1997 (12) TMI 148 - AT - Income Tax

Summary

Issues Involved:
1. Determination of Annual Letting Value (ALV) of the property.
2. Application of the doctrine of res judicata.
3. Examination of collusive nature of transactions.
4. Allowability of expenditure.
5. Grounds relating to proceedings under section 143(1)(a) and levy of interest.

Issue-wise Detailed Analysis:

1. Determination of Annual Letting Value (ALV) of the property:
The core issue revolves around the determination of the ALV of the property situated at 12, Aurangzeb Lane, New Delhi. The Assessing Officer (AO) initially estimated the ALV at Rs. 7 lakhs per month, deeming the transactions collusive and not reflecting the true rental value. The Commissioner of Income-tax (Appeals) reduced this to Rs. 3,21,000 per annum. The Tribunal examined precedents and the facts, concluding that the Municipal valuation should be used to determine the ALV. The Tribunal directed the AO to determine the ALV based on the rateable value as determined by the Municipal Corporation, noting that the value determined by the N.D.M.C. was under dispute and should be substituted with the figure determined by the court.

2. Application of the doctrine of res judicata:
The Tribunal addressed the argument that the issue had attained finality in the assessment year 1974-75 and could not be re-examined. It was clarified that the principle of res judicata does not apply to income-tax proceedings, as each assessment year is separate and distinct. The Tribunal cited several precedents, including New Jehangir Vakil Mills Co. Ltd. v. CIT and ITO v. MurliDhar Bhagwan Dass, to support this view. The Tribunal concluded that the doctrine of res judicata could not be applied in this case as the issues were not finally adjudicated in the earlier years, and the AO had not passed a speaking order.

3. Examination of collusive nature of transactions:
The AO concluded that the transactions between the assessee-companies and the tenants (who were family members with substantial interest in the companies) were collusive. The Tribunal found that the relationship between the landlord and tenant did not exist in reality, as the rent was not regularly paid and substantial renovations were carried out by the tenants. The Tribunal agreed with the AO's view that the transactions were designed to avoid tax liability. The Tribunal emphasized that the actual rent received could not be the basis for determining the ALV due to the collusive nature of the transactions.

4. Allowability of expenditure:
The Tribunal upheld the order of the Commissioner of Income-tax (Appeals) regarding the allowability of expenditure. It was noted that nothing was placed before the Tribunal to show that the expenditure incurred by the assessee-companies was incidental to the carrying of business. Consequently, the Tribunal found no infirmity in the order of the Commissioner of Income-tax (Appeals) on this count.

5. Grounds relating to proceedings under section 143(1)(a) and levy of interest:
The assessee-companies raised grounds relating to proceedings under section 143(1)(a) and the levy of interest. However, these grounds were not pressed at the time of hearing. Therefore, the Tribunal dismissed these grounds as not pressed.

Conclusion:
The Tribunal partly allowed the appeals, directing the AO to determine the ALV based on the Municipal valuation and upholding the order of the Commissioner of Income-tax (Appeals) regarding the allowability of expenditure. The grounds relating to proceedings under section 143(1)(a) and levy of interest were dismissed as not pressed.