2019 (2) TMI 1679 - AT - Income Tax

Tribunal Upholds CIT(A)'s ALV Decision, Dismisses Revenue Appeals

The Tribunal upheld the CIT(A)'s decision to determine the Annual Letting Value (ALV) based on municipal rateable value, dismissing Revenue's appeals. ... Annual Letting Value - Municipal Rateable Value as guide to deemed rent - Deemed annual value under Section 23(1)(a) - Market rent versus municipal rateable value - Assessing Officer's local enquiries for prevailing market rate - Ad-hoc enhancement of ALVAnnual Letting Value - Municipal Rateable Value as guide to deemed rent - Market rent versus municipal rateable value - Assessing Officer's local enquiries for prevailing market rate - Deemed annual value under Section 23(1)(a) - Whether ALV of the vacant house properties should be determined on the basis of municipal rateable value or on the basis of market rent determined by the Assessing Officer after local enquiries - HELD THAT: - The Tribunal examined its coordinate-bench precedents and the decisions of the Bombay High Court (including Tip Top Typography and the court's reliance on Smitaben N. Ambani) and concluded that municipal rateable value is a legitimate and `safe guide' for determining deemed rent under the statutory scheme. While the Assessing Officer is not strictly bound by the municipal rateable value, displacement of that value by a market-rent estimate requires cogent and reliable material to show the municipal value is not a bona fide indicator. In the present appeals, having regard to the coordinate-bench rulings in the assessee's own earlier-year proceedings and the High Court's rulings endorsing municipal ratable value in similar circumstances, there was no justification to reject the municipal rateable value in favour of the AO's market-rate computation. Consequently the CIT(A)'s adoption of municipal rateable value was upheld and the Revenue's challenge dismissed. [Paras 7]The finding of the CIT(A) that ALV be determined on the basis of municipal rateable value is upheld and the Revenue's appeals are dismissed.Ad-hoc enhancement of ALV - Annual Letting Value - Municipal Rateable Value as guide to deemed rent - Whether the Assessing Officer (or the Commissioner (Appeals)) could enhance ALV by making ad-hoc percentage additions over the municipal rateable value - HELD THAT: - The Tribunal followed its earlier decision in the assessee's own case for AY 2012-13, which declined to permit ad-hoc upward adjustments to ALV determined on the basis of municipal rateable value. Absent specific, reliable material justifying an enhancement over the municipal rateable value, making an ad-hoc percentage increase is unjustified. Applying that consistent approach to the facts of these appeals, the Tribunal directed deletion of additions made by the AO on that ad-hoc basis. [Paras 8]Additions made by the AO by way of ad-hoc enhancement of ALV are deleted and the assessees' appeals are allowed to that extent.Final Conclusion: Consistent with coordinate-bench precedents and the Bombay High Court authority relied upon, ALV of the vacant properties for AY 2013-14 and 2014-15 is to be determined on the basis of municipal rateable value; the Revenue's appeals are dismissed and the assessees' appeals are allowed insofar as ad-hoc enhancements to ALV are deleted. Issues Involved:1. Determination of Annual Letting Value (ALV) of house property.2. Consideration of municipal rateable value versus market rate for ALV.3. Ad-hoc enhancement of ALV by the Assessing Officer (AO).Issue-wise Detailed Analysis:1. Determination of Annual Letting Value (ALV) of House Property:The primary issue in these cross appeals is the determination of the ALV of house properties for the assessment years 2013-14 and 2014-15. Both the Revenue and the assessees contested the ALV determined by the authorities. The Revenue argued that the ALV should be based on the market rate, while the assessees contended that the ALV should be based on the municipal rateable value.2. Consideration of Municipal Rateable Value Versus Market Rate for ALV:The Tribunal noted that the issue of determining the ALV on the basis of municipal rateable value had been deliberated in the assessee’s own case for the assessment year 2012-13. The Tribunal had upheld the findings of the CIT(A) in determining the ALV based on the municipal rateable value, following the decision of the Hon’ble Bombay High Court in the case of CIT vs. M/s TIP Top Typography (2014) 368 ITR 330. The Tribunal emphasized that the municipal rateable value is a safe guide for determining the ALV unless there is cogent and reliable material to suggest otherwise. The Tribunal reiterated that the AO is not bound by the municipal rateable value but can resort to the market rate only when the case is suspicious or the determination by the parties is doubtful.3. Ad-hoc Enhancement of ALV by the Assessing Officer (AO):The Tribunal also addressed the issue of ad-hoc enhancement of the ALV by the AO. It was noted that in the assessee’s own case for the assessment year 2012-13, the Tribunal had rejected the AO’s ad-hoc enhancement of the ALV by applying a certain percentage over the previous year’s ALV. The Tribunal found no reason for the lower authorities to enhance the ALV on an ad-hoc basis and directed the AO to delete the additions made towards the ALV of the house property on an ad-hoc basis.Conclusion:The Tribunal concluded that there was no error in the CIT(A)’s determination of the ALV based on the municipal rateable value and dismissed the appeals filed by the Revenue. The appeals filed by the assessees challenging the ad-hoc enhancement of the ALV were allowed. The Tribunal directed the AO to delete the additions made towards the ALV of the house property on an ad-hoc basis.Order Pronouncement:The Tribunal pronounced the order in the open Court on 27/02/2019, dismissing the appeals filed by the Revenue for the assessment years 2013-14 and 2014-15 and allowing the appeals filed by the different assessees for the same assessment years.