TaxTMI 
TaxTMI 
TaxTMI 
2018 (5) TMI 1854
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....T (A) is justified in deleting the addition of Rs. 87,05,760/- as the deemed annual lettable value of flats? 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 35,07,000/- u/s.68 of the Act being amount of liability shown payable to Mr. Jimmy Parekh. 3. Whether on the facts and in the circumstances of the case and in law, the Id. CIT(A) is justified in deleting the additional disallowance to the tune of Rs. 2,35,62,191 /- u/s. 14A r.w.r.8D of the Act." 3. The brief facts of the case are that the assessee is Non Banking Finance Company (NBFC) registered with RBI under the category of „Investment Company‟. The assessee mainly received income from dividend, property income and profits from partnership firm of which the assessee is partner. The assessee received dividend income of Rs. 32,57,96,320/- which was claimed as an exempt income.The assessee voluntarily disallowed a sum of Rs. 5,44,975/- as an expenditure incurred in relation to earning of an exempt income under the provisions of Section 14A of the 1961 Act. The working of the said disallowance is also certified by tax-uditors vide Annexure....
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....e in an appeal before the tribunal. 6. The Ld. DR supported the assessment order of the AO and submitted that only 0.5% of the average investment has been disallowed u/s. 14A r.w.r. 8D(2)(iii). The learned DR submitted that Rule 8D(2)(iii) is applicable and the AO has rightly invoked Rule 8D(2)(iii) of the 1962 Rules r.w.s. 14A to the tune of Rs. 2,41,06,880/- which is the main dispute between rival parties.It was submitted that so far as disallowance of Rs. 143/- made by the AO u/r 8D(2)(i) r.w.s 14A of direct expenses incurred in relation to earning of an exempt income, there is no dispute. Similarly, it was submitted that there was no disallowance made of interest expenses incurred or attributable in relation to earning of exempt income u/r 8D(2)(ii) as there was no Interest expenses incurred by the assessee and hence again there is no dispute between the rival parties. Thus, it was submitted that the whole dispute between rival parties revolve around the disallowance u/r 8D(2)(iii) of the 1962 Rules read with Section 14A of the 1961 Act. 7. The Ld. Counsel for the assessee at the outset also submitted that the whole controversy is w.r.t. disallowance of Rs. 2,41,06,880/- made....
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....urred by the assessee at all. Thus, it was submitted that Rule 8D cannot be applied in an manner to disallow notional expenditure which was never incurred or were never claimed in the Profit and Loss Account as an expenditure as no prejudice is caused to the Revenue as the said notional expenses were never claimed as deduction by the assessee. Our attention was drawn to page no. 75/pb to submit that assessee has suo-motu disallowed certain expenses to the tune of Rs. 4,13,486/- voluntarily out of total expenses of Rs. 15,03,151/- incurred by the assessee and w.r.t. balance remaining expenditure incurred to the tune of Rs. 10,89,665/-, 50% of the said expenses aggregating to Rs. 5,44,975/- were disallowed by the assessee of its own voluntarily suo motu u/s 14A of the Act which is ascertained having regards to the accounts of the assessee. The auditors were also satisfied after seeing the entire spectrum of the expenses vis-a-vis business activities of the assessee that the voluntarily disallowance of Rs. 5,44,975/- is correct disallowance of expenditure u/s 14A which will meet end of justice and the auditors certified the said disallowance in tax-audit report signed by them in Form ....
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....e activities. The AO has not recorded any satisfaction u/s 14A(2) as to why disallowance offered by the assessee suo motu voluntarily is not a correct disallowance u/s 14A and the same needs to be discarded . The AO mechanically applied Rule 8D and arrived at disallowance of Rs. 2,41,07,023/- u/s 14A r.w.r. 8D notwithstanding that the assessee has incurred total expenses of Rs. 15,03,151/- during relevant year which was claimed as an expenses in profit and Loss Account (pb/page 40). Out of these total expenses of Rs. 15,03,151/-, the assessee voluntarily disallowed Rs. 4,13,486/- and never claimed the same as business deduction, while out of the balance remaining expenses of Rs. 10,89,665, the assessee computed disallowance of Rs. 5,44,832/ u/s 14A towards indirect expenses relatable to earning of an exempt income while also the assessee voluntarily additional disallowed an expenditure of Rs. 143/- directly relatable to an exempt income, thus total disallowance of expenditure to the tune of Rs. 5,44,975/- was offered by the assessee suo motu voluntarily u/s 14A to have been incurred for earning an exempt income. The AO did not recorded any satisfaction u/s 14A (2) as to why disallo....
