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TMI Blog2024 (11) TMI 1099X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 153A for AYs 2013-14 2014-15 are unabated and without any incriminating material, therefore, the addition made in these assessment years are accordingly directed to be deleted. These assessment years are unabated assessment years and no addition can be made without there being any incriminating material. Accordingly, ground no.1 raised by the assessee in AYs 2013-14 2014-15 are allowed and other grounds raised by the assessee are also allowed due to the fact that the legal ground raised in ground no.1 is allowed. The grounds are consequential in nature. Accordingly, the appeals in AYs 2013-14 2014-15 are allowed. Coming to the AYs 2015-16 and 2016-17, we observed that there is trail of emails exchanged by the family members as per which the property under consideration are under commercial exploitation by one of the beneficiaries of the trust. It is a fact on record that the beneficiary has disclosed the income earned from the property in his personal return of income, however it should have been income of the assessee. We cannot say that there is no incriminating material for these assessment years under consideration i.e. 2015-16 and 2016-17. Accordingly, ground no.1 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and various information available on record clearly show that it was not commercially lettable. It was also brought on record that assessee has disposed off abovesaid properties in AY 2025-26 without letting out the property and absorbing the maintenance charges over the years. After considering the facts on record, it is not appropriate for estimating the income when the property itself was not let out as held in the case of Rustomjee Evershine Joint Venture [ 2023 (7) TMI 1305 - ITAT MUMBAI] and Chalet Hotels Ltd. [ 2023 (10) TMI 837 - ITAT MUMBAI] It was held that ALV may be adopted alternatively keeping the generally expected rent from these properties. As per the information available on record, it is appropriate to estimate the same. We noticed that the assessee has prayed for 2% of the investment. But in actual, the commercial properties fetch 8% to 10% in the Metro Cities. In our view, estimating at 5% of the investment value is appropriate. Accordingly, we direct the Assessing Officer to adopt 5% of the value of investment as ALV for the properties under consideration. After standard deduction, the annual income of Rs.6.65 lakhs may be added as income of the assessee. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law and without prejudice to the preceding grounds, the lower authorities failed to appreciate that the assessee Trust was a private discretionary Trust created solely for the benefit of the member-individuals and therefore they ought to have held that the assessee Trust was entitled to claim benefit of Section 23(2) of the Act for each house property held by it qua each individual-member of the assessee Trust. 5. For that on the facts and in the circumstances of the case and in law and without prejudice to the preceding grounds, the manner in which the lower authorities computed the annual lettable value of the properties was completely fallacious and unjustified and in that view of the matter the impugned addition of Rs.12,60,000/- ought to be cancelled. 6. For that the appellant craves leave to N.A. submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before. 5. We proceeded to adjudicate the above grounds issue-wise. 6. The relevant facts of the case are, a search and seizure action under section 132 of the Income-tax Act, 1961 (for short the Act ) was issued in the name of the assessee, resident of F-14/15, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and also engaged in the business of hotel/letting of property to tourists. Along with two properties held with the family, he also held other property, namely, Anjuna Property. In the post-search, summons were issued to the assessee why the properties in Goa owned by the family were not disclosed in the rental income in its return of income. In response, assessee has submitted as under :- 1. M/s RTA Retreats is a Proprietorship Concern run by Mr. Ashvin Prakash Kumar for the business of running and maintaining the property of The Kumar Family Trust for running and Operating Guest House / Paying Guest. The business was short-lived and did not last long because it did not turn up into a profitable venture and was discontinued within a short span. The Financials of this Venture were duly reflected in the ITR of Mr. Ashvin Prakash Kumar for Assessment Years 2015-16 and 2016- 17. 2. No formal agreement was executed between both the parties mentioned above. 