Case Law Details

Case Name : ACIT Vs. Jaikishan Shyamsunder Vaswani (ITAT Mumbai)
Appeal Number : ITA No. 3112/Mum/2016
Date of Judgement/Order : 03/01/2019
Related Assessment Year : 2010-11
Courts : All ITAT (7310) ITAT Mumbai (2108)

Jaikishan Shyamsunder Vaswani Vs ACIT (ITAT Mumbai)

It is noted that property situated at Flat No.72, L Block, Maker Tower, Cuffe Parade, Mumbai was actually let out to Bank of America during AY 2007-08 @ Rs.2 Lacs per month. However, this rent has drastically been reduced to Rs.25,000/- per month upon receipt of interest-free security deposit of Rs. 4 Crore from the tenant. No plausible/cogent explanation regarding drastic reduction has been placed on record. Secondly, similar addition in immediately preceding AY 2009-10 was accepted by the assessee by not preferring the second appeal and the matter had already attained finality in the preceding year. Another important factor to be noted that interest-free security deposit received by the assessee was advanced to sister concerns without any interest and no income has been reflected by the assessee against the same. The totality of the above facts lends credence to the reasoning of both the lower authorities and therefore, the conclusion that the whole exercise was a colorable device to reduce the overall tax burden, could not be said to be without any sound basis.

FULL TEXT OF THE ITAT JUDGMENT

1. Aforesaid cross-appeals for Assessment Year [AY] 2010-11 contest the order of Ld. Commissioner of Income Tax (Appeals)-28, Mumbai [CIT(A)], Appeal No. CIT(A)-28/IT-1 35/DC-1 2(2)/201 3-1 4 dated 22/02/201 6. The grounds urged by the assessee reads as under: –

1. On the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of income from House Property in respect of Flat No. 72, ‘L’Block, in Maker Tower, Cuffe Parade, Mumbai 400006 at Rs.2,00,000/- per month.

2. On the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of income from House Property in respect of office premises at Nariman Point, Mumbai at 2,00,000/- per month which was being sued by a company in which the appellant is a director.

3. On the facts and in the circumstances of the case and in law the Learned Commissioner of Income Tax (Appeals) erred in confirming the addition of income from House Property in respect of self-occupied flat at Sea Woods Estate Ci-op Housing Society Ltd, At Nerul, Navi Mumbai at Rs.35,000/- per month.

The grounds urged by the revenue reads as under: –

1. On the facts & in the circumstances of the case, and in law, the Ld.CIT(A) has erred in deleting the addition made by the A.O. under the head “Income from House Property” by estimating the ALV of the Shops at Hilton Centre, Navi Mumbai for 67,20,000/-.

2. On the facts & in the circumstances of the case, and in law, the Ld. CIT(A) has erred in holding that a firm running a business on the premises of the assessee (a partner of firm) is akin to the partner, being running his own business from the said

The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-Circle 12(2), Mumbai [AO] in scrutiny assessment u/s 143(3) on 28/03/2013 wherein the income of the assessee was determined at Rs.449.23 Lacs after certain additions / adjustments as against returned income of Rs. 43.75 Lacs filed by the assessee on 30/09/201 0. The assessee being non-resident individual reflected income under the head House Property, Salary, Capital Gains and Income from other sources. As evident from grounds of appeal, the subject matter of cross appeals is certain additions under the head House Property.

2.1 During assessment proceedings, the income from several properties owned by the assessee was assessed under the head Income from House Property in the following manner: –

No. Details of Property Rental income

reflected by the
assessee

Income Assessed
1. Flat No. 72, L- Block, Maker Tower, Cuffe Parade Rs.25,000/- per
month
Rs.2 Lacs per month
2. Gala Nos. 52 & 53, Industrial Unit, Submill Compound, Lower Parel Rs.5000/- per month Rs.3.39 Lacs per month
3. Office Premises at Raheja Centre,
Nariman Point
Nil Rs.2 Lacs per month
4. Shops / Units at Hilton Centre, Belapur, Navi Mumbai Nil Rs.5.60 Lacs per month
5. Flat at Seawood Estate Co-op Housing Society Ltd, Nerul, Navi Mumbai Nil Rs.0.35 Lacs per month

