TMI Blog2005 (10) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... s preferred an appeal before the CIT(A) by raising multiple grounds of appeal. In the block assessment, assessee s disclosed the perquisites under the head "Rent-free accommodations" and certain other heads had been substantially enhanced and the Assessing Officer had made these additions on account of these variations in perquisite figures, in the block assessment, mostly on protective basis and as a consequence the substantive additions on the said accounts were made in the hands of the assessees in the regular assessment for assessment years 1996-97, 1997-98, 1998-99, 1999-2000 and 2000-01 after reopening the original assessments under section 147 of the Income-tax Act. These additions made on substantive basis in the regular assessment and the assessee also challenged before the CIT(A) and the CIT(A) through one consolidated order dated 10-2-2004 has disposed off all the six appeals. 3. The main issues raised in these appeals were on two points (1) perquisite value of the rent-free accommodations in the hands of the assessee (2) the annual letting value of the property let out to company in which assessee is Managing Director in the hands of the assessees. The facts relatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes would be taxed as a part of regular assessment. The relevant observation of the CIT(A) are extracted herein. "Considering all these things I am of the view that the Assessing Officer s determination of possible annual value under section 23(1)( a ) by taking the above factors into account cannot be faulted in principle. The Assessing Officer has taken 15% of the renovation as possible implication in rental value, borrowing the rationale from Rent Control Act. First of all 15% is the maximum possible value and again the said 15% has been assumed to have being used for value addition. In my view the same was excessive. Considering the fact that part of it would have been utilized for such an occurrence i.e. , the value addition to the property in terms of increasing the rent, for computation of the fair rent for the determination of annual value it would be reasonable to take 7 and % of the value of renovation for the purpose. The assessee and Assessing Officer both are in agreement that the maintenance charges paid by the company would have implication of increasing the fair rent so same would also be taken for the purposes of computation of fair rent. On that basis the poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at jewellery found during the course of the search is duly supported by documentary evidence filed before authorities and does not represent undisclosed income of the appellant. Your appellant further submits that the jewellery found are disclosed in the wealth tax return and generally tally in one or other form. 3.The CIT(A) failed to consider the ground in appeal concerning levy of surcharge of Rs. 54,208 on the tax payable. The appellant submits that as per the law prevailing at the relevant time, surcharge was not leviable on the tax payable on undisclosed income." 5. During the course of the hearing, assessee has further raised the following additional grounds : "1.The CIT(A) erred in confirming that the Block Assessment order passed by the Assessing Officer is not bad in law and void ab initio even though the notice under section 158BC read with section 143 (2) was issued beyond the limitation period. The Appellant submits that since the notice under section 143(2) was issued beyond the stipulated period, the block assessment order passed thereafter is bad in law and shall be vacated. 2.The CIT(A) erred in confirming that the alleged income of Rs. 4,02,648 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es cannot be sustained in the block assessment. It can be made in the regular assessments in the hands of the assessees. In para No. 5.12, the CIT(A), categorically observed the said perquisites amounts for different years would be taxed as a part of regular assessment, consequently, the addition made in the block assessment in respect of the said items on protective basis would stand deleted. He, accordingly, modified the order. But, in para 4.2, the CIT(A) has confirmed the additions after making the following observation : "4.2 On careful consideration of the submission of the appellant, facts on record, the relevant provisions as well as the judicial pronouncements relied upon by the appellant, I am of the considered view that since renovation work related to a period prior to the period when the assessee was in receipt of rent-free accommodation as managing director of the company, assessee s case would be covered under section 2(24)( iv ) but same could not be considered as a part of salary income. The decision Hon ble Delhi High Court relied upon by the appellant will not apply. Having said so the only point for consideration is as to under which heads of income the said w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has invited our attention to the chart appearing at page Nos. 50-52 of the compilation of the assessees wherein the complete details of the items of the jewellery which has been the subject-matter in appeal are given. It was contended on behalf of the assessees that the gross weight as per the department s valuer almost tallies with the gross weight as per the valuation report filed along with the wealth tax return by the assessees. In most of these items, description of jewellery and gross weights of the items tally with minor variations. Once the stones/diamonds studed in gold, the net weight of the gold can only be estimated and exact weight can only be determined after removing the stones from the jewellery which was never done by the departmental valuer while weigh- ing the jewellery. It is, therefore, submitted that all the jewellery found in the course of search were duly disclosed by the assessee in wealth tax return as such it cannot be termed as undisclosed income of the assessee. During the course of the hearing, the learned counsel assessee has invited our attention to the four items appearing at Sl. Nos. 3, 4, 8 at page Nos. 50 and 3 and 4 as page No. 51 with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith regard to other items of the jewelleries. We, therefore, of the view that the impugned jewellery items found during the course of the search were already declared by the assessee through valuation report filed along with the wealth tax return. On account of slight variation in weight and nomenclature an inference cannot be drawn that all these items were not declared by the assessees through the valuation report filed along with the wealth tax return. It is not a case that these items are over and above to the items declared by the assessee in wealth tax return. We, therefore, find no merit in this addition on account of unexplained jewellery. We, therefore, set aside the order of the CIT(A) and delete the additions. Accordingly, this ground of the assessee is allowed and revenue appeal is dismissed. 