TMI Blog2007 (1) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... eclared by the assessee the rental income should be enhanced accordingly and in case he finds the rent declared by the assessee to be higher than the ALV so determined by the Assessing Officer then he should accept the same and should not make any addition in this regard. In the result the Ground No. 1 of the appeal filed by the assessee stands allowed partly for statistical purpose. Disallowance to personnel and administrative expenses - In the instant case since the assessee has furnished the complete details of expenses incurred by the assessee for the business of the assessee, in our opinion, the tax authorities below were not justified in making the ad hoc proportionate disallowance of these expenses without identifying any such expenditure having been incurred by the assessee for administrative and personnel purposes and more so, when according to the assessee he was simply receiving rent from the tenant, which was deposited in the bank account of the assessee for which it has not incurred any separate expenditure. Thus, the ad hoc proportionate disallowance sustained by the CIT(A) in this regard cannot be upheld and, therefore, the order of CIT(A) in this regard is set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fly stated the facts are that the assessee had let out a commercial space on an annual rent of Rs. 25,30,800 and has also received an amount of Rs. 25,30,800 as interest-free security. The Assessing Officer was of the opinion that the security deposit received by the assessee was an advantage accruing to the assessee as a result of letting out of the property so it was to be taken into consideration for determining the ALV of the property in terms of section 23 of the Income-tax Act. Thereafter, the Assessing Officer worked out the ALV of the property and enhanced the same by adding interest at the rate of 15 per cent on the average value of security deposit of Rs. 19,09,623 and made the impugned addition of Rs. 2,86,443 by relying upon the decision of ITAT - Bombay Bench in the case of CIT v. Rati Agnihotri [IT Appeal Nos. 6826/Bom./80A and 8824/Delhi/ 90] wherein the Tribunal held that interest on security deposit had to be added to the actual rent received in order to arrive at ALV of the property. 4. Aggrieved, the assessee filed an appeal before the CIT(A) and contended that no addition on account of notional interest on the security deposit was called for because the secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us. Learned AR for the assessee reiterated the submissions and further relied upon the case law cited before the CIT(A) and also referred to the recent decision of Delhi Bench in the case of Kailash Enterprises v. Dy. CIT [IT Appeal No. 504 (Delhi) of 2001, assessment year 1997-98, dated 28-10-2005] and submitted that the element of notional income by way of interest on security deposit received by the assessee cannot be considered to determine the ALV of the property under section 23(1)(a) so the tax authorities below were not justified in making the impugned addition under clause (b) of section 23(1) of the Act. 8. On the other hand, learned DR for the revenue supporting the orders of tax authorities below submitted that the CIT(A) has rightly made the impugned addition by enhancing the ALV of the property by taking notional interest at the rate of 15 per cent of the interest-free security deposit received by the assessee from his tenant and, therefore, the assessee's appeal is liable to be dismissed. In support of his contentions, learned DR for the revenue further placed reliance in the case of Shri Bipinbhai Vadilal Family Trust No. 1 v. CIT [1994] 208 ITR 1005 (Guj.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adopted as an annual value. 12. Thus, we find that for the purposes of section 22 for determining the annual value of the property, the Assessing Officer as per section 23(1)(a) is required to determine the sum for which the property might reasonably be expected to let from year-to-year and which can be determined with reference to the standard rent if the same has been fixed and if not fixed then by referring to municipal ratable value of the property in case the same is fixed and if not then the same can be determined as per the guidelines laid down in the provisions of Municipal Act because in the case of CIT v. Bhaskar Mitter [1994] 73 Taxman 437 (Cal.), their Lordships have held that the annual value cannot exceed the standard rent and the fair rent under the Rent Control Act and where the standard rent is not fixed the ratable value of the property may be a good guide. Similarly, in the cases of Mrs. Shiela Kaushish v. CIT [1981] 131 ITR 435 (SC), Dr. Balbir Singh v. Municipal Corpn. of Delhi [1985] 152 ITR 388 and Dewan Daulat Ram Kapoor v. New Delhi Municipal Committee [1980] 122 ITR 700, their Lordships of the Apex Court have very clearly held that the sum for whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainly cannot be a relevant factor to evaluate the fair rent of the property because a notional income for such purposes was never contemplated under this section. 