TMI Blog2018 (7) TMI 1810X X X X Extracts X X X X X X X X Extracts X X X X ..... e standard rent or the fair rent. A bare perusal of this part of the CIT(A)'s order shows that determination of annual value of the said premises as per the Tribunal's Order was a subject of matter of appeal before the CIT(A) which has been considered and decided by him. Therefore, the CIT could not have assumed jurisdiction under section 263 of the Act in respect of the said issue. - decided in favour of assessee - ITA No. 3282/Mum/2014, ITA No. 3283/Mum/2014, ITA No. 3284/Mum/2014, ITA No. 3285/Mum/2014, ITA No. 3286/Mum/2014 And ITA No. 3287/Mum/2014 - - - Dated:- 25-7-2018 - SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM For The Appellant : Shri Nitesh Joshi, AR For The Respondent : Shri Jacinta Zimik Vashai, DR ORDER PER MAHAVIR SINGH, JM: These appeals by the assessee are arising out of the common revision order of Commissioner of Income Tax-6, Mumbai, [in short CIT(A)] in No. CIT(A)-6/263/2013-14/658 dated 11.03.2014 under section 263 of the Income Tax Act, 1961(hereinafter the Act ). The Assessments were framed by the Income Tax Officer, Circle 2(3)-1, Mumbai (in short ITO/ AO) for the assessment years 2001-02, 2002-03, 2003-04, 2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable rent expected to be fetched by the property by letting out from year to year has to be determined. Clause (b) of subsection (1) of section 23 deals with the cases where the property is let out. It is pertinent to note that prior to amendment with effect from 1.4.1996 there was no such clause (b) in sub-section(1) of section 23. The provisions was further amended by the Finance Act 2001 w.e.f 1.4.2002 whereby the word annual rent received or receivable has been substituted by the word actual rent received or receivable . Though this change of the term from annual rent to actual rent has not altered any material meaning of the provision except for the first year of letting out or in case the property is not let out for full year. Thus, for determination of the ALV under section 23(1), the Assessing Officer has first to find out the reasonably expected rent which the property might fetch by letting out from year to year and then this reasonably expected rent has to be compared with the annual rent received or receivable by the owner and if annual rent received or receivable as contemplated under section 23(1)(b) is in excess of the reasonable rent expected from letting ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point out that under Section (23)(1)(b), the word receivable denotes payment of actual annual rent to the assessee. However, if in a given year a portion of the actual annual rent is in arrears, it would still come within Section (23)(1)(b) and it is for this reason that the word receivable must be read in the context of the word received in Section(23)(1)(b). In the light of the above interpretation, notional interest cannot form part of the actual rent as contemplated by Section (23)(1)(b) of the Act. We once again repeat that whether such notional interest could form part of the fair rent under Section (23)(1)(a) is expressly left open. 14. It is, thus, manifest that various Courts have held a consistent view that notional interest cannot form part of actual rent. Hence, there is no justification to take a different view that what has been stated in Asian Hotels Limited (supra). 15. The next question would be as to whether the annual letting value fixed by the Municipal Authorities under the Delhi Municipal Authority Act can be the basis of adopting annual letting value for the purposes of Section 23 of the Act. This question was answered in affirmative by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursements for municipal taxes, insurance, repairs or maintenance of common facilities are not considered as part of the rent and added to the annual value. Accordingly, there can be no scope or justification whatsoever for making any addition for any notional interest for determining the annual value. Whatever benefit or advantage which is derived from the deposits - whether by way of saving of interest or of earning interest or making profits by investing such deposit - the same would be reflected in computing the income of the assessee under other heads. In our view there is no scope for making any addition on account of socalled notional interest on the deposit made by the tenant, since there is no provision to this effect in s. 22 or 23 of the IT Act, 1961. 16. In fact, this is the view taken even by the Supreme Court in the case of Shiela Kaushish Vs. CIT [1981] 131 ITR 435 (SC) on account of similarity of the provisions under the municipal enactments and Section 23 of the Act. 17. It is on this basis that in the present case, the CIT (A) gave primacy to the rateable value of the property fixed by the Municipal Corporation of Delhi vide its assessment order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of material/ evidence placed on record. This view is fortified by the decision of Patna High Court in the case of Kashi Prasad Kataruka v. CIT [1975] 101 ITR 810. 17. The above discussion leads to the following conclusions: (i) ALV would be the sum at which the property may be reasonably let out by a willing lessor to a willing lessee uninfluenced by any extraneous circumstances, (ii) An inflated or deflated rent based on extraneous consideration may take it out of the bounds of reasonableness, (iii) Actual rent received, in normal circumstances, would be a reliable evidence unless the rent is inflated/deflated by reason of extraneous consideration, (iv) Such ALV, however, cannot exceed the standard rent as per the Rent Control Legislation applicable to the property, (v) if standard rent has not been fixed by the Rent Controller, then it is the duty of the assessing officer to determine the standard rent as per the provisions of rent control enactment, (vi) The standard rent is the upper limit, if the fair rent is less than the standard rent, then it is the fair rent which shall be taken as ALV and not the standard rent. 19. We may