estimation of the assessing officer is not scientific.
10. We have heard the rival submissions, perused the orders of the authorities below. From the perusal of the assessment order, we find that the assessing officer said to have estimated the rental values for the vacant properties looking at the location and area of the property. However, assessing officer did not cite any instances of similar properties deriving rent where the rental income is similar to the estimated value in respect of the properties of the assessee. We find that the ld. CIT (Appeals) has estimated the rental value of the current assessment year based on actual rent received by the assessee during the assessment year 2015-16. The ld. CIT (Appeals) has taken similar values of rental income of the assessment year 2015-16 for the current assessment year i.e.2010-11 and arrived at the rental value at Rs.7,79,658/- which in our opinion is reasonable and has some basis. Therefore, we sustain the valuation arrived at by the ld. CIT(Appeals). The grounds raised by the revenue on this issue are rejected.
11. The last ground of revenue's appeal is with regard to deletion of notional interest from security deposit while computing the rental income. The 9 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 Assessing Officer noticed that the assessee has received Rs.72,00,000/- as interest free security deposit from letting out of the properties and therefore the assessing officer added Rs.7,20,000/- as notional interest from security deposit along with rental value and assessed accordingly. On appeal, the ld. CIT (Appeals) allowed the claim of the assessee holding that no addition can be made to the annual value on account of notional interest on interest free security deposit. While holding so, the ld. CIT (Appeals) considered the decisions of the jurisdictional High Court in the case of CIT Vs Tip Top Typography (2014) 48 taxmann.com 191(Bom.) and CIT v JK Investors (Bombay) Ltd (2000) 248 ITR 723 (Bom.)
12. The ld. DR vehemently supported the orders of the assessing officer and the counsel for the assessee supported the orders of the ld. CIT (Appeals) and also placed reliance on above decisions of the jurisdictional high court.
13. We have heard the rival submissions, perused the orders of the authorities below and find that this aspect of the matter has been considered by the ld. CIT (Appeals) and deleted the addition made towards notional interest while computing Annual Letting Value observing as under :
"9.1 During the course of appellate proceedings, the Authorised Representative relied on the following case laws wherein it has been held that no addition can be made to the annual value on the basis of notional interest on interest free security deposit:
i) CIT v. Tip Top Typography (2014) 48 taxmann.com 191(Bom.)
ii) CIT v. Moni Kumar Subba [2011] 10 taxmann.com 195(Delhi)(FB)
iii) CIT Vs Satya Co. Ltd (1994) 75 Taxman 193 (Cal.)
iv) CIT v J K Investors (Bombay) Ltd (2000) 248 ITR 723 (Bom.) 10 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 9.2 I have considered the submission of the Authorised Representative and the order of the Assessing Officer as well as the case laws cited by the Authorised Representative. It is seen that the total rental income received by the assessee in respect of the impugned properties is Rs.1,16,10,000/- per annum and the assessee has received interest free security deposit of Rs.72,00,000/-. From these figures, it is clear that the amount of security deposit is not disproportionately higher compared to the rent received by the assessee. It is equivalent of approx 7.5 months rent, which is not abnormal considering the general market practice of taking 6-9 months rent as security deposit. It is settled law that the notional interest on the interest free deposit cannot be added to the rental income unless it is demonstrated that the security deposit was taken as a colourable device to reduce the rent and the incidence of tax hands of the assessee. In cases where the security deposit is abnormally high i.e. many times the rental income, because of which the rental fixed is abnormally low, such a decision could be justified. However, in the present case, since the security deposit is not out of proportion of the rental income and it is not the allegation of the Assessing Officer that due to the security deposit the rental fixed has been lowered with a view to decrease the incidence of tax, adding notional interest on such interest free deposit, cannot be justified. The case laws cited by the Authorised Representative also support this view. In view of the facts of the case, mechanically adding notional interest @10% on security deposit is therefore not justified and is hereby directed to be deleted. Ground of Appeal No.6 is therefore allowed."
Further the Hon'ble Bombay High Court in the case of JK Investors (supra) held that section 23(1)(b) of the I.T. Act provides that when actual rent received is more than the fair rent the actual rent would be the annual value and therefore the notional interest would not form part of actual rent received or receivable under section 23(1)(b) of I.T.Act. Therefore respectfully following 11 Shri Dinesh M Shah ITA No.2562/Mum/2015, A.Y.2010-11 the decision of the jurisdictional High Court we hold that notional interest should not form part of annual value. This ground of the revenue is rejected.
14. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on the 22nd day of February 2017.
Sd/- Sd/- ASHWANI TANEJA C.N.PRASAD ले खा सदस्य / न्याधयक सदस्य / ACCOUNTANT MEMBER JUDICIAL MEMBER मुुंबई / Mumbai; दिनाुं क / Dated 22/02/2017 LR, SPS
आदे श की प्रधिधलधप अग्रे धिि / Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त(अपील) / The CIT(A), Mumbai.
4. आयकर आयुक्त / CIT
5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुुं बई / DR, ITAT, Mumbai
6. गार्ड फाईल / Guard file.
सत्यादपत प्रदत //True Copy// आदे शानसार/ BY ORDER, सहायक पुं जीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मुुं बई / ITAT, Mum