Case Law Details
Bipin Sureshchandra Mehta Vs ACIT (ITAT Mumbai)
The issue under consideration is whether the assessee having two properties has right to choose Self occupied and deemed let out property for the purpose of taxation?
In the present case, the assessee has two properties during the year, one at Mumbai and 2nd at Lonavala. The assessee did not file any details of these properties during the assessment proceedings and AO assessed the deemed rent on the basis of value of property shown in the balance sheet by applying 8% on the cost. During the assessment proceedings, the Ld. A.R. submitted before the Bench that the property at Mumbai may kindly be taken as deemed let out and house at Lonavala may please be taken as self occupied. but AO has rejected this request and passed the order.
ITAT states that the assessee is well within his rights to choose one of the two properties as self occupied and offered the property as deemed let out at his option. Therefore, we are treating the house at Mumbai as deemed let out and house at Lonavala as self occupied. Accordingly, ITAT set aside the order of Ld. CIT(A) and direct the AO to assess the deemed rent on the same basis as has been done in the assessment year 2012-13. Accordingly, the appeal of the assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been preferred by the assessee against the order dated 22.03.2018 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
2. The grounds raised by the assessee are as under:
“1. Upon the facts and the circumstances of the case, the Lr. CIT (Appeals) 55, Mumbai has erred in confirming the addition of Rs. 3,00,000=00 in respect of Commission expenses ignoring the factual matrix and of the written submissions made.
2. The Lr. CIT (Appeals)-55 Mumbai has grossly erred in confirming the addition of Rs. 3,50,400=00 made in regard to the Income from House Property by ignoring the working submitted on 23-03-2018 as was orally asked for.
3] Your appellant craves leave of your Honour to add, alter, modify, or delete the above grounds of Appeal.”
3. The issue raised in the first ground of appeal is against the confirmation of addition of Rs.3,00,000/- by Ld. CIT(A) as made by the AO by disallowing expenses on account of commission paid to the related parties.
4. The facts in brief are that the AO during the course of assessment proceedings noted that assessee has incurred commission expenses of Rs.30,01,549/- on a turnover of Rs.7,17,15,423/- which works out to Rs.3.89%. The AO also noted that out of the said commission, Rs.14,84,176/- was paid as commission to assessee’s two sons who recently graduated and joined the assessee and thus made an adhoc disallowance of Rs.3,00,000/- out of the said commission.
5. In the appellate proceedings, the Ld. CIT(A) affirmed the order of AO by observing and holding as under:
“I have gone through the AO’s Contention an appellants’s submission. The appellant has justified the payment of commission saying that the Son’s have paid taxes on that amount. The appellant has not giving me any working on commission payment made to other parties and also the basis of the same. Hence, 1 am constrained to accept the logic of the AO that commission payment is on higbcr side nnd confirm the addition. This ground of appeal is dismissed.”
6. After hearing both the parties and perusing the material on record, we observe that the assessee has paid commission of Rs.30,01,549/- out of which Rs.14,84,176/- was paid to the assessee’s two sons who recently joined the business of the assessee and were paid by way of commission on the sales quantifying the commission billwise. During the course of hearing the assessee placed before the Bench the mode and date of computation of commission paid to the assessee sons vis-à-vis third parties. We observe that commission has been paid at a uniform rate of 5% to all the agents including the sons of the assessee and is based upon the sales/performance of the parties. In this case, the AO has made adhoc disallowance without doubting the genuineness of the expenditure. We further note that both the sons of the assessee have filed the ITRs and showed the said receipts in their respective returns of income. The assessee has also deducted TDS on the said payments and deposited the same into government treasury. This is not the case of either of the lower authorities that the commission payment is unreasonable or excessive having regard to the practice in the industry. Therefore we are of the view that disallowance was based upon purely on surmises and conjectures and can not be sustained. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance.
7. The issue raised in second ground of appeal is against the confirmation of addition of Rs.3,50,400/- by Ld. CIT(A) as made by the AO with regard to house property at Lonavala.
8. The facts in brief are that during the course of assessment proceedings, AO observed that the assessee has shown the value of property in the balance sheet at Rs.43,79,990/- while no income was offered under the head house property income and accordingly issued show cause notice vide order sheet entered dated 02.02.2015 as to why the income from the said property should not be brought to tax. The assessee did not reply the said show cause and consequently, the AO, by applying 8% on Rs.43,37,990/-, the cost of property in the balance sheet, determined the deemed rent at Rs.3,50,400/- and accordingly made addition under the head house property.
9. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing and holding as under:
“5.3 The facts of the case is appellant has two house property and only one can be taken as SOP as per the IT. Act. The appellant has requested me that the working done by AO in AY – 2013-14 should be taken. The appellant has not given me any working as to why AO’s working should not be accepted. Hence, I am constrained to admit that the working done by AO in instant assessment year can only be taken and the same is confirmed. This ground of appeal is dismissed.”
10. After hearing both the parties and perusing the material on record, we observe that the assessee has two properties during the year, one at Mumbai and 2nd at Lonavala. The assessee did not file any details of these properties during the assessment proceedings and AO assessed the deemed rent on the basis of value of property shown in the balance sheet by applying 8% on the cost. However, in the subsequent year the AO treated the property at Rs.6,040/- by taking the standard rent at Rs.34,733/- and after allowing municipal taxes and 30% towards repairs a net income was assessed at Rs.6,040/-. During the assessment proceedings, the Ld. A.R. submitted before the Bench that the property at Mumbai may kindly be taken as deemed let out and house at Lonavala may please be taken as self occupied. The Ld. A.R. submitted that this has been accepted by the AO in the subsequent assessment year i.e. A.Y. 2013-14 wherein the assessment was framed under section 143(3) dated 18.01.2016.
11. After taking into account all the facts and circumstances of the case, we observe that the assessee is well within his rights to choose one of the two properties as self occupied and offered the property as deemed let out at his option. Therefore, we are treating the house at Mumbai as deemed let out and house at Lonavala as self occupied. Accordingly, we set aside the order of Ld. CIT(A) and direct the AO to assess the deemed rent on the same basis as has been done in the assessment year 2012-13.
12. The appeal of the assessee is allowed.
Order pronounced in the open court on 14.05.2019.
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