9. Further summons were issued to Ashvin Prakash Kumar also in order to provide the details of the business and any consideration for use of assets of the family. In response, he submitted as under :- 6.8 In response to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovesaid properties were estimated at Rs.80,000/- and Rs.70,000/- respectively per month. Further Assessing Officer observed that the aforesaid properties held by the assessee, first of all, cannot be said to be residential in nature and secondly, it cannot be held by the assessee Trust for its own residence purposes. Therefore, the properties held by the assessee are governed by section 23(1) of the Act and accordingly actual rent or expected rent, whichever is higher, is taxable. Accordingly, he determined the undisclosed income in the case of Sangolda Goa at Rs.9,60,000/- and after allowing standard deduction allowable to the property of Rs.2,88,000, he determined the net amount of annual lettable rental value at Rs.6,72,000 and similarly he determined net amount of annual lettable rental value of Ries Magos, Goa property at Rs.5,88,000/- after giving the standard deduction of Rs.2,52,000/-. Accordingly, he determined total rental income at Rs.12,60,000/- and the same was added to the total income of the assessee. 12. Coming to the other properties at Unit No.701 702 in Vatika Professional Point situated in Sector 66, Gurugram, Haryana. During the course of assessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the addition based on the fact that the property was not let out through out the year and the property is vacant, in that case notional rent is chargeable to tax. However, in the instant case, the property was acquired at the fag end of the financial year, therefore, the assessee could not have let out the property immediately after the purchase. With regard to Reis Magos Villa and Sangolda Villa, Goa, he sustained the addition in this assessment year with the observation that the Assessing Officer has computed the income on ALV of the property after conducting market survey and after taking into account the prevailing rate of the property from the property websites and property dealers located in that area. Further we observed that assessee s abovesaid properties were used as guest house by RTA Retreats and assessee did not disclose any income from the abovesaid properties. He observed that Ashvin Prakash Kumar, son of Smt. Ritu Kumar and Shri Shashi Kumar, who were the settlers of the trust and Ashvin Prakash Kumar is also one of the principal beneficiaries of the trust. Therefore, this is a case of collusive deal wherein the property was used for the benefit of the trust. Eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1,21,57,710/- 2014-15 50,07,870/- 50,07,870/- 2015-16 50,40,270/- 50,40,270/- 2016-17 47,12,910/- 47,12,910/- 2.4 The AO thereafter issued notices u/s 143(2) 8s 142(1) of the Income-tax Act, 1961. Copies of the relevant notices for AYs 2013-14 to 2016-17 are enclosed at Pages 107 to 134 of the Paperbook. In response to the questionnaire issued by the AO, the appellant filed suitable explanations 8c submissions, extracts of which are also enclosed at Pages 135-146 of paper book. 2.5 In the enquiries made in the course of assessment, the AO had required the appellant to explain as to why no rental income was reflected in respect of the properties held at Gurgaon and Goa. The AO noted that the properties at Goa were used for business under the name and style of M/s. RTA Retreats but according to him the income therefrom was not reflected by the assessee. From these notices/ enquiries it shall be noted that no incriminating document or papers found by the Department in the course of search in relation to the unabated income-tax assessment of AYs 2013-14 to 2016-17 was referred to by the AO. Meaning thereby that the impugned assessments framed by the AO making additions of Rs. 12,60,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as incriminating material found during the course of search operation. According to ITAT, it is not the case of the Revenue that if the search and seizure operation had not been conducted, the Revenue could never have come to know that the assessee had entered into various purchase transactions of land. The ITAT thus deleted the disallowance made by the AO u/s 40A(3) with reference to such sales deeds in the order framed u/s 153A in respect of an unabated year. 2.8 Reliance in this regard is placed on the decision of the Hon ble ITAT, Cuttack in the case of Daffodil Vincom Pvt Ltd Vs DCIT in ITA (SS) Nos. 95 96/Kol/2018 dated 28.06.2019. In the decided cases, the AO had added the share capital raised by the assessee in AYs 2011-12 8s 2012-13 by way of unexplained cash credit u/s 68 of the Act in the assessments framed u/s 153A of the Act. On appeal, it was the assessee s contention that the addition u/s 68 was not based on any incriminating material found in the course of search and therefore the assessee claimed that the impugned additions be deleted. On the other hand, the Revenue contended that the additions were made with reference to documents marked as SFA/01 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to delete the impugned additions from both the Assessment Years. 