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..... 10,000/- to the assessee company, while flat no. 3 owned by the assessee was stated to be lying vacant. The AO made enquiries from various real estate websites such as magicbricks.com, 99acres.com etc to come to conclusion that the prevailing market rent of these flats is Rs. 200 per square feet per month which should be taken as ALV of these residential flats for computing income under the head „Income from House Property‟. The assessee relied upon the orders of ITAT, Mumbai in ITA no. 4036/Mum/2008 for AY 2004-05 in assessee‟s own case wherein annual value as declared by the assessee in its return of income was accepted by ITAT. The AO observed that ITAT, Mumbai in AY 2004-05 followed its own order for AY 2003-04 in ITA no. 1228/Mum/2009 vide orders dated 18-05-2009, which were concerning flat no. 8 which was let out by the assessee to its Director Mr. Shapoorji Pallonji Mistry, while ALV of flat no. 3 was never an issue before ITAT. The AO thus observed the assessee cannot be granted benefit of earlier orders of the ITAT as ALV of flat no. 3 was never an issue before the tribunal. The AO observed that the assessee has taken municipal valuation for computing A....
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....f the 1961 Act. It was submitted that municipal valuation is for paying municipal taxes which is altogether different concept than computation of an ALV for purposes of charging tax under the head „Income from House Property‟ within provisions of 1961 Act. It was submitted that if municipal authorities do not revise rateable value for municipal taxes in tune with market rent , then same will loose its relevance altogether for the purposes of computing ALV under the provisions of 1961 Act , as for computing ALV , it is the sum for which the property might reasonably be expected to be let from year to year is fair value or if the actual rent received is more than this fair value as computed u/s 23(1)(a), then the said rent so received or receivable has to be brought to tax u/s 23(1)(b) . The learned DR strongly placed reliance on the decision of Hon‟ble Bombay High Court in the case of Tip Top Typography (supra) which was pronounced on 08-08-2014 and it was submitted that all decisions so relied upon by the assessee are prior to this decision of Hon‟ble Bombay High Court and hence ratio of decision in the case of Tip Top Typography(supra) was rightly followed ....
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....Rajkot) Private Limited in ITA no. 40/Mum/1999 has come to the conclusion that ALV has to be computed based on standard rent determined in accordance with the Rent Control Act, annual municipal value which if available could be ALV and if the actual rent received or receivable is more than standard rent or annual municipal value, then the actual rent is to be taken as ALV of the property for the purposes of computing income under the head „Income from House Property‟ (page 111-113/pb). It was submitted that the said decision of the tribunal for AY 1995-96 was approved by Hon‟ble Bombay High Court in ITA no. 752 of 2004 vide orders dated 26-09-2007 in the case of CIT v. Shapoorji & Co. It was submitted that in these cases, the reference was to flat no. 3 which was taken over by the assessee in AY 2009-10 from Shapoorji & Co. (Rajkot) Limited. The learned counsel for the assessee also relied upon the decision(s) of Hon‟ble Calcutta High Court in the case of CIT v. Prabhabati Bansali reported in (1983)141 ITR 419(Cal.), Hon‟ble Bombay High Court decision in the case of M.V Sonavala v. CIT (1989)177 ITR 246(Bom.) , Hon‟ble Delhi High Court decision i....
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....e annual value of the property for bringing the same to tax as income under the head „Income from house property‟. We are concerned with the amended law as year under consideration before us is AY 2012-13. In the instant case, the actual rent received or receivable by the assessee w.r.t. flat no. 8 being higher than municipal rateable value, the assessee has contended that the same is to be accepted and brought to tax under Section 23(1)(b) while for flat no. 3 which was stated to be lying vacant it is contended that only municipal rateable value can be brought to tax under the head „Income from house property‟ within provisions of Section 23(1)(a), which as per assessee culminated into the income chargeable to tax under the head „Income from House Property‟ aggregating to the tune at Rs. 85,296/- from both of these flats after availing statutory deductions etc. , which value was infact offered for taxation by the assessee. The AO being in disagreement with the income so computed under the head „income from house property‟ by the assessee of these two flats relied upon recent decision of Hon‟ble Bombay High Court in Tip Top Typo....
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....es but the contentions are only raised that this valuations cannot be accepted at law and contentions are advanced to apply municipal rateable value for computing ALV or in case of flat no 8 where the actual rent received or receivable is higher than municipal rateable, to adopt actual rent to compute ALV. It is pertinent to mention that the tenant to whom the flat no. 8 is let out is a Director of the assessee company and he is paying rent of Rs. 10,000 per month for a flat of 3062 square feet in a society situated in a posh South Mumbai area in Walkeshwar Road, Mumbai which translates into rent of Rs. 3.27 per square feet per month as against market rate of Rs. 200 per square feet per month as reflected in websites of magicbrick.com, 99acres.com etc for similar flats in the area. We will like to draw reference to some of the cases to understand how the ALV needs to be computed. Hon‟ble Delhi High Court in the case of CIT v. R Dalmia (decd.) (supra) observed as under: " ......There may ,however, be cases in which the annual value fixed under the municipal law may be unacceptable to the income-tax authorities for good reasons. We have not laid down any general principle tha....
