9911796707
TMI Blog2014 (3) TMI 956X X X X Extracts X X X X X X X X Extracts X X X X ..... . The issue was taken up by the Administrative Commissioner under section 263 of the Income Tax Act (hereinafter referred to as the Act) directing the Assessing Officer (hereinafter referred to as AO) to make de novo assessment on this particular issue observing that the rent offered by the assessee at Rs. 21,44,996/- was not the fair market rent of the property. He further observed that the assessee had received an interest free deposit of Rs. 7 crores from HDFC Bank Ltd. and the issue relating to the said receipt was not examined by the AO during the assessment proceedings as to whether the interest free deposit was in lieu of the rent which was not offered as income from house property by the assessee. He further observed that the AO did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) of the Act. Thereafter relying upon the decision of the Co-ordinate Bench of this Tribunal in the case of "Trivoli Investment & Trading Co. (P.) Ltd. v. Asstt. CIT [2004] 90 ITD 163 (Mum.) to arrive at the fair rental, he computed usu-fructuous from security deposit at the rate of 6.25% of Rs. 7 crores being the rate at which the assessee would have earned interest on fixed deposit if the amount in question would have been deposited with the HDFC Bank Ltd. itself. The deemed interest so arrived of Rs. 43,75,000/- was thereafter added to the rent receipt and the resultant of Rs. 60,49,996/- was considered as reasonable fair market rent of the portion of the property which was made out to HDFC Bank Ltd. The per square feet rent of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns given by the Commissioner of Income Tax in his order under section 263 of the Act. The AO failed to make the necessary enquiries for calculating the fair market rental value of the property in question. On the other hand, the ld. D.R. has contended that the assessee while making the submissions before the AO, itself had contended that the property was situated at an isolated place and as such the conducting of enquiries for arriving at comparative market rental value was not possible. The AO rightly relied upon the judgment in the case of Trivoly Investment & Trading Co. (P.) Ltd. (supra). The ld. DR has further relied upon an authority of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. K. Streetlite Electric Corpn."( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) and thus calculated the notional rent at the rate of 6.25% on the deposit amount of Rs. 7 crores and added back the same into the rental value of the property. It may be observed that the full bench of the Hon'ble Delhi High Court in the case of "Moni Kumar Subba" (supra) has held that section 23(1)(a) requires determination of the "fair rent" being the sum for which the property might reasonably be expected to let from "year to year". The AO has to make an enquiry as to what would be the possible rent that the property might fetch. If he finds that the actual rent received is less than the "fair/market rent" because the assessee has received abnormally high interest free security deposit, he can undertake necessary exercise in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumvent the real rent, the same shall fall within its ambit as income from house property. 7. The reasonable conclusion that can be drawn from the above said decisions of the Hon'ble Delhi High Court in the case of Moni Kumar Subba (supra) and of the Hon'ble Punjab & Haryana High Court in the case of K. Streetlite Electric Corpn. (supra) is that ordinarily the notional interest that may accrue on the security deposit would not form part of income from house property to determine the fair rent which is reasonably expected to be fetched from the property. The AO has to make necessary enquiries as observed by the Hon'ble Delhi High Court in the case of "Moni Kumar Subba (supra). However, after having undertaken the necessary ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for de novo assessment. While making de novo assessment, the AO relied upon the decision of the co-ordinate bench of the Tribunal but failed to take into consideration the directions given by the ld. Commissioner for making necessary enquiries for determining the fair rental value of the property. This is not a case of refusal of directions given by the ld. Commissioner to the AO. However, it can be said to be a case where the AO did not properly comply with the directions while making de novo assessment. It may be observed that while making de novo assessment, though the AO was required to make necessary enquiries as directed by the ld. Commissioner vide his order under section 263 but, at the same time the AO was also at liberty to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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