2.10 Useful reference in this regard may also be made to the decision of Hon ble ITAT, Guwahati in the case of ACIT Vs Goldstone Cements Ltd (ITA Nos.l26-131/Gau/2020) dated 10.12.2021. In the decided case also the AO had referred to the electronic seized material marked as GCL-HD-1 as the relevant incriminating material to justify the addition/s made u/s 68 of the Act in relation to the share subscription monies raised by the company. On appeal both the Ld. CIT(A) as well as Hon ble ITAT observed that the alleged electronic material referred to by the AO was the group-wise shareholding pattern found in regular books of accounts which also formed part of the secretarial records filed with ROC and thus constituted a regular business document whose contents did not contain anything incriminating whatsoever. Hence, in absence of incriminating material, the order of the AO disturbing the unabated assessments were held to be invalid and accordingly quashed. It is imperative to mention that the aforesaid order of the Hon ble Tribunal has since been affirmed by Hon ble Guwahati High Court in ITA No. 10 of 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj HC) - Chetandas Lakshmandas [254 CITR 392] (Del HC) - CIT vs Veerprabhu Marketing Ltd [73 taxmann.com 149] (Cal HC) 2.15 For the reasons set out in the foregoing and in view of the above-cited judgments, the appellant submits that since no incriminating material whatsoever was found or seized from the appellant s premises in the course of search operations which would have any bearing or relation to the income- tax assessments for the relevant assessment years, the additions made in the assessment of the appellant framed u/s 153A for the AYs 2013-14 to 2016- 17 were unsustainable and therefore should be directed to be deleted in full. 3. Ground No. 2 of AYs 2014-15 to 2016-17 and Ground No. 1 of AYs 2017-18 to 2019-20 (Addition u/s 23 in relation to properties at Gurgaon) 3.1 The appellant submits that the commercial properties at Gurgaon were acquired on 14.02.2013. On perusal of the conveyance deeds, it is clear that these properties were bare-shell / raw in nature and therefore not habitable for use. The said commercial properties also did not have electricity connection and/or proper sanitation /water etc. This fact has also been stated by the Inspector in his report dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Sec. 23(l)(c) of the Act and not in terms of Sec. 23(1)(a) of the Income Tax Act and thereby the assessee company be allowed vacancy allowance for the entire year. 3.6 It is submitted that with effect from A.Y.2002-03, the provisions of Sec. 23 had undergone a material change. Effective from A.Y. 2002-03 where the property was let out at any time and the property remained vacant during the whole or any part of the previous year and owing to such vacancy; actual rent received by the owner is less than the sum referred to in Sec. 23(l)(a), then the annual value would be the amount actually received or receivable was taxable. In terms of the aforesaid provision and in the facts of the present case, the property in question remained vacant throughout the previous year. No rent was actually received and therefore the assessee submits that NIL amount was required to be taken as the annual value of the property under the provisions of Sec. 23(l)(c) of the Income Tax Act. Reliance in this regard is placed on the following decisions of the coordinate Benches of the Tribunal wherein on similar facts 85 circumstances and having regard to provisions of Section 23(l)(c), the ann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nary trust had not given the properties to any outsider or third party but it was given for business use by the principal beneficiary of the Trust. In terms of the Deed of Trust, not only were the Trustees required to apply the assets for the benefit of the beneficiaries but even the assets properties which were vested with the appellant Trust beneficially belonged to and shall ultimately stand vested in the beneficiaries alone. Therefore the act of the appellant trust allowing the beneficiary to use the properties owned by the Trust for business purposes cannot be viewed adversely or said to be unjustified or illegal. 4.4 Reliance in this regard is placed on the decision of the Hon ble Gujarat High Court in the case of CIT Vs Rasiklal Balabhai (119 ITR 303) involving somewhat similar facts circumstances as involved in the present case. In the decided case, an individual partner had permitted the partnership firm to use the property held by him in his personal name without any rent/charge. The AO however refused to accept that the property was being used by him in business and therefore estimated and assessed the annual value. On appeal however, the Hon ble High Court upheld the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r karta of a joint HUF as representing the family to agree to become a partner with another person. The partnership agreement in that case is between the manager or the karta and the other person and by the partnership agreement no member of the family except the said person acquires a right or interest in the partnership. Requirements of section 22 are that (i) a person who is the owner of the property is carrying on business or profession and for the purpose of such business or profession carried on by him the property is used; (ii) the income of such business or profession is chargeable to tax. Section 22 is in essence an exception to the charging or taxing provision and provides for exemption in a case where the property is used for the purpose of business or profession and the owner of the property and the owner of the business or profession are the same person. That being the situation, the Tribunal was justified in its conclusions. We are in agreement with the view expressed by the Gujarat and Madras High Courts and are unable to agree with the view expressed by the Karnataka and Allahabad High Courts. The answer to the question referred is in the affirmative, in favour of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the relevant year. The appellant in this regard relies on the submissions made at Paras 6.1 to 6.5 below. 