Jay Laxmi Land Developers, Ahmedabad vs Assessee

आयकर अपीलीय अिधकरण, अिधकरण, अहमदाबाद यायपीठ ''B'', अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, "B" BENCH

सव ौी ौी जी. जी.सी. सी.गु ा, माननीय उपा!य", उपा!य", एवं अिनल चतुवद ' (, (, लेखा सदःय के सम" । BEFORE S/SHRI G.C. GUPTA, VICE-PRESIDENT AND ANIL CHATURVEDI, ACCOUNTANT MEMBER)

ITA No.1171/Ahd/2011 [Asstt.Year : 2006-2007]

M/s.Jay Laxmi Land Developers बनाम/Vs. ITO, Ward-1 B-07, Jay Laxmi Tower, Anand. Ganesh Chowkdi, Anand.

PAN : AAFFJ 1432 Q

(अपीलाथ. / Appellant) (ू0यथ. / Respondent)

िनधा 1रती क2 ओर से/ : Assessee by Shri Anil R. Shah, AR राजःव क2 ओर से/ : Revenue by Shri V.K. Singh, Sr.DR सुनवाई क2 तार(ख/ : Date of Hearing 5th January, 2015 घोषणा क2 तार(ख/ : Date of Pronouncement 02-02-2015

आदे श / O R D E R

PER G.C. GUPTA, VICE-PRESIDENT: This appeal by the assessee for the Asstt.Year 2006-2007 is directed against the order of the CIT(A).

2. The ground no.1 and 2 of the assessee's appeal are as under: 1.(a) The CIT(A) has erred in confirming the adoption Rs.18,83,000/- a "Income from house property which is not earned or accrued and the said income is not taxable in the hands of the appellant as "Income from house property. ITA No.1171/Ahd/2011

The rent received from VARIN Commercial Pvt. Ltd., is Income from Business as declared by the appellant and therefore, the said income ought to have been accepted as "Business Income by the ITO.

(b) The CIT(A) also erred in confirming the annual value of property at Rs.26,90,000/- which is not supported by any evidence. Since the property was rented and actual rent was received the income from property cannot be taken at a figure higher than actual income earned from the property.

Without prejudice your appellant submits that the property can at best be taken as per Annual Letting Value determined by the Baroda Municipal Corporation.

2.(a) The CIT(A) has also erred in confirming computation of total income of your appellant as against actual income of Rs.1,00,000/- earned & declared wherein eh AO has taken "Income from House property at Rs.32,96,882 which is based on presumption and assumption and not on actual rent basis and therefore the same is required to be deleted.

(b) Without prejudice the CIT(A) has also erred in confirming addition of Rs.32,96,082 as income from property and while doing so the AO had taken notional rent for second floor to fifth floor at Rs.49,95,546 as the starting point of notional income which is very strongly objected by your appellant particularly because under the I.T.Act while computing income from house property either actual rent or municipal value/ALV as per municipal corporation only can be taken.

(c) The CIT(A) has also erred in confirming the deemed income Rs.32,96,882/- adopted by AO which is not computed as per the provisions of law and on facts of the case."

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3. The learned counsel for the assessee submitted that grounds of the appeal of the assessee relate to two issues. The first issue is regarding assessing rental value of part of the property, let out by the assessee to M/s.Varine Commercial Pvt. Ltd. ("VCPL" for short) and the rental value of other part of the same property let out to one of the partners of the assessee-firm, has been assessed under the head "Income from House Property" as against the claim of the assessee for assessing the same as "Business Income" of the assessee. He submitted that building of the assessee-firm consists of ground floor, first floor to fifth floor. The ground floor and first floor were let out by the assessee firm to "VCPL", which runs a departmental store therein, and has paid rent of Rs.2.69 lakhs per month. He submitted that upper floor of the property i.e. second floor to fifth floor of the same property were let out to one of the partners of the assessee-firm for an amount of Rs.1 lakh per annum. He submitted that the assessee has let out the property in question along with furniture and fixtures, and therefore, the rental value from "VCPL" as well as partner of the assessee-firm should have been assessed under the head "Income from Business". He referred to relevant portions of the lease agreement between the assessee firm ("lessor") and "VCPL" ("lessee") dated 18.6.2005, wherein it is mentioned that the rent of Rs.2.69 lakhs per month is inclusive of electrical panel board and generator sets provided in the back side of the building by the lesser.

