TaxTMI 
TaxTMI 
2019 (8) TMI 770
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.... That the finding of the Ld. CIT(A) that the assessee had not contested the head of income and, therefore, the income had to be computed under the head 'income from house property' despite the fact that the assessee has declared income of Rs. 2,76,000/- under the head 'business income' is also not based on correct appreciation facts on record and hence untenable. 1.3 That the Ld. CIT(A) has failed to appreciate that since the assessee had not let out the property but had only made available a small portion of this space for hanging boards of corporate office to group companies namely M/s Luxor Writing Instrument (P) Ltd. and M/s Luxor Fashion and, therefore, the income actually received for making available the space of Rs. 2,76,000/- was assessable under the head 'income from business or provision' and not 'income from house property' and as such, the addition made and sustained is not in accordance with law. 2. That without prejudice and even otherwise assuming that income was computed under the head 'income from house property', the computation of notional income by invoking section 23(1)(a) of the Act by lower authorities is based on fundamental misconception ....
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....imated the total area of the building of 48770 sq.ft. and by applying a rental value of Rs. 40/- per sq.ft. he computed the annual letting value at Rs. 2,34,09,600/- and after giving deduction in respect of Municipal Taxes and under section 24(a), made an addition of Rs. 1,61,91,699/- and assessed the income at Rs. 1,61,92,750/- u/s. 143(3) of the Act vide order dated 27.3.2015. Against the assessment order dated 27.3.2015, assessee preferred an appeal before the Ld. CIT(A) CIT(A) raising various issues including the actual area of the property and also the ratable value considered by the AO besides the contention that the property being used as registered office, the same cannot be considered to be a vacant property so as to be taxed on deemed rent under section 23(1)(a) of the Act. The Ld. CIT(A) however rejected the contention of the assessee and further enhanced the income by increasing the ratable value to Rs. 46/- per sq.ft. as against Rs. 40/- per sq.ft. applied by the AO. Aggrieved by the impugnd order of the Ld. CIT(A), the assessee is in appeal before the Tribunal challenging the addition made by the AO and further enhanced by the Ld. CIT(A). 3. At the time of the hear....
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....03.2015 [Pb page no. 52] duly submitted the following, inter-alia, to justify as to why addition was unwarranted: That only part of the said property (registered office) was let out while the remaining property was in its possession throughout the year as its registered office and accordingly no addition can be made. That even otherwise, out of 250 members of the Okhla Industrial Estate, around 150 members were lying vacant due to the usage restriction imposed on the said land and accordingly it was difficult to let out such land in the first place and no addition can be made on account of 23(1)(c) That the comparison could not be made with nearby properties as the same were fully furnished properties whereas the property of the assessee was an old bare production hall structure constructed in 1990 and accordingly the same even if let out would fetch miniscule rent. 10. However, ld. AO rejecting the reply of the assessee made addition of Rs. 1,62,39,728/- by taking deemed rental rate of 40 per sq. feet without there being any basis thereof. Further, the area considered by the ld. AO for the purpose of computing annual letting value was 48,770 sq.....
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....he year. 14. Ld. CIT(A) sustained the addition on account of deemed notional rental from the said property and further made enhancement by considering Rs. 46 per sq. feet as the rental rate as against the rate of Rs. 40 adopted by the ld. AO. Ld. CIT(A) adopted the said rate based by computing average rate for which 500 sq. feet was leased out to Luxor Fashion and Luxor Luxor Writing Instruments (P) Ltd. 15. Further, the ld. CIT(A) incorrectly considered the area of the property as 48,770 as against the 30,000 sq. feet covered area despite noting that the area of the property as self-assessment property tax form is 30,000 sq. feet. 16. The ld. CIT(A) further ignored the contention regarding the municipal valuation to be adopted by holding that if actual rent is more than the municipal valuation, the same is to be considered by placing reliance on the judgment of Hon'ble Delhi High Court in the case of John Tinson & Co. (P) Ltd. vs CIT [2006] 157 Taxman 410 (Delhi). 17. Now, aggrieved by the order of the ld. CIT(A), assessee is in appeal before this Hon'ble Tribunal. 18. In this regard, it is submitted that the issue involved is squarely ....
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....re addressed to such address. Even the notices of the ld. AO in relation to assessment proceedings are addressed to such property address. The same is evident from copy of notice under section 142(1) dated 16.10.2016 placed at PB page no 15, notice under section 143(2) dated 14.11.2014 placed at PB page no 29, notice under section 142(1) dated 14.11.2014 placed at PB page no 30. 23. Further, it is such address which has been captured on the return of income as well as evident from the acknowledgement of ITR [Pb age no 1]. Further, even the GST registration number held by the company indicates the said office as the Principal office of the company [Pb page no 69]. Further, the fact that such office is the registered office of the company was submitted before ld. AO is not doubted by the ld. AO. Accordingly, being the registered office and the sole office of the company, it is submitted that such office has been occupied for the purpose of business and therefore outside the ambit of section 22. 24. Further, it is also not in dispute that the portion of the property to the tune of 29,500 sq. feet (30,000 sq. feet less 500 sq. feet) on account of which deemed notional....
