Case Law Details
Surti Chemicals P. Ltd. Vs ACIT (ITAT Delhi)
There is no dispute that the assessee company purchased a property in December 2008 located at 2nd and 3rd Floor in Melange The Mall at Meerut comprising of 35,580.75 sq. ft. which was already let out to Rave Entertainment Pvt. Ltd. (tenant) vide lease deed dated 19.02.2008. The said lease deed was assigned in favour of the assessee company vide assignment of lease deed executed on 12.02.2009 effective from 18.12.2008 on the same terms and conditions. The assessee submitted copy of rent chart for the financial years 2009-10 to 2012-13 (page 16 of paper book). Perusal thereof shows that there was transfer of tenancy from Rave Entertainment Pvt. Ltd. to Reliance Mediaworks Ltd. and the area measuring 2946.34 sq. ft. was surrendered w.e.f. 01.07.2009. In support thereof, the tenant Reliance Mediaworks Ltd. addressed a letter dated 4.09.2009 to the assessee whereby it was confirmed that after discussion and multiple meetings the area of 2946.34 sq. ft. has been surrendered out of total area of 35,580.75 sq. ft. The effective area will be 32,634.41 sq. ft., all other terms and conditions of the lease deed will be the same. The Rent ledger clearly shows that w.e.f. 01.07.2009, the rent has been paid by the tenant Reliance Mediaworks Ltd. to the assessee for 32,634.41 sq. ft. area occupied by it. The learned AO has not only discarded book entry but also the evidence brought on record by way of letter from the tenant to the assessee confirming that 2946.34 sq. ft. area has been surrendered. The learned AO/CIT(A) have rejected the letter of surrender by saying that copy of a surrender letter cannot be treated as evidence and that it does not prove that surrender of leased area was agreed by both the parties. We do not agree. In the case of Vikrant Dutt Chaudhary vs. CIT [389 ITR 411 (P&H)], the Court held that copies of documents, in the absence of their original constitute ‘material’ if they are relevant for the purpose of assessment. Moreover, the letter of surrender of 2946.34 sq. ft. area was written by the tenant Reliance Mediaworks Ltd. to the landlord assessee company and was the outcome of discussion and multiple meetings between the two. Even then the learned AO/CIT(A) alleged that the assessee did not prove that the surrender of the leased area was agreed to by both the parties. This cannot be accepted. The assessee brought to the notice of the learned AO/CIT(A) that the surrendered area is still in its possession and could not be let out to any other party as the Mall could not get success. The veracity of this assertion could be ascertained but nothing has been done.
The assessee has all along declared the rent receipt on the basis of 32634.41 sq. ft. area occupied by the tenant Reliance Mediaworks Ltd. which has been accepted by the predecessor learned AO in the assessment order dated 6.01.2015 framed under Section 143(3) of the Act (pages 22-23 of paper book) for the assessment year 2012-13. The facts remain the same in the succeeding assessment year 2013-14, presently under consideration. In Radhasoami Satsang vs. CIT [193 ITR 321 (SC)], the Hon’ble Supreme Court observed that though strictly speaking res judicata does not apply to income-tax proceedings but where a fundamental aspects permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The principles laid down by the Hon’ble Supreme Court in Radhasoami Satsang vs. CIT (supra) has been applied by the Hon’ble Delhi High Court in Director of Income-tax vs. Lovely Bal Shiksha Parishad [266 ITR 349 (Del)]. Rule of consistency has to be followed as held by the Hon’ble Supreme Court in CIT vs. Narendra Doshi [254 ITR 606 (SC)].
The assessee categorically denied receipt of rent over and above what is reflected in its books of accounts. Nothing has been brought on record to contradict the version of the assessee either by the learned AO or by the learned CIT(A). We, therefore, hold that rental income which has not been received by the assessee cannot be brought to tax.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal by the assessee is directed against the order dated 01.08.2018 of the learned Commissioner of Income-Tax (Appeals)-8, New Delhi (“CIT(A)”) pertaining to the assessment year 2013-14.
2. The assessee has taken the following grounds of appeal:
“1. That the Ld. CIT(A) have erred in confirming the addition of Rs.8,82,331/-without considering the facts of case.
2. That the Ld. CIT(A) have erred in not considering the fact that Rental Income which have not been received by the appellant should not have taxed as the applicant has submitted sufficient material in support of not having receive the said rent.”
