Income Tax Appellate Tribunal - Mumbai
Patel India P. Ltd , vs Department Of Income Tax on 5 March, 2012
IT(SS) Nos 170 and 131 of 2001
Patel India Pvt Ltd Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"E" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member
and Shri Vivek Verma, Judicial Member
IT(SS) No. 170/Mum/2001
(Assessment Years: 1989-90 to 1999-2000)
Dy. Commissioner, Central Circle Patel India Private Limited
21, C. Range 5, Old CGO Building Film Centre Building
Annexe, MK Marg 68, Tardeo Road
Mumbai 400020 Vs Mumbai 400034
PAN No.AAACP 3402 A
Appellant Respondent
IT(SS) No. 131/Mum/2001
(Assessment Years: 1989-90 to 1998-99
&1.4.1998 to 14.5.1998 and 1999-2000)
Patel India Private Limited Dy. Commissioner,
Film Centre Building Central Circle
68, Tardeo Road 21, C. Range 5, Old CGO
Mumbai 400034 Building Annexe
PAN No. AAACP 3402 A MK Marg Mumbai 400020
Vs
Appellant Respondent
Revenue by: Mr. B. Jaya Kumar, CIT DR
Assessee by: Mr.Percy J. Pardiwala/
Mr. Nitesh Joshi
Date of Hearing: 5/3/2012
Date of Pronouncement:14/3/2012
ORDER
Per B. Ramakotaiah, A.M.
These are cross appeals by Assessee and Revenue against the orders of the CIT (A) dated 13.3.200. The issue involved in this appeal is with reference to the estimation of annual letting value of the properties owned by the assessee company while completing block assessment under section 158BC.
2. There was search and seizure operation under section 132 of the Income Tax Act in the group on 14.05.1998. The assessee is a private limited company and has its sources of income from house property and other sources. Consequent to seizure of certain leave Page 1 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai and license agreements with some of the relatives/ Directors of the company, the Assessing Officer considered that the assessee has let out properties at a nominal rent, whereas the tenants not only received interest free deposit but also rents at a higher amount and issued show cause notice to the assessee. It was the assessee's explanation A) that the assessee is the owner of five properties situated at Walkeshwar and three properties situated at Tardeo as under:
i) White House
ii) Bharat Bhavan
iii) Sunrise
iv) Gold Croft
v) Annexe (Gold Croft)
vi) Film Centre
vii) Everest Building
viii) Dhobi Ghat property
B) That all the above properties were reflected in the books of
account of the assessee since the last several decades. Those 5
properties at Walkeshwar (Sr.Nos.i to v above) were purchased by the assessee in 1958 and certain additions were made during the period 1958 to 1962. The assessee incurred cost of `.8,03,779/- in acquiring these properties and incurred further expenditure of `.3,78,954/- on the additions made thereafter.
C) That the Film Centre building at Tardeo was purchased in 1960 at the cost of `.3,65,000/- and subsequently further construction was carried out. The Dhobi Ghat property was purchased in 1960 for `.3,25,000/- and at the time of purchase itself it was fully tenanted. The office premises at Everest building were purchased for `.26,00,000/- in 1994.
D) That the White House property was partly let out at the time of purchase itself and presently it is fully let out, partly to some members of Patel family and partly to outsiders. Some of the members of the Patel Family had, in turn, given their premises in respect of which they are the tenants on leave and licenses commenced around 1993-94. The same is the position with regard Page 2 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai to the Sunrise, Gold Croft and Annexe buildings but in these cases the licenses were granted around financial year 1994-95. Bharat Bhavan building is fully tenanted to outsiders.
E) That the Film Centre property is partly let out to family members and to family/group companies and also to outsiders. Some of the tenants, had, in turn, given the premises on leave and license during previous year relevant to A.Y. 1995-96. The Everest Building after being purchased was immediately let out to Film Federation of India. The Dhobi Ghat property was fully tenanted even at the time of purchase and it continues to be presently.
F) That assumption of jurisdiction by the Assessing Officer to determine the undisclosed income under section 158BC was not correct.
3. The Assessing Officer however did not agree and based on the rentals received by some of the tenants on some properties, he revalued the 'rent fetching capacity' of each building in the order from Page 16 onwards and arrived at the gross rent fetching capacity of the properties at `.106,61,83,157/-. He reduced the returned income of `.3,52,50,887/- and made an addition of `.103,09,32,270/- in the block assessment.
4. Before the CIT (A) it was contended that the Assessing Officer did not have any information to consider determination of undisclosed income under section 158BC and that leave and license agreement entered into between the tenants and licensees have already been disclosed to the authorities and the income accruing there under had been offered and assessed to tax in the hands of the respective persons. Further it was submitted that all the properties owned by the assessee are covered by Rent Control Act and the Assessing Officer should not have made the assessments in the manner in which it was done. The CIT (A) considering the legal proposition and factual aspects discussed elaborately the issue and summarized his decision vide Para 18 and 19 as under:
Page 3 of 9IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai "18. To sum up, my decisions on the legal questions arising in this appeal are as under:
(i) The expression 'receivable' in s.23(1)(b) denotes payment of actual rent to the appellant. The Bombay High Court decision in the case of J.K. Investors is respectfully followed. The A.O's interpretation is erroneous.