2.2 Brief facts leading to enhanced estimation are that the property situated at Flat No.72, L Block, Maker Tower, Cuffe Parade, Mumbai was let out to Bank of America during AY 2007-08 @ Rs.2 Lacs per month. However, the assessee received interest free security deposit of Rs.4 Crores from Bank of America and reflected lesser rent of Rs.0.25 Lacs in AY 2009-10 as well as in impugned AY. The income against the same was assessed at Rs.2 Lacs per month in AY 2009-10 which was accepted by the assessee by not filing second appeal. Following the same, the income in the impugned AY was estimated on similar lines. On the basis of factual matrix, Ld. AO formed an opinion that the assessee was compensated for loss of rent by way of interest free security deposit from the tenant and it was merely a tax reduction device to give loss to the exchequer. It further transpired that the interest free deposit received by the assessee was advanced to family members without interest and no income was reflected against the security deposit received by the assessee.

2.2 The Second property viz. Gala Nos. 52 & 53 at industrial unit at A-2 Building, Submill Compound, Lower Parel, Mumbai was stated to be leased to a sister concern, a corporate entity namely Poojax Business Links Private Limited. A rental income of Rs.5000/- per month was reflected against the same which worked out to Rs.2.25 per Square Feets. Finding the same to be too low, the rent was estimated @ Rs.153 per Square Feets which worked out to Rs.3.39 Lacs per month. Similarly, the office premise situated at Raheja Centre, Nariman Point was stated to be leased to the same corporate entity without any rent. The Ld. AO worked out rental income of Rs.2 Lacs per month against this property.

2.3 The various shops / unites situated at Hilton Centre, Belapur, Navi Mumbai were claimed by the assessee to be used for the purpose of his partnership business. However, the said fact could not be substantiated. Accordingly, the income against the same was estimated at Rs.5.60 Lacs per month.

2.4 No income was reflected against property listed at serial number-5. However, finding that the possession of the same was already obtained by the assessee during January, 2009, the income against the same was estimated at Rs.0.35 Lacs per month.

2.5 The above estimated rental incomes were added to the income of the assessee after providing for statutory deduction of 30%.

3. Aggrieved, the assessee agitated the same with partial success before Ld. CIT(A) vid impugned order dated 22/02/2016 wherein the assessee defended its stand. The Ld. CIT(A) upheld the stand of Ld. AO in estimating rental value of property listed at serial number-1 by observing that similar estimation was accepted by the assessee for AY 2009-10 by accepting the verdict of first appellate authority. It was also observed that estimation was justified since assessee reduced rent in lieu of huge interest free security deposit of Rs.4 Crore and the decision of this Tribunal rendered in Tivoli Investment & Trading Private Limited squarely applied to the facts of the case, the operative portion of which has already been extracted in the impugned order. The estimation against property listed at serial number-2, being Gala Numbers 52 & 53 was deleted by observing that the assessee derived rental income of Rs.5000/- from the same and since the rental income was more than the rateable value, the enhancement was not justified. Since, the revenue has not agitated this stand of Ld. CIT(A), the same is not the subject matter of this appeal. The addition against office premises situated at Raheja Centre, Nariman Point was confirmed by observing that the premises was rented out to a corporate entity in which the assessee was director and the said property was not out of purview of Section 22 in terms of judgment of this Tribunal rendered in Indira S.Jain [21 Taxmann.com 471]. However, relying upon the same decision, it was held that addition against shops situated at Hilton Centre, Navi Mumbai were not justified since the shops were leased out to a partnership firm namely Prajax Hospitality and therefore, the same could be said to be used for the purpose of assessee’s business. The addition against property listed at serial number-5 was confirmed since the same was not, at all, let out during impugned AY and therefore, not eligible for vacancy allowance in terms of Section 23(1)(c). Aggrieved, the assessee as well as revenue is under appeal before us.

