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2015 (5) TMI 475 - ITAT AHMEDABAD

2015 (5) TMI 475 - ITAT AHMEDABAD - TMI - Income from house property - Annual Value - Estimated the “ALV” - CIT(A) reducing the addition made by the A.O. on account of estimation of ALV and reworking of the ALV at ₹ 17,04,420/- as against that of ₹ 34,58,969/- being the ALV worked out by the A.O.Held that:- This issue is squarely covered by the decision of the Hon’ble Jurisdictional of Sakarlal Balabhai vs Income-Tax Officer [1974 (11) TMI 33 - GUJARAT High Court] to come to the conc .....

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in the property or it should be interest receivable by the assessee had the similar money is invested somewhere else? - Held that:- for determining the income from the property, it should be rate of return on the investment of similar amount in another asset. Therefore, in our opinion, the CIT(A) was fully justified in estimating the ALV on the basis of interest which assessee would have earned on the investment of the similar amount. The ld. Counsel for the assessee had argued that the rate of .....

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. In another case, where the rate of interest was 6%, it was for 91 days and in another case where the period of deposit was 366 days, the rate of interest was 7.75%. The ld. DR was fully justified that if the rate of return on the investment is considered, then it should be a long term investment because in any property nobody would make investment just for few days. Considering all these facts, in our opinion, the CIT(A) has rightly applied the rate of interest of 8.5%. We, therefore, do not f .....

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iod and not for the whole year. We, therefore, direct the Assessing Officer to assess the ALV of the property for 6 months and 21 days i.e. actual period for which the property let out. - ITA No. 2639/Ahd/2013, ITA No.2773/Ahd/2013, ITA No.1184/Ahd/2011, ITA No.289/Ahd/2012, ITA No.661/Ahd/2013 - Dated:- 17-4-2015 - Shri G.D. Agrawal And Shri S. S. Godara JJ. For the Appellant : Shri S.N. Soparkar, AR For the Respondent : Shri Dinesh Singh, Sr. DR ORDER Per G.D. Agrawal, VICE PRESIDENT: ITA .....

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1 (AY 2008-09) and 31.01.2013 (AY 2009-10). Since these appeals involve common issues, these were heard together and are being disposed of by this consolidated order for the sake of convenience. ITA No.2773/Ahd/2013 - Revenue s appeal : AY 2005-06 2. In this appeal, following grounds are raised by the Revenue:- i. The ld. CIT(A) has erred in law and on facts in reducing the addition made by the A.O. on account of estimation of ALV and reworking of the ALV at ₹ 17,04,420/- as against that o .....

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have upheld the order of the Assessing Officer. iv. It is, therefore, prayed that the order of the Ld. Commissioner of Income tax (A) may be set aside and that of the Assessing Officer be restored. ITA No.2639/Ahd/2013 - Assessee s appeal : AY 2005-06 3. In this appeal by the assessee, following grounds are raised:- i. Ld. CIT(A) gravely erred in law and on facts in adopting rate @ 8.5% as return of investment confirming addition of ₹ 11,93,094/- from total addition of ₹ 24,21,279/- .....

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perty was occupied only for a period of 6 months and 21 days of the year. Both the lower authorities erred in computing notional income @ reasonable rate of interest on investment also for period during which property remained vacant. Ld. CIT(A) ought to have deleted excess addition made on this account. It be so held now. iii. Levy of interest u/s 234B & 234C of the Act is not justified. iv. Initiation of penalty u/s 271(1)(c) of the Act is not justified. v. Withdrawal of interest u/s 244A .....

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r dated 31.03.2011 in ITA No.1165/Ahd/2009 set aside the matter back to the file of the Assessing Officer, with the following findings:- 5. We have heard both the parties and perused the material placed before us. In the case of Sakarlal Balabhai (supra), the Hon ble jurisdictional High Court held as under:- … In the absence of better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis for determining the annual letting value of propert .....

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er to set aside the order of the authorities below on this point and restore the matter back to the file of the AO. We direct him to determine the ALV as per the observations of the Hon ble jurisdictional High Court i.e. by applying the reasonable rate of interest on the cost of immovable property. Needless to mention, he will allow adequate opportunity of being heard to the assessee while adjudicating the matter. 5. The Assessing Officer gave effect to the order of ITAT vide his order dated 03. .....

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nterest as if the appellant is borrowing funds equivalent to the investment is not reasonable. The appellant had already invested in the property and what is to be worked out is a reasonable rate of return from such investment, in accordance with the directions given by Hon ble ITAT. In such a scenario the reasonable rate of return can be equated with the prevailing interest rate on the long term fixed deposit kept with the banks/NBFCs. The appellant has contended that the rate of interest which .....

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riod. The ALV of the property is worked out as under:- Property detail (as per submission dt. 14.03.2012 Cost of Property (In Rs.) ALV calculated assuming rate of interest at 8.5% (in Rs.) Property A 74,22,612/- 6,30,922/- Property B 1,26,29,388/- 10,73,498/- Total 17,04,420/- ALV as calculated above : ₹ 17,04,420/- Less : 30% Standard Deduction u/s 24 : ₹ 5,11,326/- Income from House Property : Rs.11,93,094/- Accordingly the income from house property is worked out atRs.11,93,094/- .....

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the property. He submitted that in the case of the assessee, income from the property is to be estimated and not interest expenditure on acquisition of such property had borrowed money been utilized. Therefore, proper yardstick is to estimate the proper rate of return on the investment of similar amount in any other secured investment. He gave before us various bank certificates for investment in FDRs and pointed out that interest on the FDRs was varying from 5.5% to 7.5%. He, therefore, submitt .....