13. The nature of the expenses are such that they were considered necessary for making the flat inhabitable for its Director. But, it certainly does not result any benefit to the owner of the flat. Being Managing Director of the company the benefits has to be computed under section 17 of the I.T. Act, read with rule 3 of the I.T. Rules. The rent-free accommodation has been prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the fair rental value of the furnished accommodation. The learned DR further contended that the other facilities provided by the employer like supply of gas, electricity and energy or water or its value should be determined as per clause d of rule 3, according to which, the actual payment should be added to the value of the perquisites. 15. The learned counsel for the assessee in rebuttal has contended that as per rule 3 ( iii )(B), 10 per cent of the original cost of furniture is to be added and the furniture means the television sets, radio sets, refrigerator, other household appliances and air conditioning plant or equipments and not for the entire expenditure incurred in renovation of the residential accommodation. But, the revenue authorities have estimated their own percentage on renovation expenses as the value of the perquisites. 16. Having carefully examined the orders of the lower authorities in the light of rival submissions, we find that in the relevant assessment years, assessee has been declaring the value of the perquisites of rent-free accommodations provided to him. But, it was considered to be at lower side in the reassessment proceedings. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ket rent or the municipal value of the property. We, therefore, set aside the order of the CIT(A) and restore the matter to the file of the Assessing Officer to re-compute the value of perquisites as per rule 3( iii )(B) of the I.T. Rules and other relevant provisions of rule 3 and other circulars if issued by the CBDT in this regard. 18. The next issue relates to the annual letting value determined by the revenue authorities in the hands of the assessees on account of renovations of the flat leased out to the employer of the assessees. For the sake of repetition, the facts with regard to controversies are that the assessee has 10 per cent share in a flat at Tanhee Heights and the balance 90 per cent share was held by Anuradha Nanavati Trust and this Trust has given the flat on rent to the company which is an employer of the assessee on an annual rent of Rs. 72,000 as per the terms and conditions of the agreement dated 6-1-1990. The said flat was renovated after incurring a cost of Rs. 37,78,544 by the company and was given to its Managing Director in terms of letter of appointment as rent-free accommodation. The value of perquisites in the hands of the assessee are separately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the Trust. Since the investment has been made in the property of the assessee, its ALV has been increased, as such, the Assessing Officer was justified in re-computing the ALV by adding 15 per cent of the renovation expenses to the original ALV. 21. Having carefully examined the orders of the lower authorities in the light of rival submissions, we find that the assessee admittedly a co-owner in the property along with Anuradha Nanavati Trust in the ratio of 10 : 90. Admittedly, this flat was given on rent to the company through a lease agreement at a monthly rent of Rs. 6,000. This fact was not disputed by the revenue. This flat was given on rent in 1990 and thereafter this flat ALV has been determined on the basis of the said annual rent after assessment year 1996-97. Undisputedly, whatever investment in renovating this flat was made, it was made by the company and no part of it was ever claimed by the company from the owner of the flat. According to the provisions of section 23(1)( b ), the ALV shall be deemed to be where the property or any property was let and the actual rent received or receivable by the owner in respect thereof, is in excess of the sum referred to in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rent as per the Rent Control Act, but, whenever expenses are incurred by the tenant with the sanction of the landlord, the landlord has no right to increase the rent. Same is the position in the instant case. Whatever renovation expenses were incurred, it was borne by the company/tenant and the assessee has no right to increase the rent under the Rent Control Act. The Rent Control Act also defines the standard rent and its computation. But, in the instant case, the standard rent is not required to be worked out as the premises was actually let out and the actual rent received by the assessee is the annual rent to be taken into account to compute the ALV and the income from house property. It will not be effected by the renovation expenses incurred by the tenant in the property. We, therefore, find no justification in the enhancement made by the revenue authorities. We, accordingly, set aside the order of the CIT(A) and direct the Assessing Officer to accept the income from house property shown by the assessee on the basis of the rent received from the tenant company. 23. Appeal Nos. 4880, 4881, 4883, 4884/Mum./2004. - In these appeals, the revenue has raised three common ..... X X X X Extracts X X X X X X X X Extracts X X X X
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