3. The assessee is a company which earns, inter alia, rental income from property outlet.
4. It is a scrutiny case. During the course of assessment proceedings, the learned Assessing Officer (“AO”) perused the lease deed submitted before him. He noticed that the lease deed commenced on 31.10.2007 and monthly rent was decided at Rs.11,03,003/- with increment of rent @ 15% on the last paid lease rent after the expiry of every three years. On this basis, the lease rent for the financial year 2012-13 relevant to the assessment year 2013-14 worked out to Rs.1,52,21,441/- being Rs.12,68,453 per month as against which the assessee declared rental income at Rs.11,03,003/- per month which totaled to Rs.1,39,60,968/-. He, therefore, issued show-cause notice dated 07.12.2015 to which the assessee responded vide letter dated 8.01.2016 stating therein that as per Section 23 of the Income-Tax Act, 1961 (“Act”), annual value for rental income is to be taken the actual rent received; the actual rent received by the company is Rs.1,39,60,968/- @ Rs.11,63,414/- per month; the rent received @ Rs.11,63,414/- is after increment @ 15% on Rs.10,11,664 /-and that the original rent as per agreement of Rs.11,03,003/- was reduced on account of surrender of area by the tenant. A copy of surrender lease agreement was filed.
4.1 The explanation of the assessee was not acceptable to the learned AO.
According to him copy of letter regarding surrender of 2946 sq. ft. area cannot be treated as evidence as it cannot substitute a lease agreement. He, therefore, adopted Annual Letting Value (“ALV”) at Rs.1,52,21,441/- as against Rs.1,39,60,968/- declared, resulting in increase in ALV by Rs.12,60,473/- (1,52,21,441-1,39,60,968) on which he allowed deduction @ 30% under Section 24(a) amounting to Rs.3,78,142/- and added Rs.8,82,331/- (12,60,473-3,78,142) to the income of the assessee.
5. The assessee appealed before the learned CIT(A). During appellate proceedings, the assessee submitted in writing that it purchased a let out property in the year 2008 located at 2nd & 3rd Floors in Melange The Mall in Meerut and the lease deed dated 19.02.2008 was assigned in favour of the assessee. The total let out area was 35,580.74 sq.ft. @ 31/- PSF to Rave Entertainment Private Ltd. (a unit of ADLABS FILMS LTD.). In view of area measuring 2946.34 sq. ft. having been surrendered by the tenants, the actual rent received was only for the remaining area i.e. 32,634.41 on which rent works out at Rs.10,11,667/- and increment clause of 15% which was due w.e.f. 31.10.2010 was also applied on this and making the rent @ 35.65 i.e. Rs.11,63,414/- per month and annual rent of Rs.1,39,60,968/-. As against this, the learned AO has not accepted the surrender of the area and worked out increased rent on the full area.
5.1 It was argued before the learned CIT(A) that area measuring 2946.34 SFT was already surrendered w.e.f. 01.07.2009 i.e. in the financial year 2009-10. Since then, the assessee is continuously receiving rent on the reduced area. Assessee submitted a chart showing actual rent received along with the area specified with rate per SFT for the financial year 2009-10 to financial year 2012-13. Letter dated 4.09.2009, issued by tenant addressed to the assessee stating therein that the area of 2946.34 sq. ft. has been surrendered out of total area of 35,580.75 sq. ft. and that the effective area will be 32,634.41 sq. ft. was also submitted.
5.2 In reply to the learned AO’s view that surrender letter cannot be treated as evidence, the assessee submitted that if the owner of the property is satisfied without the execution of the formal agreement and all payments are being received by cheque only, the version of the surrender letter needs to be accepted. It was also pointed out that the rent received by the assessee has duly been reflected in its service tax return. Same rent was received and declared in earlier years also and submitted a copy of its assessment order under Section 143(3) of the Act for the immediately preceding assessment year 2012-13 where similar rental income was assessed. A copy of decision of Hon’ble Delhi High Court in the case of CIT vs. Asian Hotels Ltd. was also submitted.
5.3 The learned CIT(A) did not give relief to the assessee by observing in para 5.5 of the appellate order as under :-
“5.5 I agree with the finding of the AO that copy of a surrender letter cannot be treated as evidence as it cannot substitute the Lease Agreement wherein both the lessee and the lessor put their signature in presence of witness. The AO has correctly concluded that the appellant had failed to discharge his onus to prove the surrender was agreed to by both the parties concerned. In view of the same the contention of the appellant is not accepted. The ground of appeal is decided against the appellant. The order of the AO on the above-mentioned issue is upheld.”