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rowed money being utilized. He alternatively submitted that if the assessee s contention with regard to rate of return on investment is accepted, then the examples in the investment in FDRs by the assessee should not be accepted because those investments are for a short period; while the investment in the property is for the long period. He also submitted that the rate of return should be considered on the basis of market value of the property in each year and not simply on the basis of cost of .....

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In the above mentioned case, their Lordships of the Hon ble Jurisdictional High Court have considered various decisions from other courts and also from book Ryde on Rating and thereafter, concluded as under at page No.107:- 17. Though the above passages are more or less in the context of ascertaining rateable value of property, they none-the-less assure us that in the absence of any better way of estimating rent, the rate of interest on cost of building and land may provide a reasonable basis f .....

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ove, it is evident that their Lordships of Hon ble Jurisdictional High Court have come to the conclusion that rate of interest on cost of the building and land would provide a reasonable basis for determining the Annual Letting Value of property. Therefore, the contention of the ld. DR that instead of cost, market value of the property in each year should be adopted cannot be accepted. 10. Now, we come to the question whether rate of interest to be adopted for determining the ALV should be inter .....

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on the investment of the similar amount. The ld. Counsel for the assessee had argued that the rate of interest applied by the CIT(A) at 8.5% is excessive. In support of which, he gave various examples of investment in FDRs which faced the interest ranging from 5.52% to 7.5%. Copies of those certificates from the bank are placed at page No. 29 onwards of the assessee s paper-book. However, we find that those investments were for a very short period. In first case where interest rate was 5.5%, th .....

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s, in our opinion, the CIT(A) has rightly applied the rate of interest of 8.5%. We, therefore, do not find any justification to interfere with the order of the CIT(A), the same is sustained; and on this point, the ground appeal of Revenue as well as assessee are rejected. 11. Ground No.2 of the assessee s appeal is with regard to calculation of ALV in respect of one property for whole year while the property has let out only for the period of 6 months and 21 days. 12. We have heard both the side .....

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eriod, the rent received or receivable by the owner is to be considered. Therefore, it is evident that if the property is let out for the part period, the ALV is to be computed for the part period and not for the whole year. We, therefore, direct the Assessing Officer to assess the ALV of the property for 6 months and 21 days i.e. actual period for which the property let out. 13. Ground No.3 is with respect to charging of interest u/s 234B & 234C which is admitted to be consequential. We, th .....

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made by AO as notional rental income in absence of any stipulation of rent or tenancy failing to appreciate terms of agreement for security deposits with the occupant of the industrial sheds. Both the lower authorities simply followed adjudication of the previous year wherein addition was confirmed on hypothetical basis as against the theory of real income by ignoring Provisions of law. Ld. CIT(A) ought to have appreciated submissions of the appellant independently and deleted the addition made .....

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and submissions of the appellant. iii) Ld. CIT(A) has erred in law and on facts in confirming disallowance of ₹ 9,11,602/- made by AO treating revenue expenditure incurred as capital in nature. Both the lower authorities erred in not appreciating the fact that the expenses were incurred for conduct of the business more profitably and no new asset was acquired by the appellant. Ld. CIT(A) ought to have allowed the expenses incurred and quashed the order of AO. iv) Levy of interest u/s 234B .....

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ng let out by the assessee and treat the same as ALV and accordingly determine the income from house property. 16. Ground No.3 of the assessee s appeal was not pressed at the time of hearing; accordingly the same is rejected. 17. Ground No. 4 is with respect to charging of interest u/s 234B, 234C and 234D of the Act, which is admitted to be consequential. Accordingly, the Assessing Officer is directed to work out interest, if any, in accordance with law, after re-determining the income as per ou .....

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security deposits with the occupant of the industrial sheds. Ld. CIT(A) erred in confirming addition on hypothetical basis as against the theory of real income ignoring provisions of law. Ld. CIT(A) ought to have appreciated submissions of the appellant and ought to have deleted the addition made of notional rental income. ii) Ld. CIT(A) further erred in law and on facts in not appreciating contention of the appellant that if any ALV was to be added than it ought o have been computed as notiona .....

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ails were before both the authorities. Ld. CIT(A) ought to have granted the deduction instead of directing AO to verify the same. v) Levy of interest u/s 234B is not justified. vi) Initiation of penalty u/s 271(1)(c) of the Act is not justified. 20. The issue raised by the assessee in Ground Nos. 1, 2 & 3 is similar to the issue raised by the assessee as well as Revenue in their respective appeal for Assessment Year 2005-06. For the detailed discussion in paragraph 10 above, we direct the As .....

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y, in accordance with law, after re-determining the income as per our order. 23. No arguments were advanced with regard to ground No.6; accordingly, the same is treated as not pressed and rejected as such. ITA No.661/Ahd/2013 - Assessee s appeal : AY 2009-10 24. In this appeal, the assessee has raised following grounds:- i) Ld CIT (A) erred in law and on facts in enhancing assessable income from house property in respect of property A & B to ₹ 70,65,131/- in place of ₹ 35,51,691/ .....

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order for A.Y. 2008/09 ignoring the fact that AO in A. Y. 2008/09 adopted the method for determining ALV as per order of A.Y. 2005/06 that now became redundant with the passing of order for A.Y. 2005/06 by the Hon'ble ITAT. Ld. CIT (A) ought to have followed directions of the Hon'ble ITAT in determining ALP as per the judgment of the jurisdictional High Court. iii) Ld. CIT (A) further erred in law and on facts in confirming action of AO in computing the notional rent of total area of th .....

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