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....failing which it's name will be struck off from the ROC records and the same will invite penal consequences. In this regard, reliance is placed on the following judgment: Mangal Keshav Holdings Ltd. Versus ITO WD 8 (2) (4), Mumbai, ITAT Mumbai, I.T.A. Nos.2273/M/2012, 7254/M/2012, 6779/M/2013 And 6779/M/2014 M/s Kesha Appliances Pvt. Limited C/o S.P. Jain & Associates Versus ITO Ward-14 (3) New Delhi, ITAT Delhi, ITA No. 2715/Del/2016 G.R. Commercial Pvt. Ltd., New Delhi Versus Income Tax Officer, Ward 12 (2) , New Delhi, ITAT Delhi, ITA No.273/Del/2013,ITA No.1134/Del/2013 Income-Tax Officer. Versus Mokul Finance (P) Limited., ITAT Delhi, [2009] 29 SOT 11 (DELHI) (URO) Sai Fragrance & Flavours (P.) Ltd. Versus Assistant Commissioner of Income-tax, Cir. 9 (3), Mumbai, ITAT Mumbai, [2018] 90 taxmann.com 307 (Mumbai - Trib.) M/s Mangilall Estates (P) Ltd. Versus DCIT, Central Circle- 1 (3) , Kolkata, ITAT Kolkatta, ITA No.156/Kol/2015 Commissioner Of Income-Tax Versus New Savan Sugar and Gur Refining Co. Limited, Calcutta High Court, [1990] 185 ITR 564 Commissioner Of Income-Tax Versus Ganga Properties Limited, Calcutta High Court, [1993] ....
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....le other portion was let out throughout the year.". Further, it has again been stated at para 4.16.1 page 25 that "the property as admitted is a composite property and only a part is let out.". 33. Accordingly, part of the property is let and part is vacant. Further, it is only owing to vacancy of the vacant portion that the actual rent received is less that deemed annual value as per section 23(1)(a). In view of the same, section 23(1)(c) will be applicable. 34. Ld. CIT(A) observed that no relief on account of section 23(1)(c) can be given by placing reliance on the judgment of Hon'ble High Court in the case of Vivek Jain Vs. ACIT [2011] 14 taxmann.com 146 (AP). In this regard, it is submitted that the said case is not applicable since the facts of the case are different. In the said case, the entire property remained vacant throughout the year. The same is evident from para 2 of the said judgment which reads as under: "2. The appellant, a practicing advocate, filed his return of income for the assessment year 2002-03 on August 6, 2002 declaring a total income of Rs. 3,01,610. His case was taken up for scrutiny under section 143(2) of the Act. A....
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.... annual value of such house, or part of the house, to be taken as nil under section 23(2)(a) and, where the house cannot actually be occupied by the owner on account of his employment, business or profession, as nil under section 23(2)(b) provided that, in terms of section 23(3)(a), the house or part of the house had not actually been let during the whole or any part of the previous year. As a legal fiction is created the word "actually", as used in section 23(3)(c), does not find mention in section 23(1) of the Act." 36. As highlighted above, the three conditions as pointed out by the Hon'ble High Court are fulfilled in the case in hand. Part of the property is let, another part is vacant and it is owing to such vacancy that the actual rent received is less than deemed annual value as per section 23(1)(a), thus, no addition can be made by virtue of section 23(1)(c) of the Act. 37. Further, ld. CIT(A) held at para 4.16.1 page 25 that "there are three distinctly lettable portions, two wholly let out during the year and rest part vacant throughout.". In this regard, it is submitted that the ld. CIT(A) erred in considering the provision of section 23(1)(c) for let ou....
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....ty might reasonably be expected to let from year to year'. It is relevant to mention that the property taxes under The Delhi Municipal Corporation Act, 1957 is to be paid at the rateable value of the property. Section 116 of the Delhi Municipal Corporation Act provides the manner for determination of rateable value. The said provision provides that the rateable value of any land or building assessable to property taxes shall be the annual rent at which such land or building might reasonably be expected to let from year to year. 44. It is a settled law now that since the determination of rateable value of land assessable to property taxes under the Municipal laws and the annual letting value under section 23(1)(a) are both based on annual rent at which such land and building might reasonably be expected to let from year to year, accordingly, said rateable value will hold good in pari-materia under the Income Tax Laws while determining the annual letting value in respect of a property which has not been let out and thus the ALV is to be computed with reference to the municipal rateable valuation. In this regard, reliance is placed on the following judgments: ITAT MU....