4. The Ld. Authorized Representative for Assessee [AR], Shri H.S.Raheja, on the strength of certain judicial pronouncements agitated the stand of first appellate authority which has been controverted by Ld. Departmental Representative, Shri Manoj Kumar Singh.

5.1 We have carefully heard the rival contentions and perused relevant material on record including documents placed in the paper-book and judicial pronouncements as cited before us by respective representatives.

5.2 It is noted that property situated at Flat No.72, L Block, Maker Tower, Cuffe Parade, Mumbai was actually let out to Bank of America during AY 2007-08 @ Rs.2 Lacs per month. However, this rent has drastically been reduced to Rs.25,000/- per month upon receipt of interest free security deposit of Rs. 4 Crore from the tenant. No plausible / cogent explanation regarding drastic reduction has bene placed on record. Secondly, similar addition in immediately preceding AY 2009-10 was accepted by the assessee by not preferring second appeal and the matter had already attained finality in preceding year. Another important factor to be noted that interest free security deposit received by the assessee was advanced to sister concerns without any interest and no income has been reflected by the assessee against the same. The totality of the above facts lends credence to the reasoning of both the lower authorities and therefore, the conclusion that the whole exercise was a colourable device to reduce overall tax burden, could not be said to be without any sound basis. We concur with the same. Accordingly, the ground raised by the assessee, in this regard, stand dismissed.

5.3 The office premise situated at Raheja Centre, Nariman Point was stated to be leased out to a corporate entity in which the assessee was a director. No rental income was reflected by the assessee against the same. It is settled law that corporate entity is a separate legal entity in the eyes of law and the business carried out by the corporate entity could not be said to be the business of shareholders / directors. Therefore, the reasoning that the premise was being used for assessee’s business, hold no water. The Ld. AR has submitted that the assessee was not provided an opportunity to rebut the estimated rental rates adopted by Ld. AO in violation of principle of natural justice. It has been submitted that the property was covered by State Rent Control Act and the notional rent could not exceed the standard rent fixed under the act in terms of certain judicial pronouncements. Keeping in view the same, while upholding the stand of lower authorities in bringing to tax the notional rental value, the matter of estimation stand remitted back to the file of Ld. AO to consider the valuation proposed by the assessee, who, in turn, is directed to substantiate his stand. The ground stand partly allowed.

5.4 The shops / units situated at Hilton Center, Belapur, Navi Mumbai are stated to be used by the assessee by one of his partnership firm. The first appellate authority concurred with the stand of assessee that use of premise by assessee’s partnership firm could be said to be use of premise by the assessee for own business. We concur with the same since a firm is constituted, collectively by its partners and the business of the firm could be said to be the business of its partner. However, upon perusal of quantum assessment order, it transpire that the assessee failed to substantiate the fact that the premise was being used by the firm. Therefore, for limited purpose of verification, the matter stand remitted back to the file of Ld. AO with a direction to the assessee to demonstrate the same. The revenue’s appeal stands allowed for statistical purposes.

5.5 Regarding flat at Seawood, it is undisputed fact that the assessee had already taken the possession of the same during January, 2009 and the flat was never let out at any point of time since inception. In such a case, the provisions of Section 23(1)(c) could not apply to the fact of the case since for the applicability of the same, the property should have actually been let out at some point of time, which is not the case here. Therefore, the notional rental value of the same was required to be brought to tax since under law only one property, at the option of the assessee, could be termed as self-occupied property whereas all the other properties are deemed to be let out. Therefore, while upholding the stand of lower authorities in assessing the notional value of this property, the matter stand remitted back to the file of Ld. AO to consider the valuation thereof as proposed by the assessee since a plea of violation of natural justice has been raised before us. The assessee is directed to substantiate his stand, in this regard. This ground stand partly allowed.

6. Resultantly, the assessee’s appeal stand partly allowed whereas the revenue’s appeal stand allowed for statistical purposes.

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