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.... has not been fixed by the Rent controller, then it is the duty of the Assessing Officer to determine the standard rent as per the provisions of rent control enactment. (vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent. We would like to remark that still the question remains as to how to determine the reasonable /fair rent. It has been indicated by the Supreme Court that extraneous circumstances may inflate/deflate the "fair rent". The question would, therefore, be as to the what would be circumstances which can be taken into consideration by the Assessing Officer while determining the fair rent. It is not necessary for us to give any opinion in this behalf, as we are not called upon to do so in these appeals. However, we may observe that no particular test can be laid down and it would depend on facts of each case. We would do nothing more than to extract the following passage from the Supreme Court judgment in the case of Motichand Hirachand v. Bombay Municipal Corporation, AIR 1968 SC 441, 442: "it is well recognised principle in rating that both gross v....
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....he same is applicable to premises in question. Then in that event the AO has to undertake the exercise contemplated by the Rent Control Legislation for fixation of standard rent. It was held that either the AO should proceed to determine the standard rent himself in terms of the Maharashtra Rent Control Act, 1999 or leave the parties to determine the same by the Court of Tribunal under that Act. In the instant case before us, the two residential flats owned by the assessee are situated in one of the posh areas of South Mumbai at Walkeshwar Road. The residential flat no. 8 admeasuring 3062 square feet is let out by the assessee to its related party i.e. its Director Mr. Shapoorji Pallonji Mistry at a meagre monthly rent of Rs. 10,000/-. The AO was not satisfied with this monthly rental which was chargeable from its Director as in his opinion the rental were deflated by the assessee deliberately for letting out to its Director. The AO made enquiry from the websites of real estate companies such as magicbrick.com, 99acres.com etc and came to the finding that the prevailing market rental of similar flats in this area is Rs. 200/- per square feet per month against which the assessee was....
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....sions as is referred to by the assessee cannot be accepted as these decisions in the case of CIT v. Prabhabati Bansali(supra), M.V Sonavala v. CIT (supra) and Dewan Daulat Rai Kapoor v. NDMC (supra) were duly considered by Hon‟ble Bombay High Court in Tip Top Typography (supra) to arrive at conclusion. The decision of Hon‟ble Supreme Court in the case of Smt. Padma Debi(supra) has also stressed upon finding out a bargain between a willing lessor and a willing lessee uninfluenced by any extraneous circumstances may afford a guiding test of reasonableness. An inflated or deflated rate of rent based upon fraud, emergency, relationship and such other consideration may take it out of the bounds of reasonableness. The reliance of the assessee in the case of CIT v. R. Dalmia(supra) also shall be no avail as in this case the Hon‟ble Delhi High Court has already held that there may be cases in which the annual value fixed under the municipal law may be unacceptable to the income-tax authorities for good reasons. The Hon‟ble Delhi High Court held that they have not laid down any general principle that the income-tax authorities must adopt the municipal value as being ....
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....on to the income of the assessee for the impugned AY 2012-13 made by the AO to the tune of Rs. 35,07,000/- as an unexplained cash credit u/s 68 of the 1961 Act, vide assessment order dated 25-02-2015 passed by the AO u/s 143(3) of the 1961 Act. 15. Aggrieved by the assessment order dated 25-02-2015 passed by the AO u/s 143(3) of the 1961 Act, the assessee filed first appeal with learned CIT(A). The assessee submitted before learned CIT(A) that Mr Jimmy J. Parekh was an employee of its group company namely M/s Sterling Investment Corporation Private Limited from 01-01-1983 to 30-11-2008 and he was employee of the assessee from 01-01-2009 to 31-03-2011. It was submitted that gratuity and leave salary payable to him by Sterling Investment Corporation Private Limited amounting to Rs. 67,94,590/- was transferred during financial year 2008-09 to the assessee along with cheque of the same amount. It was submitted that employees salary and incentive had fallen in the current year to Rs. 5.15 lacs from Rs. 371.04 lacs in preceding year on account of reduction of employees from two employees namely Mr Vikas Pansare, Company Secretary -Cum-Manager and Mr Jimmy J. Parakh during financial year....
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....e.f. 01-01-2009. On being transferred to the assessee company, his gratuity and leave encashment standing to his credit in the books of Sterling Investment Corporation as on 30-11-2008 aggregating to Rs. 67,94,590/- was also transferred to assessee company during FY 2008-09 along with cheque of the like amount issued by Sterling Investments Corporation Limited in favour of the assessee company. The said employee continue to work with the assessee company from 01-01-2009 to 31-03-2011 and retired on 31-03-2011. His terminal benefits being gratuity and leave encashment aggregated to Rs. 1,38,72,840/- which was lying under „Short Term Provisions‟ in Balance Sheet Schedule -7 being „Provision for Employee Benefit‟ -Gratuity Rs. 1,18,45,385 and Leave Encashment-Rs.20,27,455/- as on 31-03-2011 was taken off from Schedule-7 to Schedule-6 being „Other Current Liabilities‟ under the head „Employee benefits payable‟ -Rs.1,38,72,840/- in the Balance Sheet as at 31-30-2012. Thus, this is inter-adjustment of the classification of heads under which liability is reflected as is required under the Companies Act, 1956 wherein liability was taken off f....