5. Grounds No. 4 5 of AYs 2014-15 to 2016-17 and Grounds No. 3. 4 of AY 2013-14 and AYs 2017-18 to 2019-20 (Denial of benefit of oneself occupied property) 5.1 It is submitted that the appellant being a private discretionary trust formed for the benefit of individual beneficiaries shall derive its status from the beneficiaries i.e. individual and therefore the appellant was legally entitled for the benefit of exclusion of one-self occupied property in terms of Section 23(2) of the Act. The Ld. CIT(A) however denied the same by holding that the assessee being a discretionary trust was assessable in the status of AOP. In this regard, the appellant relies on the decision of the Hon ble ITAT, Special Bench, Kolkata in the case of ITO Vs Shri Krishna Bhandar Trust (29 ITD 15) wherein on identical facts and circumstances the Hon ble Tribunal had held that the status of discretionary trust formed for the benefit of individuals has the status of an individual and not AOP . The relevant findings of the Tribunal is as follows: In the instant case neither the beneficiaries nor the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the beneficiaries or the trustees being representative assessee s are more than one, cannot lead to the conclusion that they constitute an association of persons . In Suhashini Karuri v. WTO [1962] 46 ITR 953, this court held that joint trustees must be taken to be a single unit in law and not as an association of persons and there is nothing wrong in treating such a unit as an individual . In CIT v. Sodra Devi [1957] 32 ITR 615, the Supreme Court held that the word individual does not mean only a human being, but is wide enough to include a group of persons forming a unit. In Mammad Keyi v. WTO [1966] 60 ITR 737, the Full Bench of the Kerala High Court held (Velu Pillai J. dissenting) that the term individual in section 3 of the Wealth-tax Act, includes a Moplah Muslim family which is governed by the usages similar to those that governed a Hindu undivided family. It is now well-settled that the word individual does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under the tax laws if the context so requires. Reference may be made in support of this proposition, to the Full Bench ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not let-out is the amount of annual rent assessed by the local authority in whose area the property is situated for the purpose of levy of property tax or any other tax on the basis of such assessment. Therefore, similarly, for the purposes of determining the annual value under Section 23(l)(a) of the I.T. Act, 1961, the annual municipal value computed as per the principles laid down in Schedule III of the Wealth-tax Act, 1957 is to be adopted. It is submitted that these two Acts must be read in consonance and the principles for determining annual value under these Acts are common. The property tax is levied by the Municipal Corporations of the respective States with reference to the annual valuation of the property. The said municipal valuation is to be considered as the prevailing market value for the purposes of Section 23(l)(a) of the Income-tax Act, 1961. 6.2 Reliance in this regard is placed on the decision of the jurisdictional Delhi High Court in the case of CIT Vs Moni Kumar Subba (333 ITR 38) wherein it was held as follows: 13. The next question would be as to whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal Authority Act can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the Rent Control Act and may in a given case even be lower than the standard or fair rent. The principles for determining the annual municipal value and the annual letting value under the two Acts being common, in a case where the annual municipal value is available, that itself would be the annual letting value under the Act. In fact, this principle has now been statutorily recognized in Schedule III of the Wealth-tax Act, 1957. Rule 5 of Part 'B of Schedule III to the Wealth-tax Act lays down the procedure for determining the gross maintainable rent... 6.4 In view of the above therefore it is prayed that the AO be alternatively directed to re-work the annual value of these properties with reference to the annual values determined by the Municipal Corporation. 