16. The cases relied upon by the learned DR for the revenue is distinguishable on facts. In the case of Shri Bipinbhai Vadilal Family Trust No. 1 Gujarat High Court, we find that the agreed rent shown by the assessee was Rs. 500 p.m. and the same was much less than the ALV of the property adopted by the Assessing Officer at Rs. 18,000 p.m. on the basis of the value of the property shown at Rs. 2,15,000 and was adopted after taking into consideration these factors by the Assessing Officer. Similarly, in the case of Rakesh Agarwal decided by Hon'ble Delhi High Court the main question under consideration was regarding the reopening of the assessment under section 147 whereas the determination of ALV under sections 23(1)(a) and 23(1)(b) was not under consideration. On the contrary the assessee before the High Court had not denied the income from house property declared and assessed on the basis of actual rent received and the same was admitted by the assessee to be less than the annual ratable value of Rs. 1,62,400 det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Valuation as per the MCD Act/By-Laws or NDMC Act/By-Laws or under Delhi Rent Control Act whichever is applicable in the instant case of the assessee and thereafter in case he finds the ALV of the property so determined to be higher than the actual rent declared by the assessee the rental income should be enhanced accordingly and in case he finds the rent declared by the assessee to be higher than the ALV so determined by the Assessing Officer then he should accept the same and should not make any addition in this regard. In the result the Ground No. 1 of the appeal filed by the assessee stands allowed partly for statistical purpose. 20. Now, we shall take up Ground No. 2 of the appeal. 21. In brief, the facts relating to the Ground of Appeal are that the Assessing Officer noticed that the assessee had claimed repair expenses equal to 1/5th of ALV while computing net income from house property but had not reduced any expenses, which would have been incurred in relation to earning of the rental income. The assessee's argument that no expenses relating to house property let out were debited to the P L Account was not accepted by the Assessing Officer. He was of the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cally contended before the tax authorities below that it had not incurred any personnel, administrative and financial expenses for managing the house property in question. In this regard, the assessee furnished the details of personnel and administrative and financial expenses for the business of the assessee. On the other hand, the tax authorities below without pointing any specific item of expenditure being incurred by the assessee towards the management of house property from which the assessee has offered rental income for tax purposes have simply disallowed the ad hoc proportionate disallowance towards personnel administrative expenses after excluding financial expenses shown by the assessee. In the instant case since the assessee has furnished the complete details of expenses incurred by the assessee for the business of the assessee, in our opinion, the tax authorities below were not justified in making the ad hoc proportionate disallowance of these expenses without identifying any such expenditure having been incurred by the assessee for administrative and personnel purposes and more so, when according to the assessee he was simply receiving rent from the tenant, which was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above specific submission of learned AR for the assessee. 32. In this view of the matter we are of the opinion that when the Gujarat High Court in the case of Sayaji Iron Engg. Co. Ltd. and various Tribunals in a number of decisions have consistently been deciding the issue in favour of the assessee and against the revenue after considering the various decisions of the High Courts, the CIT(A) was not justified in disallowing the claim of the assessee by merely following the decision of Madras High Court which was not of jurisdictional High Court because in the various judicial pronouncements by High Courts and the Apex Court it has been consistently held that in case there are two decisions of two different High Courts, one in favour of the assessee and the other against the assessee, the decision favourable to the assessee is to be adopted. Hence, keeping in mind this principle and following the decision of Gujarat High Court in the case of Sayaji Iron Engg. Co. Ltd. and the decisions of the Tribunals we hold that the CIT(A) was not justified in upholding the order of Assessing Officer wherein a case of a company he disallowed the expenses claimed by the assessee-compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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