(ii) The provisions of s. 23(1)(b) do not apply to this case. The Madras High Court decision in the case of Parasmal Chordia is respectfully followed. The appellant's argument is rejected.
(iii) The annual value of the impugned properties should be determined under the provisions of s. 23(1)(a). The appellant's argument is rejected.
(iv) The annual value of the properties referred to in
s.23(1)(a) must be the 'standard rent'
determinable under the provisions of the Bombay Rent, Hotel and Lodging Houses Rates Control Act, 1947. The Supreme Court decision in the case of Mrs. Sheila Kaushish is respectfully followed.
(v) The impugned properties are governed by the provisions of the Bombay Rent Control Act.
19. In view of the facts of the case and the position in law as discussed in the above paragraphs, I am of the considered opinion that the method adopted by the Assessing Officer for determining the annual value of the impugned properties is erroneous and cannot be sustained. He is directed to recomputed the income for the block period after determining the standard rent of the impugned properties of the appellant under the provisions of the Bombay Rent Control Act 1947 and as per the directions given in Para 16 and 17 above. However, before passing the fresh order, an opportunity of being heard should be given to the appellant. The grounds No.2 to 25 are decided accordingly".
5. The Revenue is aggrieved on reduction of the annual letting value to the standard rent and assessee is aggrieved in its appeal on assumption of jurisdiction under section 158BC and further invoking the provisions of section 23(1)(a) for determining the annual letting value by way of standard rent and further directing to debit the yield of 15% on the cost of construction of the building.
6. In the course of appellate proceedings, the assessee raised an addition ground that notice under section 143(2) was not issued prior to expiry of one year from the date of filing of the return Page 4 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai pursuant to the notice under section 158BC. It was clarified by the Revenue that a notice under section 143(2) was issued, consequent to which the additional ground was withdrawn. In the course of hearing further the assessee was directed to file certain documents which were relied by the Assessing Officer. But inspite of repeated requests by the assessee, it seems the Revenue has not provided the copies of the material seized in the hands of the said tenants which were used in the assessment of the assessee.
7. At the outset the learned Counsel submitted that these documents are not relevant for deciding the issue and without prejudice to the right to contest the addition being made under section 158BC on legal principles, it was submitted that the issue on merits was decided in favour of the assessee by the ITAT in the orders from 1999-2000 onwards on the same issue and the Assessing Officer consequent to the directions of the ITAT to adopt the standard rent had passed consequential orders wherein he gave a finding that the rents disclosed by the assessee were more than the standard rent to be adopted for the purpose of determination of annual letting value. In view of this, it was submitted that there is no issue on merits. He placed on record not only orders of the ITAT from AY 1999-2000 to AY 2003-04 but also consequential orders passed by the Assessing Officer. The learned CIT (DR) while agreeing that the issue in later years was held against the Revenue on merits and agreed that Assessing Officer had given a finding that the rent offered by the assessee in the respective years was more than the 'standard rent' directed to be adopted by the ITAT/CIT (A) on the basis of the Rent Control Act. He further submitted that on judicial principles the assessment by the Assessing Officer under section 158BC is valid. He relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. Sivabala Devi, 11 Taxmann.com 176(Mad.) dated 24th June, 2010 for the proposition that the Assessing Officer can rely on even on the information obtained by way of Section 131 and further for the proposition that the annual letting value can be adopted on the basis of the sub Page 5 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai tenancy agreements when the agreements are entered as a colourable device to avoid tax and were justified in determining the ALV on the basis of the agreements between the parties of the sub- letted properties. He relied on the decision of Pramila Estates (P) Ltd vs. Income Tax Officer Ward 9(2)(4) (27 SOT 133 (Mum) for the above.
8. We have considered the issue and examined the record. At the outset, we do not intend to adjudicate on the legal issue of making an addition under section 158BC which has become more or less academic in nature consequent to the directions of the ITAT on merits in later years. The reason being that in assessment year 1999-2000 which is the immediate later year to the block assessment, the Assessing Officer adopted the similar values in respect of 4 properties and the ITAT upheld CIT (A)'s directions that the standard rent has to be determined under the Bombay Rent Control Act which would be a fair rent for the purpose of adopting the annual letting value. In the consequential orders passed on that issue the Assessing Officer did not make any addition and gave a finding that the standard rent to be determined was less than the actual rent received and admitted. Similarly following this order of the ITAT in ITA No.6918/Mum/2002 dated 17.3.2006, the Coordinate Bench in assessment year 2000-01 in ITA No.7662/M/2003 also followed the same principles while upholding CIT (A)'s order rejecting the Revenue contentions. In the consequential order passed dated 19.12.2008, the Assessing Officer gave finding that the standard rent under the Bombay Rent Control Act is very low. Therefore, the rents received by the assessee were accepted. Similar orders were also there in assessment years 2002- 03 and 2004-04 vide the following ITA Nos.
i) ITA No.4839/Mum/05 & 4615/Mum/2005 dated 26.5.2006
ii) ITA No.1037/Mum/07 & 1962/Mum/07 dated 19-12-2008
9. In view of the Coordinate Bench decisions in later years, there is no need to discuss the legal issues, as on merits the rent Page 6 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai actually received by the assessee was more than the 'standard rent' to be worked out according to the Bombay Rent Control Act as directed by the CIT(A) in the impugned order.