6.5 Without prejudice to the above and in the alternate rental yield of immovable properties in metro cities are generally in the range of 2% of the value of investment. This view has been endorsed by the Hon ble ITAT, Mumbai in the cases of DCIT Vs Rustomjee Evershine Joint Venture in ITA No. 1349/Mum/2022 dated 31.07.2023 and ACIT Vs Chalet Hotels Ltd in ITA No. 2513/Mum/2021 dated 30.08.2023. Following the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion with regard to utilisation of this property and as per the email, it was found that Ashvin Prakash Kumar is one of the beneficiaries, who was running RTA Retreats for commercial purposes. As per the proposal, these properties will be commercially exploited to earn the income for the family. As per the Balance Sheet dated 31.03.2015 of RTA Retreats, these properties were recorded in the Balance Sheet as the property run by Ashvin Prakash Kumar. As per the submissions, Ashvin Prakash Kumar has submitted that RTA Retreats is a proprietary concern run by him for the business of running and maintaining the property of the family trust as guest house/paying guest. The business was short-lived and did not last long because it did not turn up into a profitable venture and accordingly discontinued within a short span. It was submitted that financials of this venture were reflected in the ITR of Ashvin Prakash Kumar for AYs 2015- 16 2016-17. 19. From the above discussion, it is clear that assessee has not disclosed details of any of the above properties in its return of income filed during the AYs 2013-14 to 2016-17. These details were found only during the search that assessee has inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served that there is trail of emails exchanged by the family members as per which the property under consideration are under commercial exploitation by one of the beneficiaries of the trust. It is a fact on record that the beneficiary has disclosed the income earned from the property in his personal return of income, however it should have been income of the assessee. We cannot say that there is no incriminating material for these assessment years under consideration i.e. 2015-16 and 2016-17. Accordingly, ground no.1 raised in AYs 2015-16 2016-17 are dismissed. 21. Coming to the merits of the issue under these assessment years, we observed that the properties under consideration are under the trust and the trust has utilised the properties at Goa for commercial exploitation and gave the same to one of the beneficiaries. Therefore, no doubt, one of the beneficiaries carried on the exploitation of the property and declared the commercial rent by the beneficiary in his financial statements. It clearly shows that the property under consideration was utilised by Ashvin Prakash Kumar for commercial purposes. Therefore, it is a fact on record that the commercial exploitation of the aboves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the facts stated before us. It is also brought to our notice that property under consideration was finally disposed off by the assessee in AY 2025-26 without actually any profit till such time the property was never let out due to various conditions prevailing during the period. Therefore, there is no incriminating material found during the search relating to this property. Accordingly, the additions made by the Assessing Officer from AYs 2013- 14 to 2016-17 are deserved to be deleted and without any incriminating material, considering the fact that these assessment years are unabated. 25. Coming to the abated assessment years i.e. AYs 2017-18 to 2019-20. As discussed in the earlier paras, the addition made by the Assessing Officer and facts are similar in all the assessment years under consideration with regard to Goa properties which were commercially exploited by one of the beneficiaries, the issue was already adjudicated in para nos.22 23 are applicable mutatis mutandis to grounds no.4 5 relating to denial of benefit of one self occupied property, we observed that these properties were commercially exploited by one of the beneficiaries and two Balance Sheets were submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a distinct person under the Act. Therefore, the assessee should have declared the Income from House Property during this period. 26. Further assessee has made a submission that assessee being a trust allowed to be treated as an individual and one of the properties may be allowed as self-occupied property. After careful consideration, we observed that assessee is a distinct person and if at all any property is to be allowed as self-occupied property, assessee has to make a submission in its return of income as self-occupied property for the benefit of the beneficiaries and it also has to be declared that the beneficiary does not own any other residential property under his utilisation. In absence of such declaration in the return of income, the assessee cannot claim on presumption basis that one property should be allowed as self-occupied property, it cannot be entertained at this stage. The assessee has relied on several decisions which are distinguishable with the facts of the present case. 27. Coming to the issue of computation of Annual Lettable Value. After considering the detailed submissions of the assessee, we are not inclined to agree with the submissions of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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