4. The learned DR has opposed the submission of the learned counsel for the assessee. He submitted that there is no evidence brought on record on behalf of the assessee to show that it has provided some furniture and fixtures to "VCPL", and in fact the lease agreement between the assessee- firm and "VCPL" shows that there was no provision for any services provided by the assessee to the lessee. He submitted that providing -3- ITA No.1171/Ahd/2011

electrical panel is part of the building premises let out and no separate rent is charged for the same. Likewise, generator space is also in this premises only, and is not a service or separate asset. He submitted that no facility like air-condition plant or common amenities like lift, watchmen etc. were ever provided by the assessee-firm to "VCPL". He relied on the orders of the AO and the CIT(A).

5. We have considered rival submissions regarding first issue of assessing the rental value of the said property under the head "Income from House Property". We find that the assessee has not brought any material on record to show that it has provided any common facility like air-condition plant, power back-up, lift, watchmen etc. to "VCPL" or its partner to whom the upper floors were let out by the assessee-firm. A bare reading of the lease agreement between the assessee-firm and "VCPL" shows that the rent was charged by the assessee-firm only for the "premises" as provided in the lease agreement. Providing of electrical panel and space for generator could not be said to be a separate service or asset and in fact no separate rent is charged for the same. We find that there was no provision of any services to be provided by the assessee to the "VCPL" or to the partner of the assessee-firm in the upper floor. The CIT(A) has recorded in his appellate order that the value of the building was shown at Rs.3.86 crores whereas the value of the furniture and fixtures is of Rs.87,226/- only, which are of insignificant value vis-à-vis value of the building. In these facts of the case, we are of the view that in the absence of any facilities or business infrastructure provided by the assessee-firm to its lessee, rental income from let out of "premises only" was rightly taxed by the department under the head "Income from House Property" and no interference in the order of the CIT(A) on this issue is

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called for, which is confirmed and the ground of the appeal on this issue is dismissed.

6. Other issue in the grounds of the appeal of the assessee is regarding determination of the notional value of the second floor to fifth floor of the building let out to one of the partners of the assessee-firm, who runs a hotel business, at Rs.49.95 lakhs, and after allowing statutory deductions, the net income of Rs.32,96,882/- was assessed as "Income from House Property". The learned counsel for the assessee submitted that the second floor of the property in question was in a broken condition and not fit for use for commercial purpose. He submitted that the AO has not compared the covered area of the ground and first floor of the property let out to "VCPL" with the covered area in second to fifth floor of the same property let out to one of the partners of the assessee-firm who run a hotel business under the name "Sudarshan Palace", and there was no basis for taking notional rent of the second to fifth floor of the property at Rs.49.95 lakhs, as against Rs.1.00 lakhs charged by the assessee. He submitted that the AO should have taken either the actual rent of the property or rent determinable as per the Rent Control Act or any standard rent and relied on decisions in the case of CIT Vs. Sarabhai (P.) Ltd., (2009) 176 TAXMAN 6 (Guj), CIT Vs. Tip Top Typography (2014) 48 taxmann.com 191 (Bom) and Smt. Kokilaben D. Ambani Vs. CIT, (2014) 49 taxmann.com 371 (Bom) in support of the case of the assessee. He submitted that the ground floor and first floor let out to "VCPL" were suitable for running Departmental store by the said "VCPL" whereas the fact remains that upper floors of the said buildings were having small rooms and not fit enough for any commercial use. He submitted that partner of the assessee-firm, running a hotel business under the name

