TaxTMI 
TaxTMI 
2015 (10) TMI 2026
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the income tax Act, 1961. Without prejudice to the aforesaid Ground of appeal. (iii) On the facts and in the circumstances of the case and in law, learned CITA erred in taking the security deposit amount at the Rs. 25,15,000/- instead of correct amount of Rs. 25,00,000/-. (iv) On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in holding that the notional interest @ 12% on interest free deposit of Rs. 25,15,000/- was assessable as income from the House Property by relying on the judgment of the Bombay High Court in the case of J.K. Investors Ltd., Vs. C.I.T. reported in 248 I.T.R. Pg. 723. (v) On the facts and in the circumstances of the case and in law, the learned C.I.T. (A) erred in confirming the addition of Rs. 1 0,68,568/- on account of disallowance of Bank Interest and Bank charges on the ground that the Bank Loan is utilized for other than business purpose. (vi) The appellants crave leave to add, alter, amend or delete any ground(s) of appeal either before or during the course of hearing of the appeal." 2. Ground No.1 and 6 are general and do not need any specific adjudication. 3. Ground no.2: The assessee has challenged the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... was further submitted by the assessee that the AO has failed to arrive at the Municipal Valuation u/s 23(1)(a) and without application of mind, AO has added notional interest on the amount of Security deposits, which did not fall either in the Municipal Valuation, Fair Rent or in Maharashtra Rent Control Act. The Ld. CIT(A) did not accept the submissions of the assessee on the ground that element of interest income could not have been ignored while considering the genuineness of fair rent of the property. 3.3. Before us, Ld. Counsel has submitted that the addition made was illegal and contrary to the provisions of Income Tax Act, 1961. It has been submitted by the Ld. Counsel that AO has not ascertained the fair market rent of the impugned property as per section 23(1)(a) of the Act, but has simply made the addition on account of notional interest on the ground of security deposit and added it to the actual rent received by the assessee. There is no finding based upon any investigation or any comparable case or any adverse material establishing that actual rent received by the assessee was less than the fair market rental valuation of the said property. The Ld. Counsel has relied....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing Officer has made the addition by adopting 12% interest rate on the interest free deposits and determined the annual value of the property by adding the said notional interest in the actual rent received by the assessee. There is no quarrel on this point that if the Assessing Officer finds that the interest free deposits has the effect to deflate or inflate the rent agreed between the parties then the Assessing Officer is free to carry out the necessary investigation and enquiry. However, he must have cogent and satisfactory material in his possession and which will indicate that the parties have concealed the real position as observed by the Hon'ble Jurisdictional High Court in the case of CIT Vs. Tip Top Typography (Supra) in para 47 as under:- "47. We are of the view that where Rent Control Legislation is applicable and as is now urged the trend in the real estate market so also in the commercial field is that considering the difficulties faced in either retrieving back immovable properties in metro cities and towns, so also the time spent in litigation, it is expedient to execute a leave and license agreements. These are usually for fixed periods and renewable. In such case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te based on fraud, emergency, relationship and other considerations makes it unreasonable must precede the undertaking of the above exercise. After the above ascertainment is done by the Officer he must, then, comply with the principles of fairness and justice and make the disclosure to the Assessee so as to obtain his view." 7. Since in the case in hand, the Assessing Officer had not conducted any enquiry or investigation to find out the effect of interest free deposits and to determine the fair market rent expected to be fetched by the property in question as per clause (a) of section 23 then the Assessing Officer cannot be allowed to make the addition on account of notional interest. The Hon'ble Jurisdictional High Court in the case of CIT Vs. Tip Top Typography (Supra) while considering the Judgment of full bench of the Hon'ble Delhi High Court in the case of CIT Vs. Moni Kumar Subba (supra) has held in para 51 to 54 as under:- "51.We quite see the force in the arguments of Ms. Vissanjee that ordinarily the license fee agreed between the willing licensor or a willing licensee uninfluenced by any extraneous circumstances would afford reliable evidence of what the landlord mig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion. Then, the Assessing Officer has to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. The attempt by the Assessing Officer to override the rent control legislation and when it balances the rights between the parties has rightly been interfered with in the given case by the Appellate authority. The Assessing Officer either must undertake the exercise to fix the standard rent himself and in terms of the Maharashtra Rent Control Act, 1999 if the same is applicable or leave the parties to have it determined by the Court or Tribunal under that Act. Until, then, he may not be justified in applying any other formula or method and determine the "fair rent" by abiding with the same. If he desires to undertake the determination himself, he will have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by the Assessing Officer. Once again having respectfully concurred with the judgment of the Full Bench of the Delhi High Court, we need not say anything more on this issue. 53.Thus, apart from the three aspects ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the property in question, as per clause (a) of section 23(1). Under these circumstances, AO cannot be allowed to make addition on account of notional interest. Since this issue stands squarely covered with the aforesaid judgments, it is held that the addition made by the AO of Rs. 2,20,316/- is contrary to law and facts and the same is directed to be deleted. 4. Ground No.3: The assessee has challenged the computation mistakes in working out the amount of notional interest. Since addition in this regard has been deleted by us in pursuance to Ground no.2 above. Therefore, Grounds no. 3 & 4 do not survive for adjudication and these are dismissed as infructuous. 5. Ground no.5: The assessee has challenged the action of Ld. CIT(A) in confirming the addition of Rs. 10,68,568/- on account of disallowance of Bank Interest and Bank Charges on the ground that the Bank Loan is utilized for other than business purpose. 5.1. The brief facts are that during the year assessee was in the business of resorts. During the year assessee had taken loan from Bajaj Finance. This loan was utilized for land purchased and rest has been used in regular course of business. The assessee officer made f....