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.... (Bom) Hon'ble Madhya Padesh High Court dated 03.01.2019 in the case of CIT Versus Prem Motors, I.T.A.No.78/2018, Park Paper Industries (P.) Ltd. Versus Income-Tax Officer 7(1) (3), Mumbai, IT APPEAL NOS. 1239 TO 1242 (MUM.) OF 2008, (ITAT Mumbai) 45. Further, in this regard, reliance is also placed on CBDT Circular 204 dated 24-07-1976, which discusses the amendments made vide Taxation Laws (Amendment) Act, 1975. The circular provides the following in relation to amendment made to section 23: "TAXATION LAWS (AMENDMENT) ACT, 1975-III Determination of annual value where the rent received exceeds the municipal valuation - Section 23(1) 9. Hitherto, the annual value of house property chargeable to income-tax under the head Income from house property was deemed to be the sum for which the property might reasonably be expected to let from year to year. In many cases, however, the actual rent received or receivable in a year exceeds the municipal valuation of the property. Sub-section (1) of section 23 has been amended to provide that where any property is in occupation of a tenant and the annual rent received or receivable by the owner is in ....
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....ingly, in such circumstances, the higher of the two sums may be considered as held by the Hon'ble High Court. 51. In view of the above, without prejudice to the fact that the addition is unwarranted owing to the premises being used for the purpose of business, the Annual Letting Value should be computed with reference to Municipal rateable value i.e. Rs. 24,08,832/- in the case in hand, as evident from the copy of self-assessment property tax form [Pb page no 53-55] Without prejudice to the above and in an alternate, the rent and area considered by ld. AO and ld. CIT(A) is incorrect Rent to be considered 52. Without prejudice to the above, it is submitted that the average of Rs. 46 as adopted by ld. CIT(A) is bad in law. 100 sq. feet was leased out to Luxor Fashion for Rs. 30 per sq. feet per month (3,000 per month for 100 sq. feet) and 400 sq. feet was leased out to Luxor Writing Instruments (P) Ltd. for Rs. 50 per sq. feet per month (20,000 per month for 400 sq. feet). Accordingly, assumption of ld. CIT(A) that assessee will fetch the average of Rs. 46 per sq. feet (23,000/500) is highly injudicious and unwarranted. 53. The property is....
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....ing". However, ld. AO placed reliance on the correspondence without even appreciating its intent and even chose to ignore the result of its own enquiry. 59. In this regard, attention is also drawn towards the copy of the self-assessment property tax form [Copy placed at PB page no 54] placed on record before the ld. AO as well as ld. CIT(A). Perusal of the same clearly reveals that the total area of property as 2788 sq. meter [30,000 sq. feet (2788 sq. meter X 10.7639)]. 60. Further, it is relevant to highlight that at para 4.52 page 8 of the order of ld. CIT(A), certain undisputed facts have been stated. Point (f) of para 4.5.2 page 8 of such order reveals that ld. CIT(A) is in agreement with the total area as he has stated that the "built up area is seen to be 1394 sq. meter (100%) as seen from para 8 of the Municipal Self Assessment Property Tax form filed before me' . 61. However, while making the final determination, ld. CIT(A) at para 4.16 page 25 of its order took the total area as 48,770 sq. feet without giving any reasoning. This is despite the fact that the property tax form was brought on record and it was submitted that the correspond....
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....in response to notice under section 133(6) was incorrect as the Architect in the said letter has stated the area which could be built but not what is actually built as can be seen from the said letter placed at PB page 56-57. It was submitted that the communication between assessee and Architechts Bureau only referred to the total area that could be built when assessee was contemplating during the year to demolish and construct the said building again (with two floors and one basement) to make the building of utility to the business and the said area cannot be considered as actual area as is evident from PB page no. 61. It was submitted that since the area was not let-out and was in possession of the assessee company for its own office, no addition can be made. 3.1 On the contrary, the Ld. DR placed reliance on the order passed by the authorities below. He invited our attention towards the provisions of section 23 of the Act which were amended by the Finance Act, 2001 where a property or any part of the property was vacant during the whole or any part of the previous year then the AO is entitled to compute the actual rent on the basis of the annual letting value. The Ld. DR a....
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.... it cannot be said that the property was vacant during the year. Both AO and Ld. CIT(A) have gone with the presumption that the property is vacant and hence, income on the basis of notional rent needs to be added under section 23(1)(c) of the Act. We are of the view that the company having occupied the property for its own purposes, no notional rent can be added. It may be germane to mention here that this is the only property owned and occupied by the assessee as its registered office. It is not the case of the AO that the assessee company was having some other premises to have its office. A company having been incorporated is legally required to have its registered office irrespective of the fact whether during the year it has carried on any activity or not. There is a statutory requirement under the Companies Act to have a registered office. We are also in agreement with the contention of the Ld. AR for the assessee that the cost incurred by the company in order to comply with various statutory functions is allowable even in the absence of any business income. In case, a company does not have its own premises then such company will be required to take a premises on rent for its ....