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"Sudarshan Palace" has advanced loan of Rs.163 lakhs to the assessee- firm without charging any interest, and this fact should have been got in mind by the AO while making addition in this case. The learned DR has opposed the submissions of the learned counsel for the assessee. He submitted that the provision of section 23(1)(a) is very clear that the annual value of the property were deemed to be the sum for which the property might reasonably be expected to let from year to year. He relied on the decision of Hon'ble High Court of Jharkhand in the case of CIT Vs. Smt. Bhagwani Devi, (2008) 298 ITR 413 in support of his arguments. He submitted that the AO has reasonably estimated the notional rent from second floor to fifth floor of the building by allowing deduction at 10% in comparison to lower floor which is quite reasonable in the facts of the case of the assessee. He referred to the relevant portions of the assessment order and the appellate order passed by the CIT(A) in support of the case of the Revenue.

7. We have considered rival submission and perused the orders of the AO and the CIT(A). We find that the assessee has charged the rent of Rs.1 lakh only for the second floor to fifth floor of the said property for the entire year from one of its partners, who runs a hotel business therein under the name "Sudarshan Palace". No valid reasons could be assigned on behalf of the assessee before us for charging such lower rent for second to fifth floor of the property as compared to rent of Rs.2.69 lakhs from "VCPL" per month for two floors. In reply to a specific query from the Bench, no definite figure of the covered area let out to Sudarshan Palace could be filed before us. The CIT(A) has given a finding that it is not the appellant's case that the property was subjected to Rent Control Act or standard rent was got determined. No conclusive evidence could be led on behalf of the assessee to show that the 2nd floor of the asset was in -6- ITA No.1171/Ahd/2011

broken condition and not usable for any commercial purpose. We find that the ground floor to first floor of the property was let out to "VCPL" at Rs.2.69 lakhs per month, and that, there is a clear disparity in this case between the rent charged from related parties and from an unrelated parties for two portions of the property in question. The case law of relied upon by the learned counsel for the assessee were distinguishable on facts. In these facts, we hold that the rent figure shown by the assessee at Rs.1 lakh per annum for second floor to fifth floor of the property let out to Sudarshan Palace is low and has to be substituted for the amount for which the property might reasonably expect to let for the relevant year. This leaves us to the only issue of determination of reasonable amount of rent for which the property might be expected to let from year to year. Considering totality of the facts and circumstances of the case, and the fact that the allowance of deduction at 10% per higher floor from the bottom ground and first floor of the property, was on the lower side, and that upper second floor to fifth floor not having any hall type construction to suit for commercial use for any departmental stores etc., and construction of building consisted of small rooms only and the claim of the assessee that covered area on the higher floors were less as compared to the ground and first floor of the property, and also considering the undisputed fact that the partner of the assessee-firm, who is running a hotel "Sudarshan Palace" business has advanced deposit of Rs.1.63 crores to the assessee- firm without charging any interest, we are of the view that the ends of justice shall be met, if the rental value of second floor to fifth floor of the property used for hotel business is determined at Rs.30.00 lakhs per annum for the relevant year, as against Rs.49.95 lakhs determined by the AO, and after allowing Rs.2 lakhs for municipal tax paid by the assessee, and also 30% of the annual value of the property, the income from second floor to

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fifth floor of the property let out to M/s.Sudarshan Palace, should be assessed at Rs.19.00 lakhs as against Rs.32,96,882/- assessed by the AO and the grounds of the appeal of the assessee, on this issue, are partly allowed.

8. In the result, the appeal of the assessee is partly allowed.

Order pronounced in Open Court on the date mentioned hereinabove.

Sd/- Sd/- अिनल चतुव'द( / ANIL CHATURVEDI) (अिनल (जी. जी.सी. सी.गु ा/G.C. GUPTA) लेखा सदःय /ACCOUNTANT MEMBER उपा!य" /VICE-PRESIDENT

Copy of the order forwarded to: 1) : Appellant 2) : Respondent 3) : CIT(A) 4) : CIT concerned 5) : DR, ITAT. BY ORDER

DR/AR, ITAT, AHMEDABAD

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