2018 (1) TMI 285 - AT - Income Tax

Tribunal Upholds AO's ALV Determination Overturning CIT(A)'s Decision

The Tribunal upheld the Assessing Officer's determination of the Annual Letting Value (ALV) at Rs. 51,00,000/- based on comparable rents, departing from ... Determination of ALV - invoking the provisions of section 23(1)(a) as against the ALV declared by the assessee u/s 23 (1) (b) - Held that:- As in the case of CIT vs. Tip Top Typography [2014 (8) TMI 1002 - BOMBAY HIGH COURT] expounded that though there cannot be a blanket rejection of the municipal valuation but the Assessing Officer can deviate from the same if he has cogent and reliable material. In the present case, find that the premises under consideration is in posh locality in Cuffe Parade, Mumbai. The Assessing Officer has made due enquiry and gathered cogent and reliable material regarding the applicable rent in such property in same building and same wing. The Assessing Officer has found that identical property is fetching monthly rent of ₹ 4,25,000/-. In such circumstances, the rateable value determined by the Assessing Officer is based upon cogent and reliable material. Hence, departure from the municipal valuation adopted by the assessee is duly justified and is in accordance with Hon'ble jurisdictional High Court guidelines as above. Accordingly, set aside the order of the ld. Commissioner of Income Tax (Appeals) and restore the order of the Assessing Officer. - Decided in favour of revenue Issues Involved:1. Determination of Annual Letting Value (ALV) of the property under Section 23(1)(a) vs. Section 23(1)(b) of the Income Tax Act, 1961.2. Reliance on municipal rateable value vs. actual rent received for calculating Income from House Property.3. Validity of the Assessing Officer's (AO) comparison with similar properties to determine ALV.4. Adherence to judicial precedents in determining ALV.Issue-wise Detailed Analysis:1. Determination of Annual Letting Value (ALV):The primary issue is whether the ALV of the assessee's property should be determined under Section 23(1)(a) or Section 23(1)(b) of the Income Tax Act, 1961. The AO determined the ALV at Rs. 51,00,000/- under Section 23(1)(a), considering the fair rent of similar properties, while the assessee declared it under Section 23(1)(b) based on actual rent received of Rs. 5,44,332/-. The AO argued that the inherent capacity of the property to yield income should be considered, not merely the rent received.2. Reliance on Municipal Rateable Value vs. Actual Rent Received:The assessee contended that the municipal rateable value of Rs. 5,10,690/- should be the basis for ALV, as the actual rent received was higher than this value. The Commissioner of Income Tax (Appeals) [CIT(A)] agreed with this approach, citing judicial precedents that municipal rateable value should be considered for Section 23(1)(a) and actual rent for Section 23(1)(b) if it exceeds the municipal value.3. Validity of AO's Comparison with Similar Properties:The AO conducted an enquiry under Section 133(6) and compared the rent of similar properties in the same building, finding that the actual rent received by the assessee was significantly lower. The AO concluded that the ALV should be Rs. 51,00,000/- based on comparable rents. The CIT(A) disagreed, stating that the AO misunderstood Section 23 and should have considered the municipal rateable value first.4. Adherence to Judicial Precedents:The CIT(A) relied on decisions in ITO vs. Surge Enterprises Ltd. and DCIT vs. Rasiklal Premchand Sheth, which emphasized using municipal rateable value for Section 23(1)(a) and actual rent for Section 23(1)(b) if it exceeds the municipal value. However, the Tribunal referred to the Bombay High Court's decision in CIT vs. Tip Top Typography, which allowed deviation from municipal valuation if the AO has cogent and reliable material. The Tribunal found that the AO's determination of ALV based on comparable rents was justified and in line with the High Court's guidelines.Conclusion:The Tribunal concluded that the AO's determination of ALV at Rs. 51,00,000/- was based on cogent and reliable material, and hence, a departure from the municipal valuation was justified. The order of the CIT(A) was set aside, and the AO's order was restored. The Revenue's appeal was allowed, emphasizing adherence to the Bombay High Court's decision over the Tribunal's previous decisions. The judgment was pronounced in the open court on 01.01.2018.