also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under: At the cost of repetition it may be mentioned that under Section (23)(1)(a), the Assessing Officer has to decide the fair rent of the property. While deciding the fair rent, various factors could be taken into account. In such cases various methods like the contractors method could be taken into account. If on comparison of the fair rent with the actual rent received, the Assessing Officer finds that the actual rent received is more than the fair rent determinable as above, then the actual rent shall constitute the annual value under Section (23)(1)(b) of the Act. Now, applying the above test to the facts of this case, we find a categorical finding of fact recorded by the Tribunal that the actual rent received by the assessee was more than the fair rent. Under the above circumstances, in view of the said finding of fact, we do not see any reason to interfere . 16.3 From the decision of the Hon.Full Bench of the Hon. Delhi High Court, it is clear that for determination of the fair rent, the Assessing Officer has to take into account various factors including standard rent. If the standard rent is not fixed then the procedure provided under the Rent Control ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further letting out the property in question, which is subsequent to the Assessment Years 2001- 02 and 2002-03. Even otherwise, the rent received by the sub tenant vide agreement dated 2.1.2004 is not for the entire property in question but only for a part that too after carry out the some furnishing work. Therefore, the same cannot be adopted as fair market rent for the entire property. Thus, while computing the ALV the Assessing Officer has to take into account all the facts including any specific portion/part of the property was let out etc. 17. We may observe that the rent against which the property was let out by the sub tenant is one of the very relevant factors for determination of the fair market rent but not the sole and alone. Accordingly, we set side the orders of the lower authorities and remand the issue to the record of the Assessing Officer to determine the fair market rent u/s 23(1)(a) in view of the decision of the Full Bench of the Hon ble Delhi High Court (supra). 4. The learned Counsel for the assessee stated that the AO passed an order giving effect to this ITAT order vide order dated 14.02.2012, wherein the AO has accepted the ALV declared by asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... According to the aforesaid section, no return of income, assessment, notice, summons or other proceedings shall be invalidated merely by reason of any mistake, defect or omission, provided the subject matter, in substance and effect, is in conformity with the intent and purpose of the Act. Also, in this regard, Circular No. 179, dated September 30, 1975 which provides explanatory notes and legislative intent for introduction of the said section, explains that: This provision has been made to provide against purely technical objections without substance coming in the way of the validity of assessment proceedings, etc. 7.13 Section 292B provides relief against mistakes on the grounds of 'mere technicalities' coming in the way of law. Various judicial pronouncements have been made in favor of the Revenue overruling 'pure technical objections' raised by the assessee. However, in the instant case, the AC has passed subsequent assessment orders without jurisdiction, which cannot be treated as a mere technical mistake but a valid case having absolute substance. Hence, the AC cannot take shelter under Section 292B of the Act, as the AO has consciously passed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee also raised the issue by proposition that, whether the issue relating to determination of annual value under section 23 of the Act, in view of the Tribunals order dated 30-12-2011, was a subject matter of appeal filed by the assessee before the CIT(A), against the order dated 20.12.2012 passed by the AO and hence, the CIT could not have assumed jurisdiction in respect of the same subject matter under section 263 of the Act. 6. On the other hand, the learned CIT DR, Miss Jacinta Zimik Vashai argued with regard to the ground of appeal pertaining to determination of the Annual letting Value (ALV), that the Tribunal gave a finding that the AO has to first determine the sum for which the property might reasonably be expected to fetch the rent from year to year and then compare the same with the annual/actual rent received or receivable. The Bench stated that from the various judicial pronouncements of the Hon'ble Supreme Court as well as High Courts, that standard rent or the municipal value as the case may be is one of the various factors to be taken into account by the AO while determining the fair rent expected to be fetched for letting out the property fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered in the consequential order passed on 14.02.2012. The AO has merely gone by the actual rent declared by the assessee in the Return of income filed. The so called order dated 14.02.2012 is a mere mathematical calculation of figures. Hence, the aforesaid consequential order dated 14.02.2012 is factually and in law erroneous which is prejudicial to the interest of the Revenue. The AO passed a subsequent order dated 20.12.2012 to give effect to the directions of the Tribunal against which the assessee went in appeal before the CIT(A)-6. Mumbai. As per the order of the CIT(A)-6, Mumbai dated 23.10.2013, the subsequent order dated 20.12.2012 is not viable legally in view of the fact that an order giving effect to the aforesaid order of the Tribunal has already been passed on 14.02.2012 by the AO. Therefore, the CIT(A)-6, Mumbai held that the consequential order dated 20.12.2012 is null and void, in view of the aforesaid decision held by the CIT(A)-6, Mumbai, the order dated 14.02.20 12 is the valid consequential order. It is, therefore, amply clear that order dated 14.02.2012 is the only consequential order that existed when the proceedings u/s.263 of the Act, was