2019 (1) TMI 348 - AT - Income Tax

Addition of income from House Property - estimation of ALV - Held that - As noted that property situated at Flat No.72, L Block, Maker Tower, Cuffe Parade, Mumbai was actually let out to Bank of America during AY 2007-08 @ ₹ 2 Lacs per month. This rent has drastically been reduced to ₹ 25,000/- per month upon receipt of interest free security deposit of ₹ 4 Crore from the tenant. No plausible / cogent explanation regarding drastic reduction has been placed on record. Similar addition in immediately preceding AY 2009-10 was accepted by the assessee by not preferring second appeal and the matter had already attained finality in preceding year - Interest free security deposit received by the assessee was advanced to sister concerns without any interest and no income has been reflected by the assessee against the same. The totality of the above facts lends credence to the reasoning of both the lower authorities and therefore, the conclusion that the whole exercise was a colourable device to reduce overall tax burden, could not be said to be without any sound basis. We concur with the same. Accordingly, the ground raised by the assessee, in this regard, stand dismissed. The office premise situated at Raheja Centre, Nariman Point was stated to be leased out to a corporate entity in which the assessee was a director. No rental income was reflected by the assessee against the same. It is settled law that corporate entity is a separate legal entity in the eyes of law and the business carried out by the corporate entity could not be said to be the business of shareholders / directors. Therefore, the reasoning that the premise was being used for assessee s business, hold no water. AR has submitted that the assessee was not provided an opportunity to rebut the estimated rental rates adopted by AO in violation of principle of natural justice. As submitted that the property was covered by State Rent Control Act and the notional rent could not exceed the standard rent fixed under the act in terms of certain judicial pronouncements. Keeping in view the same, while upholding the stand of lower authorities in bringing to tax the notional rental value, the matter of estimation stand remitted back to the file of AO to consider the valuation proposed by the assessee, who, in turn, is directed to substantiate his stand. The ground stand partly allowed. The shops / units situated at Hilton Center, Belapur, Navi Mumbai are stated to be used by the assessee by one of his partnership firm. The first appellate authority concurred with the stand of assessee that use of premise by assessee s partnership firm could be said to be use of premise by the assessee for own business. We concur with the same since a firm is constituted, collectively by its partners and the business of the firm could be said to be the business of its partner. However, upon perusal of quantum assessment order, it transpire that the assessee failed to substantiate the fact that the premise was being used by the firm. Therefore, for limited purpose of verification, the matter stand remitted back to the file of Ld. AO with a direction to the assessee to demonstrate the same. The revenue s appeal stands allowed for statistical purposes. Regarding flat at Seawood, it is undisputed fact that the assessee had already taken the possession of the same during January, 2009 and the flat was never let out at any point of time since inception. In such a case, the provisions of Section 23(1)(c) could not apply to the fact of the case since for the applicability of the same, the property should have actually been let out at some point of time, which is not the case here. The notional rental value of the same was required to be brought to tax since under law only one property, at the option of the assessee, could be termed as self-occupied property whereas all the other properties are deemed to be let out. Therefore, while upholding the stand of lower authorities in assessing the notional value of this property, the matter stand remitted back to the file of AO to consider the valuation thereof as proposed by the assessee since a plea of violation of natural justice has been raised before us.

Summary

Issues involved:
1. Addition of income from various properties under the head "Income from House Property" for Assessment Year 2010-11.
2. Dispute over the estimation of rental income for different properties owned by the assessee.
3. Validity of additions made by the Assessing Officer (AO) and confirmation by the Commissioner of Income Tax (Appeals) (CIT(A)).
4. Interpretation of legal provisions regarding rental income and property usage.

Detailed Analysis:
1. The cross-appeals contested the order of the CIT(A) for the Assessment Year 2010-11 regarding the addition of income from House Property for different properties owned by the assessee. The assessee challenged the additions, while the revenue contested the deletion of certain additions made by the AO. The assessment was framed by the AO under section 143(3), determining the assessee's income at ?449.23 Lacs. The subject matter of the appeals mainly revolved around additions under the head House Property.

2. The income from various properties owned by the assessee was assessed under the head "Income from House Property." The AO estimated rental incomes for different properties, such as Flat No. 72, L-Block, Maker Tower, Cuffe Parade, and Gala Nos. 52 & 53, among others. The AO based the estimations on factors like rental rates and property usage. The additions were made after statutory deductions of 30%.

3. The CIT(A) partially upheld the additions made by the AO, citing reasons such as previous acceptance of similar estimations by the assessee and legal interpretations regarding property usage. The CIT(A) confirmed some additions but deleted others based on specific grounds. The assessee and revenue both appealed the decision before the ITAT.

4. The ITAT carefully considered the arguments presented by both parties, along with relevant judicial pronouncements and material on record. The ITAT analyzed each property separately, addressing issues like the reduction of rental income, property usage by a corporate entity, and compliance with legal provisions. The ITAT partially allowed the assessee's appeal and allowed the revenue's appeal for statistical purposes.

In conclusion, the ITAT's judgment addressed the disputes regarding the addition of income from various properties under the head "Income from House Property" for the Assessment Year 2010-11. The decision provided detailed reasoning for upholding or modifying the additions made by the AO and confirmed by the CIT(A), emphasizing legal interpretations and factual considerations for each property involved in the case.