2021 (11) TMI 535 - HC - Income Tax

Computation of annual value under section 23 - Annual value how determined - HELD THAT - In terms of Section 23 1 b , the actual value agreed between the parties would have prominence than the municipal value which has to be supported by any guidelines or comparable statistical value. Merely on the assumptions and presumptions, the value certified by the local authority cannot be given primacy. Having regard to these facts, the Tribunal has recorded a finding that while computing the ALV, all surrounding factors should be considered. The amount determined by the Assessing Officer is less than the monthly rental agreed between the parties for the property in question originally. Moreover, these are the journal entries, no actual payments have been made by the assessee. The loan liability converted into interest free security deposit as contended by the assesse cannot be acceded to. On the other hand, the interest free security deposit disproportionate to the monthly rent is nothing but a device to circumvent the liability to tax. We find no infirmity or perversity in the order impugned. Hence, the substantial questions of law are answered in favour of the Revenue and against the assessee.

Summary

Issues Involved:
1. Justification of the Tribunal's adoption of annual value at ?7 per square feet.
2. Consideration of the certificate issued by Jigani Gram Panchayat for computing annual value under Section 23 of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Justification of the Tribunal's Adoption of Annual Value at ?7 per Square Feet:

The Tribunal upheld the Assessing Officer's determination of the annual letting value (ALV) of the property leased by the appellant-assessee to its sister concern at ?7 per square feet. The appellant-assessee argued that the annual value should be based on the actual rent agreed upon in the lease agreements, which was significantly lower after supplementary agreements reduced the rent from ?5,00,000/- per month to ?25,000/- per month. The Tribunal found that the substantial interest-free security deposits (?25 Crores and ?11 Crores) indicated the ALV, despite the reduction in monthly rent. The Tribunal also noted that the Assessing Officer's comparison with another lease (M/s. MTR Distributors [P] Ltd. and M/s. MTR Foods Ltd.) was not rebutted by the appellant, and the non-disclosure of this lease deed to the appellant did not violate principles of natural justice. The Tribunal concluded that the arrangements made by the appellant were designed to avoid tax, thus justifying the ALV determined by the Assessing Officer.

2. Consideration of the Certificate Issued by Jigani Gram Panchayat for Computing Annual Value:

The appellant contended that the ALV should be based on the certificate issued by Jigani Gram Panchayat, which stated ?1.60 per square feet. The Tribunal rejected this argument, stating that the certificate was not a standard rate but was issued at the appellant's request without any supporting guidelines or comparable statistical value. The Tribunal emphasized that the actual value agreed between the parties has prominence over the municipal value as per Section 23[1][b] of the Income-tax Act. The Tribunal found that the interest-free security deposit was disproportionate to the monthly rent and was a device to circumvent tax liability. Therefore, the Tribunal upheld the Assessing Officer's determination of the ALV based on the original lease agreements and surrounding factors.

Conclusion:

The Tribunal's findings were based on the material evidence on record and the legal principles governing the determination of ALV under Section 23 of the Income-tax Act. The substantial questions of law were answered in favor of the Revenue, and the appeals were dismissed. The Tribunal found no infirmity or perversity in the orders of the Assessing Officer and the Commissioner of Income Tax [Appeals], thereby confirming the determination of the ALV at ?7 per square feet and rejecting the reliance on the Jigani Gram Panchayat certificate.