initiated by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered the relevant factors discussed in the aforesaid order of the Hon'ble Delhi High Court in computing the income from house property and has not seen whether the income from house property declared by the assessee and considered in the order dated 14.02.2012 is reasonable/fair rent. Thus, the aforesaid order dated 14.02.2012 of the AO is erroneous and prejudicial to the interest of the Revenue. She argued that Pr.CIT, Mumbai has rightly assumed the revisionary powers by invoking the provisions of Sec.263 of the Act. The order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. The Pr.CIT after giving the assessee opportunity of being heard and after making necessary inquiries passed the order u/s.263 of the Act Since all the requisite conditions for invoking the provisions of Sec.263 of the Act stand fulfilled, it is humbly submitted that the order passed u/s.263 of the Act is in the interest of the Revenue and prayed that the order passed u/s.263 of the Act be upheld as valid and sustainable. 9. We have heard the rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent which was the upper limit. Therefore, the exercise as required to be carried out by the AO as per the Tribunal's order was to adopt the Municipal rateable value as the annual value for the purposes of section 23(l)(a) of the Act unless he found that such value was not based on relevant material for determining fair rent in the market and there was sufficient material on record for taking different valuation. It was only in such circumstances that the AO could determine the fair rent for the purposes of section 23(l)(a) of the Act. Even if such fair rent was determined, the annual value could not exceed the standard rent as that was the upper limit for the purposes of computation of annual value under section 23(1)(a) of the Act. 11. The AO after considering the material as gathered by her in the course of original assessment proceedings and the directions of the Tribunal upheld the annual value, in the present case i.e. at ₹ 3, 16,800 based on the rent actually received by the assessee from Indokem Limited. We find from the facts of the case that information with respect to municipal rateable value was available with her in the course of original assessment proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per the Rent Control Legislation. According to him, lower of the standard rent or the fair rent would be regarded as the annual value for the purposes of section 23 of the Act. Since, the AO had proceeded on the basis of fair rent determined by the Valuer without determination of the standard rent of the said premises, the direction of the Tribunal had not been carried out. In view of these facts, we find that the Revenue issued show-cause notice under section 263 of the Act and referred to certain extracts from the decisions of the Full Bench of the Delhi High Court in the case of Moni Kumar Subba (supra) and alleged that the AO did not consider the factors enumerated in the said decision while passing the order giving effect to the Tribunal's order. He referred to valuation report of M/s Nadkarni Co. to allege that the fair market rent which could be fetched by the said property was substantially higher than the amount offered for tax by the Assessee. He also observed that the AO did not try to consider what the municipal value of the said premises was and whether the said value represented fair market rent prevailing during the relevant period. He has discarded the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Delhi High Court in the case of Moni Kumar Subba (supra) while passing her order dated 14.02.2012. This had made the order dated 14.02.20 12 passed by the AO as erroneous in so far as it was prejudicial to the interests of the Revenue. 13. On the above facts, we are of the view that the CIT was not justified in assuming jurisdiction under section 263 of the Act, for the reasons that as per clause (c) of Explanation 1 below section 263(1) of the Act, the Commissioner of Income-tax cannot exercise jurisdiction under the said section with respect to an issue which is the subject matter of an appeal before the CIT(A) and has been considered and decided in such appeal. In the present case, the CIT has exercised his jurisdiction under section 263 of the Act for the purposes of determination of the annual value of the said premises under section 23(1)(a) of the Act, in view of the Tribunal's Order dated 30.12.2011 and the judgment of Full Bench of the Delhi High Court in Moni Kumar Subba (supra). The said issue was a subject matter of appeal before the CIT(A) against order dated 20.12.2012 passed by the AO giving effect to the Tribunal's order. The CIT(A) has also con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sues i.e., with respect to the jurisdiction as well as on merits. We have gone through the case law of Sreenivasa Pitty Sons [1988] 173 ITR 306 (AP), wherein it has been held that the Tribunal or any other appellate authority is duty bound to consider all the issues arising in the appeal and not decide the appeal based only on the jurisdictional issue or an alternate claim. Hon ble High Court held as under:- 4. Mr. A. Satyanarayana, the learned counsel for the assessee represents to this Court that the matter relates to 1969-70 and nearly two decades have since elapsed, the question regarding the merits remained unresolved causing considerable hardship to the assessee. It was pointed out that although there was a direction by the Tribunal to the AAC to decide the case on merits the matter was not taken up by the learned AAC and in the meantime some complications had set in. We can not over emphasis the need on the part of the appellate authorities to deal with all the contentions urged at the time of disposal of the appeal. The practice of taking up one amongst several contentions and allowing the appeal on that ground would result in piecemeal disposal of the appeal causing ..... X X X X Extracts X X X X X X X X Extracts X X X X
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