10. Not only is that it also seen that the Assessing Officer has gone beyond the information available with him. Even though the assessee was owning many properties, all the properties are not given on tenancy to the Directors or relatives of the Directors. There are various other tenants including the RBI, Limited Companies and other tenants who are occupying various properties. Only few of the properties tenanted to certain individuals were given on higher rent and interest free deposit was accepted. The adoption of notional rent on the basis of interest free deposit was not upheld by the Bombay High Court in the case of CIT vs. J.K. Investors Ltd, 112 Taxman 107 (Bom.). Further just because there are few properties which are given on leave and license agreement at a higher rent, it does not mean that all other properties would fetch the same rate of rent as was adopted by the Assessing Officer in the block assessment. The Assessing Officer should have restricted, if at all, to the extent of evidence available or could have further inquired whether all the properties were fetching higher rent. His methodology in taking a portion of the property for arriving at the rent that would fetch in the open market was not correct when seen in the light of the fact that most of the properties were acquired when there were tenants as submitted by the assessee. There is no dispute to the fact that the tenancies are governed by Bombay Rent Control Act.
11. Further the Hon'ble Bombay High Court in the case of M/s Sahney Kirkwood Private Limited Mumbai vs. Add. CIT Range 10(2) Mumbai in ITA Nos.1501 of 2007, 1509, 1515, 1516 and 1517 of 2007 dated 29.7.2011 has considered similar issue on the question when the assessments were reopened and held as under:
"Question. Whether the ITAT was justified in holding that the leave and license agreement entered into by and between the appellant and Minicon Insulated Wires Limited (Minicon for short) for letting out the premises Page 7 of 9 IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai belonging to the assessee was a sham transaction and that the amounts received by Minicon on letting out the said premises to third parties were liable to be assessed in the hands of the assessee?".
Held...... It is not in dispute that the amounts received by Mincon have been taxed in the hands of Minicon and the assessment orders passed to that effect have attained finality. If the amounts received by Minicon by letting out the premises taken on leave and license agreement from the assessee, have been taxed in the hands of Minicon, then taxing the very same amount once again in the hands of the assessee would amount to taxing an income twice which is not permissible in law. In similar circumstances, this Court in the case of Akshay Textile Trading & Agencies (P) Limited reported in (2008) 304 ITR 401 (Bom.) has held that in the absence of any cogent evidence to show that the transaction was not genuine, the amounts received by an intermediary cannot be assessed in the hands of the assessee. In the present case, save and except the fact that one of the directors of the assessee company was also a director in Minicon, there is nothing on record to show that the transaction between the assessee and Mincon is a sham transaction. In these circumstances, in our opinion, the decision of the Tribunal in holding that the amounts received by Minicon on account of letting out the premises were liable to be assessed in the hands of the assessee on the ground that the transaction between the assessee and Minicon was a sham and bogus transaction cannot be accepted. Accordingly the second question is answered in favour of the assessee and against the Revenue".
12. Since the facts are similar to this case, we respectfully follow the principles laid down by the Hon'ble Bombay High Court in case cited supra. There is nothing on record to show that the transactions between the assessee and tenants are sham/bogus in nature. We are of the opinion that there is no need to revalue the properties and adopt unreasonable values, even with out giving statutory deductions, as was done by the Assessing Officer. Therefore, since the CIT (A) directed the Assessing Officer to adopt 'standard rent' and as it was noticed that the standard rent to be fixed was less than the rents received and offered by the assessee, we are of the opinion that there is no merit in Revenue appeal. In view of the above, the Revenue appeal is dismissed.
Page 8 of 9IT(SS) Nos 170 and 131 of 2001 Patel India Pvt Ltd Mumbai
13. Assessee's objections in cross appeal to the extent of direction of CIT(A) to adopt standard rent was rejected as it is found to be less than the actual rent received and there can not be any grievance on such direction on given facts. The issue of acquiring jurisdiction by the Assessing Officer in the block assessment u/s 158BC is not adjudicated as it becomes academic in nature. Assessee's right to pursue the legal issue in this or a higher forum, if so required as and when necessary, is however accepted. With these directions and observations appeal by assessee is dismissed.
14. In the result, appeals filed by the Revenue and the Assessee are dismissed.
Order pronounced in the open court on 14th March, 2012.
Sd/- Sd/-
(Vivek Verma) (B. Ramakotaiah)
Judicial Member Accountant Member
Mumbai, dated 14th March, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " E" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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