2019 (12) TMI 352 - AT - Income Tax

Addition on house rent - Addition made on account of difference between rent received by the assessee and fair market value for the properties - As per AO the said properties were located in big cities like Mumbai, Delhi and Pune and according to ld. DR the value as determined by the municipal laws is not binding on the assessee - HELD THAT - Hon ble High Court of Delhi in the case of Moni Kumar Subba 2011 (3) TMI 497 - DELHI HIGH COURT held that the annual value fixed by the Municipal authorities can be valuable yardstick, however, it would be subject to the condition that the annual value fixed bears a close proximity with the Assessment Year in question in respect of which assessment is to be made under the Income Tax proceedings. It may not be a safe yardstick if there is a change in the circumstances because of passage of time that the annual value fixed by the municipal authorities much earlier. Therefore it is clear that the Hon ble High Court of Delhi pleased to say the annual value fixed by the municipal authorities can be rationale and reasonable but subject to the condition that the value determined by the municipal value should be a close proximity with the Assessment Year under consideration. As noticed from Page No.28 wherein is a written submission, before the CIT(A) showing municipal value is far less than the rent received by the assessee. It is noted from the record as held by the CIT(A) that no evidence whatsoever brought on record by the AO for comparison that the rent received by the assessee is far less than to any of the property located in the similar area. The CIT(A) also held that Assessing Officer erred in applying the method provided in Schedule III of Wealth Tax Act. It is correct to note that the Assessing Officer did not accept the claim of rent received by the assessee and he doubted that it has been received between M/s Ballarpur Industries Ltd. and the assessee according to their suit will. Admittedly, the value determined by the municipal authority regarding the seven properties of assessee is much less than the rental income as shown by the assessee. Hon ble High Court of Delhi opined that in the case of Moni Kumar Subba (supra), that if the Assessing Officer finds the value determined by the Municipal authorities is not reasonable, he can determine the value on the basis of material/evidence by placing on record. As discussed above, there was no such exercise done by the Assessing Officer. However it has to be noted that the appellant- Revenue is following consistently in accepting the income as offered by the assessee under the head income from house property for earlier A.Y. 2006-07 and subsequent assessment years. As noted above, the CIT(A) in the present year under consideration considering the reasoning given by his predecessor for A.Y. 2008-09 deleted the additions by holding the rental income as offered by the assessee is reasonable/fair, so therefore, in our opinion, the CIT(A) rightly justified in deleting the addition made by the Assessing Officer. Thus only ground raised by the Revenue fails and it is dismissed.

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Justification of the addition made by the Assessing Officer on account of the difference between rent received by the assessee and the fair market value for properties.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was filed with a delay of 19 days. Initially, the Tribunal dismissed the appeal due to the non-filing of an affidavit seeking condonation of delay. The assessee challenged this decision before the Hon’ble High Court of Delhi. The High Court held that the delay of 19 days was not extraordinary and the explanation offered by the appellant-Revenue was plausible. Consequently, the High Court set aside the Tribunal's order and restored the appeal for disposal in accordance with the law. Therefore, the delay of 19 days was condoned.

2. Justification of the Addition Made by the Assessing Officer:
The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition made by the Assessing Officer regarding the difference between the rent received by the assessee and the fair market value of the properties.

Facts and Contentions:
- The assessee, engaged in finance, investment, and real estate, offered income from house property amounting to ?5,40,00,000/-. The property was previously owned by M/s Ballarpur Industries Ltd. before demerger.
- The Assessing Officer applied the method as per Schedule III of the Wealth Tax Act, 1957, and calculated the rental value at ?8,21,41,216/-, adding the difference to the total income of the assessee.
- The assessee contended that the transaction did not fall under Section 40(a)(2)(b) of the Act and that the rent received should be considered as the annual value under Section 23(1) of the Act.
- The CIT(A) deleted the addition, noting that the Assessing Officer did not provide any comparative data or evidence to show that the rent received was less than the fair market value.

Tribunal's Observations:
- The Tribunal noted that the CIT(A) had previously deleted a similar addition for the Assessment Year 2008-09, and there was no change in the material facts or legal position for the current year.
- The Tribunal referenced the case of CIT vs. Moni Kumar Subba, where it was established that the municipal value could be a yardstick for determining the annual letting value (ALV), but it was not binding on the Assessing Officer if it did not represent the correct fair rent.
- The Tribunal observed that the Assessing Officer failed to bring any evidence to show that the rent received was lower than the fair market value and had incorrectly applied the method provided in Schedule III of the Wealth Tax Act.
- The Tribunal also noted that the appellant-Revenue had consistently accepted the income offered by the assessee under the head income from house property for earlier and subsequent assessment years.

Conclusion:
The Tribunal concluded that the CIT(A) was justified in deleting the addition made by the Assessing Officer. The appeal by the Revenue was dismissed, and the order pronounced in the open court on 30.09.2019.