6. Aggrieved, the assessee is in appeal before us. The learned AR drew our attention to paragraph 4 of the learned CIT(A)’s order containing the submissions made by the assessee before him. He argued that on identical facts and circumstances, surrender of an area of 2946.34 sq.ft. by the tenant to the assessee has been accepted by the predecessor Assessing Officers. The assessee is in possession of the surrendered area but could not let it out to any other party as the said Mall could not get success. He emphasized that notional rent which was neither received nor accrued to the assessee cannot be brought to tax. The learned DR relied on the order of the learned CIT(A).
7. We have considered the rival submissions and perused the material available on record. The controversy is in a very narrow compass. There is no dispute that the assessee company purchased a property in December 2008 located at 2nd and 3rd Floor in Melange The Mall at Meerut comprising of 35,580.75 sq. ft. which was already let out to Rave Entertainment Pvt. Ltd. (tenant) vide lease deed dated 19.02.2008. The said lease deed was assigned in favour of the assessee company vide assignment of lease deed executed on 12.02.2009 effective from 18.12.2008 on the same terms and conditions. The assessee submitted copy of rent chart for the financial years 2009-10 to 2012-13 (page 16 of paper book). Perusal thereof shows that there was transfer of tenancy from Rave Entertainment Pvt. Ltd. to Reliance Mediaworks Ltd. and the area measuring 2946.34 sq. ft. was surrendered w.e.f. 01.07.2009. In support thereof, the tenant Reliance Mediaworks Ltd. addressed a letter dated 4.09.2009 to the assessee whereby it was confirmed that after discussion and multiple meetings the area of 2946.34 sq. ft. has been surrendered out of total area of 35,580.75 sq. ft. The effective area will be 32,634.41 sq. ft., all other terms and conditions of the lease deed will be the same. The Rent ledger clearly shows that w.e.f. 01.07.2009, the rent has been paid by the tenant Reliance Mediaworks Ltd. to the assessee for 32,634.41 sq. ft. area occupied by it. The learned AO has not only discarded book entry but also the evidence brought on record by way of letter from the tenant to the assessee confirming that 2946.34 sq. ft. area has been surrendered. The learned AO/CIT(A) have rejected the letter of surrender by saying that copy of a surrender letter cannot be treated as evidence and that it does not prove that surrender of leased area was agreed by both the parties. We do not agree. In the case of Vikrant Dutt Chaudhary vs. CIT [389 ITR 411 (P&H)], the Court held that copies of documents, in the absence of their original constitute ‘material’ if they are relevant for the purpose of assessment. Moreover, the letter of surrender of 2946.34 sq. ft. area was written by the tenant Reliance Mediaworks Ltd. to the landlord assessee company and was the outcome of discussion and multiple meetings between the two. Even then the learned AO/CIT(A) alleged that the assessee did not prove that the surrender of the leased area was agreed to by both the parties. This cannot be accepted. The assessee brought to the notice of the learned AO/CIT(A) that the surrendered area is still in its possession and could not be let out to any other party as the Mall could not get success. The veracity of this assertion could be ascertained but nothing has been done.
7.1 The assessee has all along declared the rent receipt on the basis of 32634.41 sq. ft. area occupied by the tenant Reliance Mediaworks Ltd. which has been accepted by the predecessor learned AO in the assessment order dated 6.01.2015 framed under Section 143(3) of the Act (pages 22-23 of paper book) for the assessment year 2012-13. The facts remain the same in the succeeding assessment year 2013-14, presently under consideration. In Radhasoami Satsang vs. CIT [193 ITR 321 (SC)], the Hon’ble Supreme Court observed that though strictly speaking res judicata does not apply to income-tax proceedings but where a fundamental aspects permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. The principles laid down by the Hon’ble Supreme Court in Radhasoami Satsang vs. CIT (supra) has been applied by the Hon’ble Delhi High Court in Director of Income-tax vs. Lovely Bal Shiksha Parishad [266 ITR 349 (Del)]. Rule of consistency has to be followed as held by the Hon’ble Supreme Court in CIT vs. Narendra Doshi [254 ITR 606 (SC)].
7.2 The assessee categorically denied receipt of rent over and above what is reflected in its books of accounts. Nothing has been brought on record to contradict the version of the assessee either by the learned AO or by the learned CIT(A). We, therefore, hold that rental income which has not been received by the assessee cannot be brought to tax.
8. Accordingly, we delete the impugned addition of Rs.8,82,331/- made by the learned AO which has been confirmed by the learned CIT(A).
9. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 11th April, 2022.
