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TMI Blog2007 (1) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... her not justified to uphold action of the Assessing Authority in having allocated administrative and personnel expenses to property income whereas no such expenses were in fact incurred for the purpose. 3. That the learned Commissioner of Income-tax (Appeals) further gravely erred to have upheld the disallowance of Rs. 32,554 out of telephone expenses and Rs. 8,018 out of car expenses/depreciation observing that in the absence of a log book and call records disallowance out of vehicle depreciation and telephone expenses had to be confirmed. Appellant's contention was that in the case of the appellant company no such disallowance was warranted to be made." 2. First, we shall deal with Ground No. 1 relating to the issue of determination of ALV of the rented property. 3. Briefly 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has not furnished the municipal valuation of the property as admitted by the assessee in his letter. Thereafter placing reliance on the decision of ITAT Mumbai Bench in the case of ITO v. Chem Mech (P.) Ltd. [2002] 83 ITD 427 and the case of Rakesh Aggarwal v. Asstt. CIT [1996] 221 ITR 492 (Delhi) the CIT(A) held that the annual letting value of the property under section 22 of the Act can be worked out by taking into consideration the notional interest received by the assessee on interest-free security deposit received by the assessee from the tenant and hence the CIT(A) confirmed the action of the Assessing Officer for determining the ALV of the property by adopting 15 per cent interest rate on the security deposit. 7. Aggrieved, the assessee is in appeal before 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sections 23(1)(a) and 23(1)(b), it is inferred that the annual value of the property for determining the income from house property is deemed to be the sum for which the property might reasonably be expected to let from year-to-year or where the property is let and the annual rent received or receivable is in excess of such sum, the amount so received or receivable. It further means that the determination of the annual value is to be made of the sum for which property might be reasonably expected to let from year-to-year and the same is to be compared with the actual rent received and if the rent so received or receivable is higher than the amount at which it would be reasonably expected to let from year-to-year then the actual rent received will 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (a) to section 23(1), which is relevant to the instant case, what is required to be determined is the sum for which the property might reasonably be expected to let from year-to-year. The essential requirement is to arrive at a sum for which the property is 'reasonably be expected to let'. What is expected to be done is under section 23(1)(a) is to decide the fair rent for which the property is expected to be let from year-to-year which can be done either on the basis of fair rent fixed by the local Municipal Corporation Laws or under the Delhi Rent Control Act but certainly not by considering any notional income representing the interest on security deposit received by the owner of the property. We are of the opinion that this certainly 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest-free security deposit received by the assessee for the purposes of determining the annual value of the property cannot be considered as the same is not contemplated under section 23 of the Act. 19. In the instant case admittedly neither the assessee has given the annual letting value as determined under the provisions of Municipal Corporation Act or NDMC Act or under the Rent Control Act nor the Assessing Officer has determined the same under section 23(1)(a) of the Act as observed in our order herein above, hence, in these facts and circumstances we set aside the orders of tax authorities below and direct the Assessing Officer to recompute the ALV of the property-in term of section 23(1)(a) of the Act by considering the Municipal 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est on export bill purchase and, therefore, no component could be attributed to house property income. In view of the failure of the appellant to specifically earmark personnel/administrative expenses relatable to the commercial property, the Assessing Officer was justified in adopting the yardstick of proportionate allocation. Assessing Officer is therefore directed to recalculate the disallowance by excluding the financial expenses and restrict the proportionate disallowance to personnel and administrative expenses." 24. We have considered the rival contentions of both the parties, perused the records and carefully gone through the orders of the tax authorities below. 25. In the instant case the assessee has specifically 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in Dy. CIT v. Haryana Oxygen Ltd. [2001] 76 ITD 32 (Delhi), Perfect Pac (Ltd.) v. IAC [1993] 46 TTJ (Delhi) 438 and Banko Products Ltd. v. Dy. CIT [1997] 63 ITD 370 (Ahd.) and the Tribunal consistently decided the issue in favour of the assessees and against the revenue by holding that no such disallowance could be made in the case of companies. 30. Learned AR for the assessee further submitted that the CIT(A) was not justified in ignoring the decisions favouring the assessee in preference to the decision of Madras High Court without assigning any specific reasons. 31. Learned DR for the revenue except placing reliance on the reasoning given in the order of the CIT(A) was not able to controvert 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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